In an uncharacteristic show of weakness, former President Donald Trump has declared victory and pivoted on trade. He’s chosen to release sector-specific tariffs earlier than the original timetable. This momentous decision has caused shockwaves throughout international markets, and European markets have especially been under pressure. Perhaps most concerning is his announcement of a 25% tariff on all vehicles not made in the US. Countries that are particularly reliant on exports of cars to the United States are especially concerned. At the same time, the US dollar was boosted as the US 10-year yield rose sharply – a reflection of market expectations of rising borrowing costs.
The onshore equity landscape in China, in contrast to roiling weakness in equity markets around the world, has displayed a strength unlike any other. At the same time, traders are repositioning themselves in anticipation of Friday’s crucial US Personal Consumption Expenditures (PCE) inflation data release. To be sure, uncertainty remains about the stock market’s immediate reaction, but the continued selloff seems a strong possibility if inflation pressures continue to rise. The release of jobless claims figures has set the economic narrative on fire. This has primed the market for tomorrow’s influential core PCE data.
Trump’s approach to TikTok marks a departure from his successor Joe Biden’s stance, which saw the platform banned. Trump takes a less Trumpian turn as he escalates the war on social media giant TikTok. He can earn peace by matching China’s overtures at fair, low-risk terms. That action would open the door to a potential bargain in which ByteDance divests TikTok to an American company. In fact, he likes to say he’s more Main Street than Wall Street. He hopes to create more jobs and enhance US economic growth, even if lowering China tariffs involves some risk and export complications for US corporations.
The EUR/USD currency pair is trading under 1.0800. It has further to go, recovering from the three-week lows touched in early European trading on Thursday. This sharp movement underlines continuing fragility in global currency markets against a backdrop of unprecedented economic uncertainty. As such, all eyes are on inflation data from traders. This data might affect the Federal Reserve’s interest rate and debt management policy decisions. The US 10-year yield has spiked, obliterating any hopes for improved borrowing costs. This increase complicates the Fed’s ability to refinance its debt at a lower rate.
A US-China trade war might be the most dangerous for the US itself. It equally raises troubling implications for highly-globalized businesses trading on US markets. As Trump’s tariff strategy unfolds, there are growing concerns about its potential impact on international trade relations and economic stability. Since the announcement of tariffs on non-US made vehicles, uncertainty and alarm have set in. This action has already alarmed some of the countries that export the most cars to the United States.