Looking ahead to Jobless Claims and core PCE inflation

European markets are rather predictably on the back foot in the wake of Donald Trump’s announcement that all non-US made vehicles would be hit by a 25% tariff. Recent glee over the notion that Trump wouldn’t impose sector specific tariffs on 2 April have been entirely undermined by the fact that the President has instead opted to start announcing such measures ahead of that date. The fact that we have seen losses on both sides of the Atlantic does signal the risk of a trade war which would more than likely hurt the US economy and sentiment for the highly globalised businesses listed in the US market. The fact that Trump appears to favour efforts to boost jobs and US growth despite the likely damaging costs and export implications for US companies does highlight his preference for Main Street over Wall Street for the time being. For Europe, the prospect of a trade war with the US doesn’t help sentiment, with the reciprocal tariffs still yet to come into play. The weakness we have seen across the Korean KOSPI, Japanese Nikkei and now European indices does highlight the pessimism felt within those countries that are major exporters of cars into the US. However, the relatively muted size of those moves highlight the fact that much of the news has already been priced in over recent months.

Interestingly, the experience of stocks in China stands out as an outlier from the story of global weakness, with the Hang Seng continuing its push higher thanks to a more conciliatory approach from Trump as he takes aim at social media giant Tik-Tok. Questions over whether Trump had planned to utilise tariffs as a tool to leverage deals with countries around the world clearly comes into view with Trump’s claim that he could cut the tax on Chinese imports if it helps seal a deal that sees ByteDance sell TikTok to the US. This is a substantial shift from the stance under Biden that had seen the platform banned. Nonetheless, TikTok stands out as the one major social media platform that is not US owned, and thus the ability to bring that under the US umbrella brings a clear benefit as they look to maintain dominance in the tech space.

Looking ahead, the US tech-led slump seen yesterday highlights the fear that Trump’s trade war will bring a fresh period of economic suffering, with stagflation back on the agenda. The gains seen for the US dollar highlight the fact that we have also seen the US 10-year yield push higher, denting hopes that we would see borrowing costs decline, allowing the Fed to roll over their debt at a lower rate. The release of jobless claims figures today precedes tomorrow’s crucial core PCE release, with the equity selloff likely to take hold once again if we see inflation pressures surge.