Trump's tariff reversals leads equity markets to record gains

Good morning

Another day, another load of turmoil in the markets.  European equities were down again yesterday roughly reaching the -3% area, US markets were faring slightly better with Dow Jones and Nasdaq actually making small gains.   Then Trump hit us with a 90 day suspension of tariffs over 10% which sent stocks soaring, Dow Jones finished up nearly 8%, S&P 500 almost 10% and Nasdaq closed over 12% higher.  Futures are pointing to large gains in European markets this morning.

Asian equities followed suit overnight, Nikkei was up 9% although Hang Seng could only muster a 3% rise and China’s CSI 300 was up just 1.4%.  The lacklustre performance followed Trump’s decision to increase China tariffs to 125%, after China raised its own tariffs on US goods to 84%.  Trump says he is open to talks with China but neither side look like they are going to back down.  Trump is trying to encourage firms to manufacture in America but there is no way I see that they could replicate the vast factories with millions of workers that China has perfected. 

Currency markets are rightly unsettled.  After GBPUSD hit a high of 1.2860 yesterday morning it had dropped to mid-1.27’s through the day, only to revert back to 1.2865 or so after Trump.  Different fortunes for EURUSD, it hit highs yesterday just short of 1.1100 but actually fell on Trumps announcement, now 1.0970.  GBPEUR which had tested as low as 1.1550 yesterday is now just above 1.1700.   USDCNY traded up to almost 7.3500, its weakest level since 2007, with some talk China were selling decent clips of their vast US bond holdings.

USDJPY slipped to 144.00 yesterday afternoon, now trading up at 147.00.  CHF also weakened, USDCHF moving up to 0.8580 from a low yesterday around 0.8360.  AUD and NZD also pushed higher, GBPAUD down to 2.0760 and GBPNZD to 2.2575, still fairly elevated levels for those pairs but well off the recent highs. 

While the latest Trump announcement is helping general risk sentiment, these ‘on or off’ tariff decisions are helpful to no one.  They also raise questions of whether the tariff introductions were successful or not.  The White House says over 75 countries have come forward to negotiate on trade which should be good, but I cannot help thinking that the reversal was more down to the collapsing financial markets and rising US bond yields.  I don’t think that was the outcome Trump and his gang anticipated. 

Likewise, I’m not sure Musk foresaw his Tesla stock price falling from its Dec highs around $480 to the $220 area since he got involved with politics.  Those shares are off their lows now after a 20%+ rally yesterday but still only as high as $272, well off the $480 mark.  Musk may be a genius but he is not a politician, as evidenced by his response to Tump’s trade guru Peter Navarro when he made some disparaging remarks about Tesla.  Musk responded by saying Navarro was a ‘moron’ and ‘dumber than a sack of bricks’. 

Anyway, Trump’s ninety day suspension on these tariffs takes us to the beginning of July, which hopefully gives time for all these new trade deals to be agreed.  Otherwise, the summer holidays are likely to be somewhat ruined. 

Somewhat overshadowed by the recent tariff debacle, let us not forget that Ukraine is still very much under attack by Russia.  No sign of a peace deal yet, no sign either of a US/Ukraine minerals deal, although I’d imagine work is going on behind the scenes in this regard.  Meanwhile, Ukraine are reported to be trying to break through lines into Russia again after their Kursk offensive.  I also note that Chinese troops have been reported to have been seen in action against Ukraine, a development that no one really wants to see.  Peace is a long way off.

In football, Villa lost to a very strong, fast and organised PSG team yesterday, while Barcelona showed why they are tournament favourites with a 4-0 win over Borussia Dortmund. 

Still, enough of the Champions League.  The big match is this evening as Spurs take on Eintracht Frankfurt in the quarter finals of the Europa League.  This is Spurs only hope of getting anything this season other than a league finish below mid-table.  Fingers crossed.  Man Utd also in action, away to Olympique Lyonnais.  Ah and Chelsea, odds on favourites for the Europa Conference title, travel to Leiga Warszawa in their quarter final. 

In golf, the US Masters begins today at Augusta, the first players tee off at 12:40 UK time.   I always look at golfing odds and then decide there is no way I can pick a winner out of such a large field.  You can bet each way (top ten places), or on a player finishing in the top six, which could be a better if overall less profitable method.

I’ll be interested to hear what RBA’s Bullock has to say this morning.  This afternoon brings US CPI inflation which under normal circumstances would be pretty key but at the moment may take a back seat unless it is far away from expectations. Several Fed officials speaking this afternoon, we’ll perhaps see what their take is on the recent tariff reversals.  UK GDP is out early tomorrow morning.

It is eldest son’s 21st birthday today so I’ll possibly be knocking off early if he’s back from work to celebrate.  Incredible how time flies and how humans grow. He was born eight weeks early, weighing just over 4lb, but now towers over me at 6’3” in his socks.  I like to think he still looks up to me though.  

Have a great day…

-  11.00 RBAs Bullock speaks

-  13.30 US CPI, initial jobless claims

-  14.00 BoEs Breeden speaks

-  14.30 Feds Logan speaks

-  15.00 Feds Bowman speaks

-  17.00 Feds Goolsbee speaks

-  17.30 Feds Harker speaks

-  19.00 US monthly budget statement

-  23.30 NZ business PMI

-  07.00 UK GDP, industrial production

Improved risk sentiment was short-lived, bring on the volatility

Good morning

A temporary bout of improved risk sentiment saw European equities finish up around the 2-3% area yesterday and for a while it looks as though US markets would do the same.  That was until Trump slapped a 104% tariff on China after Beijing had refused to remove its retaliatory tariffs.  US equities turned negative and overnight Asian markets followed suit.  US/China trade tensions don’t look like easing any time soon as Trump accuses China of weakening CNY to offset the impact of tariffs. 

GBPUSD ended the day slightly off its highs at 1.2760, but off its lows vs EUR at around 1.1690.  USDJPY had a 100 point push higher late afternoon from 146.65 to 147.65 but dropped off back below 147.00 into the London close.   Since then it’s all change once again, the latest escalation in tariffs sent USD lower pretty much across the board.  GBPUSD traded up to 1.2860 this morning, EURUSD got as high as 1.1090 and USDJPY broke lower to 144.60.  USDCHF also  traded down to 0.8385.  Classic safe haven buying of JPY and CHF.

Plenty of speculation over the course of action the Fed may take from here.  There have recently been calls for more Fed cuts in 2025 than previously thought but others now think that with the likely rise in inflation Fed may have to stay on hold until or unless the US labour market starts showing real signs of weakness.  Trump wants Fed to cut but he may be disappointed.  He may also be disappointed to see US 10 year yields up at 4.5% from a low earlier this week of around 3.9%.

So Trump’s tariffs are playing havoc with the markets and global trade in general.  The US continue to insist that they are simply righting the wrongs that have been in place for so long.  The White House has said some seventy countries have already got in touch with them to negotiate on trade, but the key country really is China and they don’t look like coming to the table any time soon.  Still even those who do negotiate may find it difficult to make an agreement.  I believe Vietnam’s offer to reduce tariffs to zero was rejected.  Lowered tariffs are one thing, but Trump is looking for deficits to be cleared as well.  His suggestion that EU buys $350bn of US energy is more about clearing the existing deficit before any tariff talk can take place.

Overnight RBNZ did cuts rates 25bps to 3.5% as had been expected, NZD did see a brief push higher suggesting the markets were possibly considering a larger cut, GBPNZD traded from an overnight high of 2.3285 down to 2.3085, bounced again to 2.3260 before dropping to the 2.3100 area.  GBPAUD saw similar moves, popping up to 2.1600 briefly, dropped below 2.1400, back up to mid-2.15’s, now 2.1380.  Volatile, that’s for sure.

RBI also cut rates 25bps as expected in the early hours of this morning, bringing their rates to 6%.  INR is generally weaker, USDINR now 86.55 and GBPINR around 111.00. 

Moving on from the market turmoil, I was pleased by the reactions to both previous reports this week, the first from a few people who said they’ love to join me for a beer in the sun but probably wouldn’t have made it in time, and then yesterday a small but important number of people who are not yet clients gave a glimmer of hope of a meeting in the not too distant future.  To be honest, it is quite good to receive anything back from anyone about anything I’ve written, even if its in disagreement with something I’ve said.

I watched the Arsenal v Real Madrid match yesterday and I have to say Arsenal scored two of the finest free kicks I have seen for a long time, Declan Rice scored both, in the process paying back a decent chunk of the £100m Arsenal paid for him.  Their third goal was pretty good as well, giving them a 3-0 lead to take into the second leg.  Not bad for a team currently without a striker.  Kane’s Bayern Munich lost 2-1 to Inter Milan.  More Champions League action this evening as Villa take on PSG, while the fourth quarter final sees Barcelona take on Borussia Dortmund. 

Mark will berate me if I don’t mention Leeds and their 1-0 win over Middlesbrough last night which was enough to get Leeds back to the top of the Championship as their nearest rivals Burnley and Sheffield Utd could only draw and lose respectively.

A sparse economic calendar today but of course tariff talk will dominate the headlines.  European equities are already lower this morning, setting the tone for the day I fear.

Have a great day…

-  13.30 ECBs Cipollone speaks

-  19.00 FOMC minutes

-  02.30 China CPI, PPI

Volatility continues amid talk of US trade deals, retaliation and fighting until the end

Good morning

Another day, another equity market rout.  At one stage yesterday a headline suggested that Trump was considering a 90 day suspension of tariffs which got the markets turning into positive territory, only for such talk to be dismissed by the White House and we were back to where we started, basically much lower than the Friday close.  By the NY close US equities were off their lows and the Nasdaq was actually in positive territory, albeit by just 0.1%.  Asian equities had a great day, Nikkei was up over 6% and European markets are opening higher.

GBP was hit particularly hard yesterday, GBPUSD traded to a low of 1.2710, around 500 pips of the Thursday high. GBP lost ground against EUR as well, the pair trading to mid-1.16s for the first time since Aug 2024 and perhaps more relevant over 350 pips off last weeks highs.  A dramatic turn, EUR strength coming despite US and EU clearly not being on the same page.  EU have talked of zero tariffs on certain goods and vehicles if US reciprocate, but EU are also planning retaliatory tariffs which is to be voted on this week.  Meanwhile I see a US Admiral has been fired from NATO, that won’t please Trump.

Markets were spooked again in the afternoon as Trump threatened China with 50% tariffs unless they dropped the retaliatory tariff of their own.  Trouble is, I can’t see them bowing down to Trump’s demands.   Chinese stocks were up overnight despite China accusing US of blackmail, bullying and confirming they will fight to the end. 

With the comeback in stocks, currency prices have normalised to some extent.  GBPUSD is currently 1.2775, EURUSD 1.0960, so GBPEUR still mid 1.16’s.  AUD and NZD fare better with the improved risk sentiment, trading at 2.1050 and 2.2750 against GBP, while USDJPY is up at 147.00 from yesterdays morning lows around 144.85.  I’m not sure if the news that US will possibly meet Iran for direct talks is helping the risk environment but that has to be a good thing. 

I must be honest that I didn’t see this coming although in hindsight I have to wonder how we missed it.  That’s not the point.  The point is that when we speak to clients, or specifically new or potential clients, we make it clear we rarely make calls as to which way the market is going, instead we create positions structures and programs that offer good currency purchase/sale levels, while having protection against excessive market movements.

The latter factor is important for many reasons.  It limits the mark to market losses on positions, which in turn eases strains on balance sheets.  It also offers the potential for purchase/sale levels to improve should we see significant market movement.  Do we claim we will beat the markets?  No.  Do we offer ideas that are designed to outperform spot?  No.  But do we offer programs that give clients the peace of mind in knowing their currency requirements are fulfilled without the headaches that come with undue risks?  Yes, absolutely. 

In summary, at some point you may need to trust someone who talks about FX.  We know the FX market doesn’t exactly engender trust, we know that by people still putting down the phone at the first sound of the words ‘currency’ or ‘foreign exchange’.  But most of you rely on pension advisers, auditors, lawyers, accountants, health and safety officials.  We can only ask you to think of adding RAM to that list of trusted specialists.  Mark and I, having worked together in FX for the past 35 years or so and now co-owners of our own business, will look at your requirements with an independent and expert head and offer help, advice or just general thoughts as appropriate.

Anyway, that’s enough of that for now, but I hope I managed to get the point across.  But what else has been going on?  Well Premier League action last night saw Newcastle move into fifth place by beating Leicester.  This evening sees Arsenal host the mighty Real Madrid in the first leg of the Champions League quarter finals, while Harry Kane’s Bayern Munich take on Inter Milan.  Should be a couple of cracking matches I hope.

I’m watching the Birmingham bin issues for a while now, at first I presumed it would all die down quickly but it has now been five weeks since the refuse workers went on strike amid pay rise disputes.  I don’t know the ins and outs, it does seem Birmingham Council are looking to cut pay for some workers, from what I hear perhaps higher paid workers whose roles are not entirely necessary.  That may be unfair, that’s just my take on it.

Anyway, with some 20,000 tonnes of rubbish lying in the streets, something needs to be done.  We do all moan at councils, mostly for good reason, but a few weeks of no rubbish collection clearly shows how vital some of the services they offer really are.   Rats the size of kittens are reportedly running around, they are known to multiply very quickly so they’re going to have a very big problem soon if rubbish remains in the streets.  Surely someone with a big tipper lorry and a grabber could offer their services to clear the streets.  Nothing like getting workers back to work than seeing someone else do your job.  

RBNZ are likely to cut rates by 25bps to 3.5% overnight, RBI are also expected to but by a similar amount to bring their rates to 6%.  Both should be pretty well priced in.

Crikey, a lot of words today, still with a limited calendar you’ll have plenty of time to read it all.  Still, well done if you got this far. Don’t be taken in by the brief improvement in risk sentiment.  We all want to see calm restored but I think it’s too early to be too hopeful that we’ve seen the end of the mayhem.

Have a great day…

-  10.00 ECBs de Guindos speaks

-  15.00 CAD Ivey PMI

-  15.00 ECBs Cipollone speaks

-  17.00 BoEs Lombardelli speaks

-  19.00 Feds Daly speaks

-  03.00 RBNZ rate announcement

-  05.30 RBI rate announcement