Wall Street anticipation rises over potential tariff reductions
Wall Street's Mixed Mood: Trade Tensions Easing but Inflation Concerns Persist
As the week winds down, Wall Street shows a positive atmosphere, with signs of trade relaxation between the US and China boosting stock prices. However, economic data reveals that Trump's trade policies are causing inflation.
Market Performance
The last trading day of the week saw the Dow Jones Index climb 0.8 percent to 42,655 points. The S&P-500 and the Nasdaq Composite advanced by 0.7 and 0.5 percent, respectively. Preliminary data shows that 1,916 stocks increased, while 831 fell, with 61 remaining unchanged. The yield on 10-year notes fell by 2 basis points to 4.44 percent.
Politics and Economics
Trade disputes involving the US remain a hot topic. The US government plans to discuss agricultural tariffs and other trade barriers with the European Union in upcoming trade talks. Additionally, they aim to tackle economic security and digitalization. While the trade issue is not yet resolved, some investors remain hopeful. A strong first-quarter earnings season and the easing of trade tensions between China and the US have boosted investor confidence, according to Alexandra Wilson-Elizondo of Goldman Sachs. If the trade dispute is resolved at least for the next 90 days, issues such as the budget, taxes, and deregulation will take center stage. Although there are risks, most of the bad news may already be behind us.
Inflationary Pressure
US import prices increased more than expected in April, indicating the impact of Trump's tariffs, particularly those against China. Imports increased by 0.1 percent from the previous month, despite the dampening effect of lower oil prices. This solidifies strong inflationary pressure from the tariffs, as a trader pointed out. The University of Michigan's consumer sentiment index unexpectedly fell, and the high inflation expectations in the survey were particularly negative. Higher US import prices are the second piece of bad news of the day regarding the inflationary impact of Trump's tariffs.
Individual Stocks
Boeing lost 0.2 percent despite Etihad Airways ordering 28 wide-body aircraft from the US plane maker. The order includes a mix of Boeing 787 and 777X aircraft with GE engines, as well as a service package. Charter Communications is acquiring rival Cox Communications for $21.9 billion, with Cox valued at $34.5 billion including debt. Shares of Charter Communications gained 1.8 percent.
Applied Materials (-5.3%) underperformed in the second quarter but missed revenue expectations. The video game developer Take-Two Interactive (-2.4%) reported mixed results for its fourth fiscal quarter, with guidance for the current fiscal year falling short of market expectations.
Currencies and Commodities
The dollar recovered slightly, with the Dollar Index gaining 0.2 percent. Higher import prices and inflation expectations weighed against further rate cuts by the U.S. Federal Reserve. Oil prices stabilized after yesterday's drop, with concerns about OPEC+ production cuts and a possible Iran deal continuing to impact sentiment. Gold prices gave up all of their previous day's gains.
Sources: ntv.de
Trade Policies and Inflation: The Big Picture
The current and potential future effects of U.S. trade policies on inflation and the stock market are complex and evolving due to ongoing tariff adjustments and trade tensions.
Inflation: Despite initial fears, tariffs introduced under the Trump administration, including those on Chinese imports, steel, aluminum, and certain Canadian and Mexican products, have had a minimal impact on overall inflation so far. The primary driver of inflation has been housing costs, not tariffs. However, consumers expect inflation to rise by about 3.2% over the next three years, with this increase stemming from factors beyond tariffs.
Economy: If the tariff rollbacks and easing tensions with China continue, they may boost market sentiment by reducing trade-related risks, improving growth prospects and corporate profitability. On the other hand, persistent tariffs and inflation pressures may keep the Federal Reserve cautious, impacting interest rates and equity market valuations.
In conclusion, U.S. trade policies continue to exert inflationary pressures and economic headwinds, but recent tariff rollbacks with China mark a positive step that may alleviate inflation and support stock market performance. However, ongoing tariffs and the interplay with monetary policy present risks that could moderate these benefits.
Community Policy ImplementationThe US government, in an effort to address inflation concerns, might consider revising its employment policy to foster job creation and steady income growth, thereby reducing the overall inflationary pressure.
Business OpportunitiesIn light of the mixed impact of Trump's trade policies on inflation and the stock market, investors might find it prudent to diversify their portfolios, considering sectors less susceptible to global trade tensions and inflation pressures, such as investing in local community businesses that focus on employment generation and growth.
