In the early weeks of President Donald Trump's tenure, the global economy faced a whirlwind of uncertainty as his administration embarked on a path of aggressive trade policies. One of his administration's primary focuses was the imposition of tariffs, and recent developments hint that the European Union (EU) may be next on Trump's list of targets. Meanwhile, China's position in this economic chess game appears more fortified than during the initial trade war, suggesting a complex landscape for future negotiations.
As market anxieties over Trump's tariffs begin to subside, particularly following the pause on levies targeting Mexico and Canada, the US Dollar shows signs of stabilization. On Wednesday, the USD risk premium has been easing, with the US Dollar Index (DXY) trading near 107.50. This comes as Chinese traders re-enter the markets post-Chinese New Year, though their return has driven equities into deep red figures.
Amidst these developments, Chicago Fed President Austan Goolsbee is slated to deliver a speech at the Chicago Fed's 31st Annual Automotive Insights Symposium, shedding light on the current economic environment. Meanwhile, the ADP Employment Change report for the private sector is anticipated at 13:15 GMT, with expectations of an increase in employment figures for January.
The genesis of the US-China trade conflict traces back to early 2018 when President Trump imposed trade barriers on China, citing unfair trade practices. This economic skirmish eventually led to the signing of the US-China Phase One trade deal in January 2020, which mandated significant structural reforms within China's economic framework. Despite a shift in leadership with President Joe Biden's administration, many tariffs have remained intact, with some additional levies introduced.
The possibility of the EU becoming Trump's next tariff target has generated considerable speculation. The impact of such a move could reverberate across global markets, amplifying existing tensions. While Trump's previous encounter with China demonstrated his willingness to leverage tariffs as a negotiating tool, analysts suggest he may have less influence now, given China's more robust economic standing compared to earlier years.
The market's reaction to these unfolding events has been notably mixed. The USD risk premium has shown signs of easing as investors digest news of paused tariffs on Mexico and Canada. However, the return of Chinese traders to global markets has contributed to significant declines in equities, painting a picture of volatility and apprehension.
Adding another layer to the economic narrative, the anticipated release of both the S&P Global and Institute for Supply Management's (ISM) US Purchase Managers Index (PMI) reports may provide further insights into the current state of affairs. These reports are expected to offer valuable data points, contributing to an increasingly intricate economic puzzle.
With tensions between the world's largest economies simmering in recent years, it is vital to consider how these dynamics impact employment and growth prospects domestically. The ADP Employment Change report is expected to indicate a rise in job creation for January, with forecasts suggesting an addition of 150,000 new jobs compared to 122,000 in previous months.
As these events unfold, attention will also turn to Chicago Fed President Austan Goolsbee's upcoming address at the Chicago Fed's Automotive Insights Symposium. Goolsbee's insights into the current economic landscape could provide clarity amid an otherwise tumultuous period.