Market Commentary
We start the week with another Monday sell-off after prospects for a trade war turned more into reality over the weekend. Donald Trump announced tariffs on Canada, Mexico, and China while warning that European levies are coming. The news caused a big jump in the dollar as the foreign currencies sold off.
Traders are now assessing the broader implications, from geopolitical tensions to inflation and economic growth. The prevailing view among investors is that higher tariffs will push companies to raise prices, potentially fueling inflation and curbing consumer spending.
According to Bloomberg Economics, tariffs on the U.S.’s three largest trading partners will impact approximately $1.3 trillion in trade, accounting for 43% of U.S. imports and nearly 5% of GDP. Historical data from Trump’s first term suggests that similar tariffs could shave 1.2% off GDP growth while adding roughly 0.7% to core PCE inflation.
Uncertainty remains high, as the duration and scope of these tariffs are unclear. However, Trump told reporters last night that he will speak with Canadian Prime Minister Justin Trudeau this morning. Right before hitting send on the newsletter, we learned that Mexico announced that tariffs would be delayed for a month, following a call with President Trump. This highlights the ongoing uncertainty, not just for the week ahead, but even for today.
Meanwhile, this morning’s ISM Manufacturing Index came in at 50.9, up from last month’s 49.3, signaling expansion. However, this and other economic data scheduled for release this week may take a backseat if tariffs remain the dominant market driver. Later in the week, we’ll get key reads on the services sector and labor market, with expectations for 175,000 new jobs – down from last month’s blockbuster 256,000.
Like last week, there will be much to digest and more volatility. The VIX has moved higher, signaling more caution in sentiment. Still, it is below recent highs signaling a small chance that this is not the beginning of an all-out trade war.
Economic Releases This Week
Monday: ISM Manufacturing, Atlanta Fed President Bostic Speaks, Auto Sales
Tuesday: Job Openings, Factory Orders, San Francisco President Daly Speaks
Wednesday: ADP Employment,U.S. Trade Deficit, Richmond Fed President Tom Barkin Speaks, ISM Services, Chicago Fed President Goolsbee Speaks
Thursday: Initial Jobless Claims, U.S. Productivity, Dallas Fed President Logan Speaks
Friday: U.S. Employment Report
Stories to Start the Week
In other trade news, Luka Doncic was traded to the Los Angeles Lakers in one of the most shocking trades in NBA history.
Elon Musk said that he and Trump were in the process of shutting down the U.S. Agency for International Development.
The FAA will restrict helicopter traffic around Ronald Reagan Washington National Airport.