Blink
Just as the President had done with tariffs on Canada and Mexico, the manifestation of Trump’s liberation day has been delayed. Markets have not taken the news quietly with US stocks soaring. The S&P closed 10% in the green yesterday with FTSE100 futures suggesting a 5% gain versus the close. Trump hasn’t rolled over on tariffs altogether. This briefing is a summary of what has happen, what’s changed and what it means for markets.
POTUS has announced a 90-day pause to the single country tariffs he announced last week. Instead of the punitive country specific tariffs, a universal 10% tariff will apply. This comes just hours after the new regime came into force. Hard luck for the UK, you might think, which was due to face 10% anyway. Despite that, even UK assets, not least GBP and UK equities, have still rallied thanks to a more sanguine growth backdrop on the news. The President has justified the pause based upon the supposed willingness of nations to do deals with him. That is, he claims, with the exception of China whose retaliatory tariffs he appears to find unsatisfactory. Instead of a hiatus their tariff threshold has been raised to 125%.
As some of the dust settles between episodes of continuing volatility, it is clear that currently the risk the market is facing is one to growth. Note a risk to growth is not the same as a financial risk or systemic risk that has been known to perpetuate the kind of crises that many are keen to draw a parallel to at this time. Stocks are more sensitive to growth shocks than the wider economy. The stocks we see traded on bourses worldwide are companies whose fortunes are intrinsically linked to international demand and terms of trade. Their performance in this instance is not necessarily a good indicator of the kind of risk seen in other markets.
Discussion and Analysis by Charles Porter
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