President Trump finally announced reciprocal tariff plans yesterday, though once more his bark proved worse than his bite, as markets enjoyed a relief rally. US retail sales highlights today’s calendar.
Crack open the champagne, set off the fireworks, and throw a party – the UK economy unexpectedly grew by 0.1% in the final three months of 2024!
I jest, of course, though that does reflect the general vibe of some of the commentary that I read yesterday. While the fourth quarter GDP figures were, clearly, better than expected, they point to the pace of economic growth having remained anaemic, with momentum continuing to wane, and risks continuing to tilt firmly to the downside, not only as the spectre of further Government spending cuts in the spring looms large, but also as businesses are set to be battered by April’s sharp rise in National Insurance contributions.
Fundamentally, the UK economic backdrop remains one of stagflation, which in turn sees GBP-denominated assets remain highly unattractive, and leaves me keen to continue fading any upside in cable, with the economy still being far from ‘out of the woods’.
Elsewhere, yesterday, for most of the day, participants were largely in ‘wait and see’ mode, with focus yet again falling on the reciprocal tariffs that President Trump has long-promised to announce.
That announcement, after almost a week of delay, finally came yesterday, with Trump signing a Presidential memorandum (importantly, not an executive order), to bring in said measures, albeit with a delay, as said measures won’t commence until the start of April. The threat of those reciprocal tariffs, plus apparent upcoming announcements on further tariffs on cars, chips, and pharmaceutical products will thus hang over proceedings like the ‘sword of Damocles’ for a while yet.
On the other hand, there being so much time before tariffs kick in, also gives plenty of time for negotiations with countries around the world, to prevent said tariffs being implemented at all.
In any case, it seems that Trump’s bark has once again proved worse than his bite when it comes to the matter of trade, and tariff impositions – the reciprocal tariffs won’t come for some time, while the President also noted that “a lot” of countries’ tariffs are likely to stay the same as they are now.
That doesn’t, however, stop this now rather tiresome merry-go-round of headlines, nor the accompanying yo-yo price action, as participants grapple with whatever the latest story is, and try to discount it. As I mentioned some time ago, discounting a future policy path here is almost impossible, as oftentimes with the Trump Administration one simply doesn’t exist – until the next ‘Truth Social’ post signposts it, of course.
In any case, this creates choppy trading conditions, and higher vol, as was seen yesterday. The market reaction to softer-than-expected & delayed trade measures was the predictable one – equities rallying across the board; the dollar sliding as other G10s gained ground; and, Treasuries rallying across the curve as inflation expectations re-rated lower, with benchmark 10-year yields now back where they were pre-CPI on Wednesday.
As you may have figured by now, this all boils down to there being a hell of a lot of noise, and precious little signal, among the price action at present. My stance remains bullish USD, bullish equity, and bullish gold too. Though that, on paper, seems a counter-intuitive mix, ongoing US economic outperformance should see both the buck and stocks continue to press higher, albeit in choppy fashion, while lingering haven demand should see the yellow metal continuing to shine as well.
The look ahead
A couple of notable items on the docket today, before we can all retire from our desks to enjoy the weekend.
This afternoon’s US retail sales figure highlights proceedings, with headline sales set to have slipped 0.2% MoM last month, though the all-important control group metric, which reflects the basket of goods that feeds into the GDP report, is seen rising by 0.3% MoM. I am reminded, though, of the old adage to ‘never bet against the US consumer’ when glancing over these forecasts.
Elsewhere, today, industrial production figures are also due from the States, with production seen rising 0.3% MoM in January, while the 2nd estimate of Q4 eurozone GDP should be unrevised, pointing to stagnation as the year got underway.
