- Equities have remained mostly resilient since Trump started announcing higher tariffs.
- Market participants are eagerly anticipating the US earnings season.
- Data on Tuesday revealed that US inflation was hotter than expected at 2.7% on an annual basis.
Equities edged higher on Monday as sentiment improved on hopes of more trade deals before the August 1 deadline. However, market participants remained cautious ahead of crucial US inflation data and the start of earnings season.
S&P 500 (Source: Bloomberg)
Equities have remained mostly resilient, hitting new highs despite Trump’s tariff threats. The impact of his threats has gone down significantly. Experts believe this is a sign that investors are more confident the economy will remain resilient.
At the same time, Trump is more lenient this time, giving countries more time to negotiate trade deals. However, beneath the surface, tensions are simmering. Trump announced a 50% tariff on Brazil. The country’s top officials have stated that they are prepared to retaliate if the tariffs are implemented.
Meanwhile, over the weekend, the US president announced a 30% tariff on the European Union and Mexico. Meanwhile, the EU has accused the US of resisting a trade deal despite prolonged talks. Therefore, they will be ready to respond if the tariffs take effect.
The new August 1st deadline has also created a rush to sign deals. However, if there are no deals by this time, trade tensions might escalate into trade wars. Such an outcome would darken the outlook for the global economy. At the same time, it would dampen risk appetite, hurting equities.
Meanwhile, market participants are looking forward to the US earnings season. Companies will start reporting on Tuesday. Upbeat earnings will further boost stocks. On the other hand, if reports are poor, equities might pull back.
Meanwhile, investors are concerned about the independence of the US central bank. Trump continued his attacks on Fed Chair Powell, calling for his resignation. He noted that interest rates should currently be as low as 1%. However, Powell has maintained a cautious tone, preferring to watch incoming data before deciding to lower borrowing costs.
Data on Tuesday revealed that inflation was hotter than expected at 2.7% on an annual basis. Meanwhile, the monthly figure came in line with expectations at 0.3%. Still, this was enough to show that Trump’s tariffs have boosted price pressures. It might force the Fed to continue weighing between growth and inflation.
