Morning Bid: The art of hogging headlines, using tariffs
It looks increasingly clear that for President Trump, tariffs are mainly a convenient means of dominating the news cycle and staying in the headlines. Not for him are months of tortuous, complex trade talks aimed at a win-win outcome. Why do that when you can tweet a 30% tariff threat on a Saturday morning and own the news for an entire weekend?
Figuring this is mostly a negotiation tactic, markets have eased only modestly in Asia. S&P 500 futures are off 0.4% or so while most regional indices are down only slightly.
The euro is down a fraction, but European futures have lost a larger 0.7% as it's hard to see how Brussels could ever satisfy Trump's demands, in part because it's not clear what he wants. EU tariffs on U.S. goods are already so minor there is little to cut, while granting exemption to domestic taxes and regulations is politically fraught.
It's also possible the market's stoic reaction will prove to be too clever by half. Investors figure Trump really, really wants to avoid another market melt-down, so will ease up on tariffs when the crunch comes. But with U.S. stocks hitting record highs and bond yields well off their peaks, Trump could be forgiven for thinking markets are now on his side and realise how "beautiful" tariffs really are.
At any rate, it seems certain that the effective U.S. tariff rate will be akin to the Smoot-Hawley levies that contributed so much to the Great Depression and we'll get to see if Trump is right and the vast majority of professional economists are wrong.
They don't yet look to have magically solved the U.S. trade deficit. China today reported its surplus with the U.S. rose 48% in June to almost $27 billion, while its overall exports beat forecasts.
Trump also found time to stoke his feud with Fed Chair Jerome Powell, saying it would be "a great thing" if he stepped down - eight years after he nominated Powell to the role.
Worryingly, White House economic adviser Kevin Hassett over the weekend warned Trump might have grounds to fire Powell because of renovation cost overruns at the Fed's Washington headquarters.
Analysts assume a Trump pick for Fed chief would do his bidding by trying to cut interest rates aggressively, though whether the rest of FOMC voters would agree is in doubt.
This could push short-term market rates lower, but longer-term yields would likely rise as investors demand compensation for the risk of faster inflation, much as happened in Turkey.
Key developments that could influence markets on Monday:
- ECB board member Piero Cipollone appears at the Committee on Economic and Monetary Affairs of the European Parliament
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