Trump's Tariffs obscures bond and equity market risks - for now.
Trump's trade restriction deal is still a work in progress, but in typical Donald style it's all part of a bigger negotiation play, and possibly directed as much at the rust belt which helped him into the White House in the first place than foreign nations dumping steel on the US market.
We're not sure his change in US tariff policy (now clearly aimed at China and Asian imports, although that's gone unsaid) will necessarily turn around that section of the US economy, which is also facing other significant structural and long term issues. However, whilst not agreeing with his economic logic, one has to give Donald the politician points for keeping to his electoral promises.
We also noted that when it comes to trade and tariffs, he's now saying the Mexican's are his good friends, along with Canada. How much steel and aluminium (or even aluminum) is required to build the WALL?
Meanwhile the bond/equity market two step has receded from the front pages* of all but the financial press, but it is still there. As per this report from HSBC's Steven Major this morning:
"Our view is that the correction in risky asset markets (equities) should be taken as a warning of what could follow," Major wrote in the report. "Historical correlations between asset classes are unlikely to be stable as the global economy adjusts for the normalisation of unconventional monetary policy."
We've written about this for a while, but this chart from Deutsche puts it all in simple terms. As they say, a picture paints a thousand words...
This chart was produced before Trump's announcement on tariffs, but the key boxes are "An unfavourable rise in interest rates" and "Lower stock prices". Don't ignore the message!
In breaking news it has been announced that Donald Trump and North Korea's Kim Jong Un will meet in May - refer above to Trump's negotiating style rather than political skills. There will be plenty of claims to bringing this historic meeting about, firstly from Trump himself by ramping up both rhetoric and sanctions, but also China for the pressure they've brought to bear behind the scenes. If nothing else it will put two of the most distinctive global haircuts into the same space at the same time.
*So too, thankfully, has Barnaby's maybe baby and the PM's "bonk ban". The wider world must be wondering what life down under is all about.
