The financial landscape in the United States braces for significant changes as President Trump prepares to announce new tariffs on imported products, effective tomorrow. This move is expected to provoke retaliatory tariffs from each of the countries targeted, increasing tension and uncertainty in the global trading system even more. Judging by the equity markets, this is exactly how the business world thinks about this new development. Investors are nervous, particularly with key economic reports due out soon.
Alongside the tariff announcements, the Personal Consumption Expenditures (PCE) rates for February have come out. This data gives us a glimpse into consumer spending trends and inflation, two key indicators the Federal Reserve examines when making monetary policy decisions. At the same time, all market participants are awaiting the release of the U.S. employment report for the month of March, due out on Friday. This report is likely to further prove relieve rising expectations of declining Non-Farm payroll figures with the unemployment rate held flat. Investors are concerned about these projects’ ability to move the needle on macroeconomic growth.
Tariff Announcements and Market Reactions
President Trump’s upcoming announcement on tariffs is already making waves, and is sure to make even bigger ones across the financial markets. The tariffs aren’t aimed at all countries. Their unintended consequence nightmare scenario is that it could trigger retaliatory tariffs on US products. Yet as countries react in kind to protect their own economic interests, the specter of a slippery slope towards escalating trade tensions becomes a real possibility.
The unknowns associated with these tariffs could prove to be a drag on US equity markets. In short, investors are still trying to process the volatility trade wars would entail, assuming no outright trade wars. Broad sweeps of tariffs would only result in increased costs for American companies and consumers. This increase will inevitably slow down economic growth.
Even before that announcement—which likely comes next week—equity markets are already making bets based on that news. Hundreds of other firms are in the process of figuring out just how these tariffs will eat into their profits. Further, some analysts are forecasting a painful crash in the stock market as the consequence. Investors are watching hot on the heels of what’s been happening. They are especially concerned with industries that will be most affected by increased costs from imports.
Employment Data Expectations
Compounding that uncertainty is the fact that the employment situation report for March will be released next Friday. Stock futures all opened lower as analysts are now predicting a change in Non-Farm payrolls down to 135,000 from 151,000 in February. This reversal could be a harbinger of a cooling job market, and fears of recession have already begun to creep in.
The unemployment rate, meanwhile, will likely hold steady at 4.1%. Any initial weakness in the employment data would surely impact the direction that Federal Reserve policymakers intend to take monetary policy. If the report really does show a tightening in the labor market, it’ll increase skepticism about any further excursions in monetary policy easing.
Generally softer earnings growth is expected to ease slightly to 3.9% y-o-y from March’s 4.0%. This cooling in wage growth and its resulting drag on consumer purchasing power would further weigh on broader economic performance.
Implications for Monetary Policy
The Federal Reserve is about to start doing monetary policy differently. This change might be due to the recent tariff announcements and the most recent employment report. If the data continues to indicate a tightening labor market, fears of persistent inflation should surge. This should encourage policymakers to reassess their approach of aggressively raising interest rates.
Market analysts indicate that the Fed may face increased pressure if employment figures point towards a more robust economy than previously anticipated. Weak data can fuel hopes for early rate reductions. Such measures would be welcome steps to jumpstart a languishing growth in an even more contentious trade environment.
With all these changes taking place, Notesco Limited has been an essential partner in the world’s financial markets. The Company is registered in the Republic of Bermuda under registration number 51491 and trades under the trade name IronFX. The firm’s deep strategic understanding of market shifts is likely to be an enormously valuable asset to investors as the economy moves through this time of tumult.