Trump’s tariffs update
Donald Trump’s update on “reciprocal” tariffs included new tariffs for fourteen countries (though the rates are the same as or not much different from those announced on April 2), most notably Japan and South Korea – but not the EU – and an extension of the deadline for the imposition of “reciprocal” tariffs to August 1st, which allows for negotiations (and uncertainty) to continue and trade agreements/deals to be struck over the next three weeks or so. In FX, the euro and sterling have recovered from lows against the dollar yesterday of around $1.1685 and $1.3575 respectively to trade at about $1.1760 and $1.3640 this morning, while EURGBP is not much changed from yesterday morning at around £0.8620.
US stocks ended in the red post the tariffs update, although off their lows, with the S&P 500 shedding around 0.8% on the day. Asian equity markets have been resilient overnight though, despite the threat of increased tariffs for some countries, with most indices in positive territory, while European stocks have opened with modest gains this morning after closing 1% higher yesterday. Notwithstanding the fall in US stocks, US bond yields continued to grind higher with 10-year yields up another 3-4bps yesterday to just shy of 4.40%, bringing the post-US payrolls increase to 15bps, while European yields are edging higher at the start of play today.
ECB member Centeno says “undershooting (the 2% inflation target) is the main risk now,” related to both weak economic growth in the Euro area and the appreciation of the euro exchange rate, though he was circumspect about the extent and timing of any further cuts in interest rates. On the exchange rate, he does note that “if the Euro area economy really does not have the strength to support the appreciation of the euro, there will be corrections or at least some attenuation of it.”
Former Fed member Kevin Warsh, who’s mentioned as a possible successor to Jerome Powell as chair of the central bank, says interest rates should be lower, noting that “tariffs are not inflationary,” while also adding that the Fed needs “regime change,” including new personnel (all of which will be music to the ears of Donald Trump).
Looking to the day ahead, it’s relatively quiet in terms of economic data with the small business optimism index, consumer credit, and the New York Fed’s latest inflation expectations survey due in the US.