Stocks take Trump’s latest tariff outburst in their stride
Markets began the week on a wobbly note but the impact of the latest steel tariff announcement has been faded. Instead, investors should focus more on the macro data that is released this week.
Are markets ignoring Trump’s latest tariff outburst?
It looks like all the ‘TACO’ talk (Trump Always Chickens Out) got to the US president last week.
His Friday announcement of 50% tariffs on steel, and direct criticism of China, suggests that Mr Trump has spent some time pondering this view of him in the global media and in financial markets, and has decided he needs to talk tough.
But it looks like markets are relatively unfazed by the performance. After all, since mid-April and the first tariff pause we have seen a series of climbdowns by the administration that suggest they are not particularly serious about a global tariff war.
Trump and his team have seen what happens when they provoke volatility in markets, and it seems that they don’t like the result. Following this logic, we can expect fresh reports of talks with China and others in order to avoid further dramatic price movement.
May data starts to come through
However, there is something more important to worry about, and that is the flow of economic data covering May that is beginning to arrive, with today’s US ISM manufacturing purchasing managers index (PMI) being the first.
Now, we will start to get a real impression of how global economies are faring post-2 April ‘Liberation Day’. Stock markets have rallied strongly from their lows, and some, the Dax most notably, have recouped all their losses.
If data begins to show that economies are weakening, will stocks face a fresh downturn? It may well be a question of how big the deterioration is, or whether it is also accompanied by rising prices that will signal that a period of stagflation (i.e. no growth but rising prices, a nightmare scenario for central banks) is ahead.
This is not to suggest that a full-blown recession is bound to occur, but it remains a definite possibility. Short to medium term investors and traders need to bear that in mind, but those with a longer horizon should be more focused on continuing with their regular drip feeding of capital into financial markets.
What to watch this week
While earnings are thinning out, this week is full of macro data to watch. The full details are on our Week Ahead page, but the US ISM PMIs are bound to be interesting, as will the monthly payrolls data that is released on Friday. The European Central Bank also meets, and is expected to cut rates by 25 basis points.
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