The announcement of the Crypto Strategic Reserve by US President Donald Trump marked a significant moment in the financial world, quickly becoming a "buy the rumor, sell the news" event. With new tariffs imposed by the Trump administration, tensions have risen, particularly with Canada and Mexico, as well as an additional 10% tariff on Chinese goods. In response, Canada has devised a plan targeting $155 billion worth of US goods with their own tariffs. Meanwhile, the US Treasury curve is showing signs of distress, with declines evident from 3-month bills to 5-year bonds.
The economic landscape is further complicated by the falling US GDP, as indicated by the Atlanta Fed’s GDPNow figure for Q1, which reveals a decline of 1.5%. Observers are increasingly predicting a downturn in the US economy, exacerbated by the weight of tariffs impacting the stock market. Goldman Sachs CEO David Solomon acknowledged the risk of recession, stating that while the chance is "small, it's not zero."
“The president firmly believes that there are imbalances with respect to how trade exists, and he has a strong point of view that he wants to level the playing field aggressively,” – Goldman Sachs CEO David Solomon.
In retaliation to US trade actions, Canadian Prime Minister Justin Trudeau announced that Canada's tariffs would persist unless US measures are lifted. He further emphasized that discussions are underway to explore several non-tariff measures should the situation fail to resolve.
“Our tariffs will remain in place until the US trade action is withdrawn, and should US tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures,” – Canadian Prime Minister Justin Trudeau.
Mexico has also pledged to retaliate against the US tariffs. Mexican President Claudia Sheinbaum confirmed that her government plans to implement similar tariffs on American merchandise. Additionally, China's response includes blacklisting about 20 US firms from conducting business within its borders and launching an antitrust case against Alphabet (GOOGL).
The financial implications of these geopolitical maneuvers are evident in various sectors. The stock market is feeling the strain, with notable declines observed across major indices. Goldman Sachs has experienced a 6% slide in its stock value, while other financial institutions have reported losses exceeding 5%.
Moreover, the cryptocurrency market is witnessing a downturn. Bitcoin, Ethereum, Solana, Ripple, and Cardano continue to decline for the second day following an earlier upsurge on Sunday.
Despite these challenges, some sectors are showing resilience. While short-term yields on the Treasury curve are falling, longer-term bonds, such as 10-year and 30-year notes, are experiencing rising yields. This reflects a complex picture of investor sentiment regarding future economic prospects.
In a move aimed at future growth, JPMorgan has partnered with Starwood Property Trust (STWD) to provide a $2 billion loan for constructing a massive 100-acre data center in West Jordan, Utah. This demonstrates confidence in certain sectors despite broader economic uncertainties.
The situation remains dynamic as countries navigate these challenging economic waters. Approximately half of US nickel imports come from Canada, highlighting the interconnected nature of international trade and the potential ripple effects of these tariffs.