The stakes are all the greater as recent U.S. economic data has surprised on the downside, leading the much-watched Atlanta Fed GDPNow tracker to swing to -1.5% from +2.3%. Tariffs are essentially a tax on U.S. consumers and analysts assume they would hurt consumption at a time when the States is not looking so exceptional anymore.
Just the threat of tariffs saw imports surge in January lifting the U.S. trade deficit to easily its highest on record. Normally that would imply a large drag on GDP from net exports, though analysts said much of the jump in imports could have been non-monetary gold which would not be counted in GDP.
Leaving aside the statistical quirks, markets are in no mood for more weak data and a miss on the ISM forecast of 50.5 later today would likely boost bonds at the expense of equities. Markets already have 73 basis points of Fed cuts priced in by January next year, when just a few weeks ago investors had thought one quarter-point cut might be a stretch.
It all makes payrolls on Friday even more pivotal, especially as Fed Chair Powell is speaking a few hours after the data is released.
Beijing's possible response to tariffs, should they go ahead, is also an unknown. The National People's Congress meets on Wednesday and is expected to announce 2 trillion yuan to 3 trillion yuan ($274 billion-$412 billion) in new stimulus, and possibly reprisals against any U.S. action
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