- The US president confirmed an automobile tariff starting this week.
- Trump’s tariffs on China, steel, and aluminium have ignited trade wars.
- This week, the US will release its crucial monthly employment figures.
Equities rebounded from their lows on Monday but remained fragile ahead of more Trump tariffs. At the same time, market participants look forward to crucial US monthly employment data for clues on Fed policy.
Equities weekly change (Source: Bloomberg)
Equities collapsed last week to end the quarter down as it became clear Trump will proceed aggressively with his tariff campaign. The US president confirmed an automobile tariff starting this week that will affect major car exporters like the Eurozone. Additionally, the president has promised a reciprocal tariff that will affect almost all countries that trade with the US.
Already, Trump’s tariffs on China, steel, and aluminium have ignited trade wars. The Eurozone, Canada, and China have suffered the most. However, they have responded with counter-tariffs that have dimmed the outlook for the US economy. Experts have downgraded growth forecasts, and investors have dumped risky assets due to recession worries. As a result, cash has flowed into safer assets like the yen and gold. At the same time, inflation expectations have soared, indicating a high likelihood of stagflation in the US.
A period of poor growth and high inflation will be difficult for the Fed, which must balance the two. Data last week came in above estimates, briefly easing recession worries. Business activity in the US improved significantly due to a surge in the services sector. Meanwhile, the Final fourth quarter GDP showed an expansion of 2.4% compared to estimates of 2.3%.
The data eased pressure on the Fed to lower borrowing costs. Moreover, it gives policymakers time to assess the impacts of Trump’s tariffs on growth and inflation. However, the upbeat data was not enough to convince investors to buy equities. Big names like Tesla and Nvidia led the collapse. Instead, most preferred the safer Treasuries. As a result, yields collapsed, sending the dollar lower.
This week, market participants will wait to see which countries will suffer tariffs and how fast they will be implemented. Additionally, they will watch the responses from these nations. Other than trade policy, the US will release its crucial monthly employment figures. Moreover, traders expect speeches from Fed policymakers, including Powell. These will shape the outlook for Fed policy. However, at the moment, policymakers are more focused on Trump’s moves than on data.
