Stock Market Tides Shift Due to Potential Tariff Relaxation
Financial Markets Breathe a Sigh of Relief, Inflation Woes Persist
Stirs of truce have emerged in the ongoing trade confrontations led by US President Trump, refining the atmosphere on Wall Street as the trading week concludes. spite of this positivity, economic indicators suggest that Trump's trade policies are driving inflation. The Manhattan project of the last trading day saw a favorable ambiance on American markets, propelled by rumors of a relaxation in the US-China trade dispute. Disappointing economic data merely served as a temporary roadblock to this prosperous trend. The Dow Jones Index climbed 0.8% to hit 42,655 points, while the S&P-500 and the Nasdaq Composite escalated by 0.7 and 0.5%, respectively. Preliminary data reveals a surge of 1,916 winners (previous day: 1,809) and 831 losers (959), with 61 (56) stocks remaining unchanged. Bond yields offered support, with the yield on 10-year notes descending by 2 basis points to 4.44%.
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The US's trade wrangles remain the talk of the town on the stock exchange. Word on the street is that the US government wishes to negotiate agricultural tariffs and other trade barriers with the European Union. Insiders report that the US intends to discuss economic security and digitalization as well.
Whilst the trade issue remains unresolved, certain investors express cautious optimism. Alexandra Wilson-Elizondo of Goldman Sachs thinks the impressive first-quarter earnings season and the easing of trade tensions between China and the US have boosted investor confidence. As long as the trade dispute is set aside for the next 90 days, issues such as the budget, taxes, and deregulation come to the fore. While there are risks, most of the unfavorable news might already have transpired.
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Investors Foresee Intense Inflationary Pressure
US import prices spiraled above projections in April, unambiguously demonstrating the impact of Trump's tariffs, particularly against China. Imports increased marginally by 0.1% from the previous month, contrary to the market prediction of a 0.4% decrease due to the weakening effect of cheaper oil prices. If stripped of the influence of lower oil prices, imports would have escalated by 0.4% from the previous month. A trader voiced, "This points towards strong inflationary pressure from the tariffs."
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Housing starts dropped less than anticipated in April. The University of Michigan's consumer sentiment index showed an unexpected decline. However, the exorbitant inflation expectations in the survey were especially detrimental. Following the higher US import prices, this is the second unfavorable piece of news of the day concerning the inflationary consequences of Trump's tariffs, said a trader. This usually triggers purchase hesitation or rush buying instead of long-term purchasing intentions.
Boeing Struggles to Impress
Aerospace giant Boeing lost 0.2% despite Etihad Airways ordering 28 wide-body aircraft from the US manufacturer, including a mixture of Boeing 787 and 777X aircraft equipped with GE engines in addition to a service package. However, these new aircraft are not expected to go into service until the end of the decade. Critics have also reprimanded Boeing for not constructing enough planes, as production figures have yet to reach their pre-epidemic highs following the 737 MAX accidents in 2019, the onset of the pandemic, and an event in January 2024 where an Alaska Airlines Boeing plane lost an emergency exit door.
Two of America's largest cable and broadband providers are merging: Charter Communications is snapping up rival Cox Communications for $21.9 billion. In the transaction, Cox is valued at $34.5 billion, including debt. Charter Communications shares experienced a 1.8% uptick.
Applied Materials (-5.3%) overshot projections in the second quarter but left investors wanting in terms of the revenue outlook. Video game developer Take-Two Interactive (-2.4%) reported mixed results for its fourth fiscal quarter, with its expectations for the current fiscal year falling short of market expectations.
Dollar recovers slightly - Oil prices stabilize
The dollar regained slightly, with the Dollar Index advancing 0.2%. Higher import prices and persistently elevated inflation expectations deterred further rate cuts by the US Federal Reserve.
Oil prices recuperated slightly after yesterday's fall, albeit concerns about OPEC+ production cuts and possible Iran deals still cloud the outlook. A deal may facilitate additional Iranian oil supplies at a time when the market is already preparing for an oversupply. The gold price lost all its previous-day gains.
For more details on today's market movements, click here.
Sources: ntv.de, mau/DJ
- Economy Inflation Tariffs Trade disputes
In light of the ongoing trade disputes, investors are concerned about the potential for intense inflationary pressure due to tariffs, as demonstrated by the recent increase in US import prices. To address this, a community policy addressing trade policy might be necessary to ease the financial strain on businesses, particularly those in the aerospace industry like Boeing. On the other hand, the relaxation of trade tensions between China and the US, as well as the easing of agricultural tariffs and other trade barriers with the European Union, could potentially stimulate investment and employment growth in various industries. In the meantime, the declining dollar and the stabilization of oil prices are providing some reprieve for businesses, allowing them to consider reinvesting in their operations or expanding employment policies.
