As Donald Trump assumes the presidency, significant shifts in economic policies and market reactions are underway. Government spending has nudged upward from 2.9% to 3.0%, marking a subtle yet notable shift in fiscal priorities. Meanwhile, macroeconomic data is now viewed as second-tier amidst the focus on Trump's inauguration and its implications for global trade dynamics. Notably, Trump's admiration for tariffs is evident, as he wields them as a strategic tool on the international stage. Americans, however, appear resistant to paying exorbitant prices, illustrated by their unwillingness to shell out $35 for toilet paper.
The transition of power has also seen outgoing President Joe Biden issue pre-emptive pardons to individuals Trump had targeted for potential reprisals related to the January 6 hearings and other matters. In the financial markets, the euro has already lost more than 62% of its gains from the previous day, while Bitcoin prices corrected sharply following Trump's swearing-in. Data from Santiment highlights a surge in greed and fear of missing out (FOMO) among Bitcoin traders post-inauguration. The dollar also faced challenges, depreciating against multiple currencies due to various factors.
In line with his economic strategy, Trump has initiated a comprehensive investigation into U.S. trade relationships through a memorandum. Countries like China, Canada, and Mexico find themselves in the immediate firing line of Trump's aggressive trade policies. Bitcoin's price, however, managed to stabilize above $102,000 on Tuesday after hitting an all-time high of $109,588 the previous day. In parallel, gold has gained bullish momentum, trading at its highest level since early November above $2,720 on Tuesday.
"Although Trump is a big fan of tariffs as an economic policy, he also likes using them as a club. At present, the club is being used to get Canada to up its spending on controlling the fentanyl trade, as well as stopping the dozens of people annually who enter the United States covertly from across the U.S.’s northern border." – A normally sedate Canadian bond analyst.
The prospect of an Opening Day Tariff War with Canada has been at least temporarily delayed, offering a momentary reprieve in what could escalate into broader trade tensions. Mélanie Joly, Canada's foreign minister, recently visited Washington to engage with key Republican figures in an effort to prevent or mitigate a potential trade war. Her discussions with influential senators aimed to underscore the adverse effects such a conflict could have on consumers and employment on both sides of the border.
"Mélanie Joly, Canada’s foreign minister, who spent Thursday and Friday in Washington, met with a slew of Republicans to make her country’s case, including Senator Lindsey Graham of South Carolina, Senator Jim Risch of Idaho, and the Senate majority leader, John Thune of South Dakota." – The NYT
"Ms. Joly said she hoped her outreach to senior Republicans would persuade them to intervene to avert or limit a trade war and its negative impact on consumers and jobs on both sides of the border." – The NYT
Trump's administration has tasked the Commerce Department, the Treasury, and the U.S. Trade Representative with evaluating the "economic and national security risks" posed by the trade deficit, urging them to develop responsive policies. This strategic move reflects Trump's commitment to reshaping America's trade relationships in pursuit of greater national interests.
"This is exactly the policy focus we should expect for the next four years. Governing is hard, grifting is easy." – A normally sedate Canadian bond analyst.
In financial markets, bond yields have seen significant fluctuations amidst these developments. The rate on 10-year notes has surged over a percentage point within four months, nearing the 5% mark—a level last briefly reached in 2023 and unseen since before the global financial crisis nearly two decades ago.
"The rate on 10-year notes alone has soared more than a percentage point in four months and now is within sight of the 5% barrier last breached briefly in 2023 and otherwise not seen since before the global financial crisis nearly two decades ago." – Bloomberg
These changes have sparked concern among market observers, with historians noting a resurgence of so-called bond vigilantes—investors demanding higher yields due to fiscal concerns—as a potential harbinger of economic instability.
"The bond vigilantes are waking and it’s not a good omen:” – Historians
Canada remains steadfast in its approach despite Trump's trade threats. With support from international allies, Canadians exhibit resilience and determination to navigate these challenging economic waters.
"The feared Opening Day Tariff War On Canada has been at least delayed." – A normally sedate Canadian bond analyst.