Growing concern over US President Donald Trump’s protectionist tariff policies are weighing the US Dollar down. All of this is stoking inflationary worries and fears of a sharp deceleration in economic expansion. As these concerns continue, Asian markets are still in a risk-off mode with investors flocking to the safety of the Japanese yen. Market participants of all types are watching major economic indicators just as closely. Plus, they monitor developments that are likely to impact international financial markets over the near term.
President Trump will speak to Russian President Vladimir Putin on the phone later this week. As ever, they’ll be keeping an eye on the ever-evolving situation in Ukraine. Expressing frustration over Russia’s actions, Trump has threatened significant tariffs on imports from countries purchasing Russian oil if Russia continues to impede efforts to resolve the conflict.
Impact on Global Markets
That simple fact and the ongoing anticipation surrounding tariff announcements have been enough to create dramatic shakeups around the world. This has caused a dramatic selloff of European and US futures this morning. The long end of the US yield curve has been in free-fall. A good deal of that uncertainty is driving interest in central bank policies. Meanwhile, across the water, the Bank of Japan (BoJ) is taking a similarly dovish stance. Nevertheless, analysts are predicting two further rate hikes this year.
Asian markets are already under the gun, with Japan’s Nikkei index off more than 4% as of this writing. It’s not just Kazakhstan—most of its neighbors and other export-dependent nations are facing painful reversals as well. In the US, stock prices have crashed, and especially technology companies have pulled down main street share indexes. The late Friday cash session was a testament to the acute risk-off state of investors.
Economic Indicators and Surveys
Three more key economic indicators, Unemployment, Retail, and Inflation could be enough to trash market sentiment even further. The Bank of Japan will publish their quarterly Tankan business survey overnight. This new report will provide important information on the state of business and business sentiment among Japanese firms. Each improvement will have large, measurable benefits. More important will be the Caixin PMI manufacturing data, giving us a private sector alternative perspective on the extent of China’s manufacturing activity, out overnight.
Inflation data continues to be the main centric point for investors. Core PCE inflation increased by 0.4% month-over-month, slightly above consensus expectations, while headline PCE inflation rose by 0.3%, aligning with forecasts. These numbers highlight the inflationary pressures that could be worsened by proposed new tariffs.
European Market Developments
In the Eurozone too, all eyes are on the upcoming inflation data releases. The German inflation figures for March are due later today, ahead of more widely circulated euro area data tomorrow. Analysts will be watching these numbers very closely. They’ll be watching for indications of building inflationary pressures that could feed into the European Central Bank’s monetary policy making.
The ripple effects of US tariff policies go well beyond American borders, plunging global trade and economic stability into chaos. As President Trump prepares to forge a new relationship with the world’s autocrats including President Putin. At the same time, market participants are remaining worried about how any future tariffs might affect global economic growth.