Tariff uncertainty still runs deep

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist 

A relatively quiet day on Monday with some key markets closed saw Asian and European stocks extend their recent rebound but Wall Street stumble after U.S. President Donald Trump's latest tariff salvo despite more signs of underlying strength in the U.S. economy.

U.S. stocks have bounced back strongly from their post-'Liberation Day' lows a month ago. But is this general positivity justified? More on that below, but first, a round-up of the main market moves.

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World markets are in limbo, with investors hoping for concrete progress in Washington's bilateral trade deal talks with dozens of countries but wary that the rally in risk assets over the past month could be losing momentum.

President Trump's decision on Sunday to slap 100% tariffs on foreign-made movies brought into the US was a sign that perhaps he isn't turning quite as conciliatory as investors had hoped. Or it may be a reminder of how erratic his tariff policymaking agenda still is.

Either way, it was enough to help snuff out Wall Street's nine-day upswing on Monday, in contrast to key markets in Asia and Europe that maintained their longest winning streaks in years. Will they run out of puff on Tuesday?

It might be a low bar, but there were two developments over the weekend that could help investors keep a 'glass half full' view of markets - Trump pledged not to fire Fed Chair Jerome Powell, and Japan's finance minister Katsunobu Kato said Japan has no plans to threaten to sell its $1 trillion-plus holdings of U.S. Treasuries in trade talks with Washington.

And Treasury Secretary Scott Bessent on Monday repeated his belief that tariffs, alongside the adminsitration's tax cuts and deregulation agenda, will drive growth to near 3% this time next year. 

The U.S. economic data is mostly coming in on the stronger side of expectations, giving the Fed more breathing space, although how much longer that lasts remains to be seen. 

Some Asian currencies are clocking their biggest gains in years, and on Monday car giant Ford pulled annual guidance. Tariff uncertainty is still running deep.

Wall Street's recent rebound from its April lows suggests equity investors are pricing in a benign outlook for the U.S. economy, which contrast starkly with the more ominous signals coming from the oil, gold and fixed income markets. Is this justified confidence, or dangerous complacency?

If you had turned off all communications on April 2 and logged back on today, you would find the S&P 500 roughly unchanged, with no sign of the 15% slump suffered in the days immediately following President Donald Trump's April 2 tariffs announcement.

The S&P 500 has risen nine days in a row through May 2, its best daily winning streak in 21 years. Meanwhile, the "S&P 493" - the broad index excluding the "Magnificent Seven" tech megacaps - is flat for the year to date, also remarkable given the tumult over the past four months.

Contrast that with other markets.

Oil on Friday had its lowest close in four years and is down 25% on a year-on-year basis. While this partly reflects calls for accelerated output hikes by OPEC+, the macroeconomic signals flashing here are pretty clear: weak demand, sluggish growth and disinflation.

Gold, meanwhile, is up 25% this year and still above its "Liberation Day" close, despite drifting down from its recent record high of $3,500 an ounce. While this is not an indication of heightened disinflation fear, it is a sign of elevated fear overall. Bullion's allure as the world's premier safe-haven asset has rarely been stronger.

And what of U.S. Treasuries? The two-year yield has rebounded in recent days but is still 40 basis points lower this year, and rates traders are still anticipating at least three quarter point cuts from the Federal Reserve this year. Both are pricing in meaningful economic slowdown.

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