Hello there,
No one knows exactly how U.S. President Donald Trump's protectionist agenda will filter through the real economy. As my colleague Mike Dolan puts it in a column today, the real tariff uncertainty starts now.
But investors are clearly betting that things aren't going to be good and if the market moves today are anything to go by, they've decided that the United States is one of the biggest losers.
Wall Street's major indexes plunged on the open with the S&P 500 losing over 3% and the Nasdaq down 4.5% - those are the sort of move you only see in a full-throttle crisis (think COVID in 2020 or the bursting of the dotcom bubble in early 2000), and way more than peers in Europe.
But it's the dollar's slide that is particularly telling. The world's No.1 reserve currency typically rallies when U.S. stocks drop but both it and the S&P 500 stock index have fallen recently. That's a sign that the world's traditional place of safety is being shunned by investors for now.
The day after Trump's "declaration of economic independence" the greenback was trading down 2% against the euro and at six-month lows against the yen and the Swiss franc, the other traditional safe-haven currencies.
Deutsche Bank warned of a risk of a crisis of confidence in the U.S. dollar, saying major shifts in capital flow allocations could take over from currency fundamentals, and currency moves become disorderly.
An acceleration in the dollar's decline would be unwelcome for global central banks, already dealt a curveball by tariffs.
With recession risks climbing, investors are currently adding to bets for at least three Fed rate cuts this year, even though tariffs will surely cause U.S. inflation to spike sharply.
Drugmaker stocks were a rare bright spot on Thursday after Trump spared pharmaceutical products in his Rose Garden address. But executives and analysts say the reprieve is probably only temporary. Indeed, investors are bracing for a barrage of corporate profit warnings across sectors in the coming weeks as c-suites crunch the numbers on those tariffs.
You don't need a calculator to conclude that a tariff rate of 54% on Chinese imports to the United States and a welter of high tariff rates across Asia, impacting China's extended supply chain, is bad news for Beijing.
We look at how a trade war complicates China's efforts to escape its deflation cycle on the latest episode of Reuters Econ World. Listen here.
And speaking of the pod, one of my favourite episodes, "Swiftonomics", has been nominated for a Webby Award in two categories. In the episode, European Central Bank correspondent Balazs Koranyi and I look at whether or not the Taylor Swift economy is just a blank space in Europe. Take a listen and if you like what you hear (and who doesn't love sequins and substitution effects, right?) vote for us here and here.
As always, I'd love to hear from you by hitting reply on this email or finding me on LinkedIn.
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