There is something of ship steadying in the roiling seas of market activity this morning. The fact market participants are looking for any port in the storm came yesterday with a rumour in which the White House was considering a ninety-day pause in tariffs. Markets were quick to rally, but eventually quelled, being cast as “fake news” and the President insisting “we are not looking at that”. Still, with a correction twitch being displayed, a phone call between Tokyo and Washington in which trade negotiations including tariffs and foreign exchange were discussed, culminating in Prime Minister Shigeru Ishiba contemplating a visit to the US has green-lighted relief this morning. The Nikkei lost nearly 7% of its value yesterday but has regained much of that today inspiring others to peek out from their bomb shelters.

It would be a gamble indeed to believe the tempest is over. Sino/US trade relations are descending into the spat all markets in their hearts knew was coming. President Trump’s invective over many years has been a drone of a portrayal of unfairness in the trade practices of the US’ biggest economical competitor. There can be little doubt addressing the trade imbalance with China is the motivation of clearing house globally ‘while we are at it’ by Trump. Antipathy was shown in his reaction to China’s retaliatory tariff measures. On top of the increased 34% announced last week, another 50% was threatened yesterday if China so acted, which when one considers the existing 20% tariff means that if the escalation met fruition, then the tariff on the South-East Asian trading giant would be a whopping 104%. Such an eventuality is mind-bogglingly bearish and one in which markets are not priced to believe because they still hold onto it being transactional, but China this morning is digging in its heels. Its Commerce Ministry said there would be no bowing to “blackmail” and as reported by AFP said, “If the US insists on having its way, China will fight to the end.”

Try as we might, the oil community cannot do anything but be held to the ransom of the tariff thrall. We can muse on how US producers might cut production as US Crude prices match the cost of what it takes to pull it from the ground. We can contemplate broken ceasefires in Ukraine and Israel. We can chew on an Iranian refusal to engage in nuclear talks, the US endeavour to rid the seas of Venezuelan and Iranian crude and OPEC’s bringing back of supply. But until Hurricane Tariff stops blowing and wreaking havoc to all in its path (even the EIA, due to the market turbulence, will delay publishing its monthly update until Thursday) our market is but a tender, servicing the whims and vicious about-turns of the wider markets and how they deal with the geo-macro storm.

GDP is a drag

The state of individual nation GDPs wander across our screens at regular intervals and more-often-than-not go unnoticed. Until it does not. The condition of Gross Domestic Product gives information about the size of an economy and how it is performing. Generality then would have that increases in GDP or the forecasts of, give a strong indication to a healthy state of economic being as activity increases, employment grows and along with it, confidence. It follows then that the inverse has the opposite effect. GDP is very emotive in some cultures. Take China for example, it is at pains to maintain 5% growth, not only for the obvious beneficiary investment status but also as a national symbol in which it can convey to its populace that government oversight is working, and all is well. It is also very true in this uneven world such scrutiny would not be heaped upon lesser trading states and those with a small financial base, population or limited mineral resources.

The United States is still the most important economy of the world, therefore any adjustment to its GDP is big news. It is blessed with high mineral assets, a huge financially astute population and a currency that dominates global trade. Soft data such as confidence markers have been decreasing but there is now a growing expectation within banking circles that the qualitative is about to become the quantitative. The investment banks of Goldman Sachs and JP Morgan have raised the risk of recession in the US from 35% to 45% and 40% to 60% respectively and in the case of Goldman’s revision it is the second higher adjustment inside of one week. Staying with the same banks and switching to their then logical adjustments in GDP growth, Goldman has reduced their annual 2025 forecast to 1.5% from 2.0% with JPM reducing theirs from 1.3% to 1.0%. Rather worrying forecasts when taking into account the last three-year readings 2022-2024 of 2.5%, 2.9% and 2.8%. Indeed, annual GDP growth has only been below 2% twice in the last ten years, once in 2016 and obviously the other being in the pandemic-forced shutdowns of 2020.

The US Administration’s insistence over the weekend that tariffs will indeed go ahead and President Trump’s chat of ‘taking medicine’ gave some forecasters the opportunity to suggest it could lead to a 20% reduction in imports and with adverse influences on GDP as well as other growth data. UBS said in a note, “the forcefulness of the trade policy action implies substantial macroeconomic adjustment for a $30 trillion economy”, adding the repercussions of which might see unemployment rise from the current 4.1% to 5.2% and increased inflation. Given that GDP is very much a vanguard to rating agencies’ assessment and the possibility of a slough of other negative data, it is not inconceivable that they stand on alert to adjust the US’ standing. Moody’s, the only rating agency maintaining the US’ triple-A credit rating, recently warned the US is facing fiscal deterioration and moved its outlook to negative from stable. The agency is quoted on research websites, “the potential negative credit impact of sustained high tariffs, unfunded tax cuts and significant tail risks to the economy have diminished prospects that these formidable strengths will continue to offset widening fiscal deficits and declining debt affordability.” With a spiralling debt-to-GDP ratio of 123%, fiscal deficit of $36 trillion and an inability to compose a budget without nail-biting, last-minute avoidances of government shutdown can only suggest Fitch and Standard & Poor’s are also taking note.

GDP readings in the main are cyclical, however, the US has, in the main, enjoyed very steady and positive growth culminating in the economic ‘exceptionalism’ of last year. Given a status quo of current policies, 2025 might counter it with a year of economic ‘nihilism’ as the global trade practice manual is systematically ripped up. If US GDP readings begin to fall away as predicted in investment circles, the economy will experience a period of defensiveness. A spiralling circle of lower investment, higher interest rate fear, a cornered central bank and downgrades leading to a lack of capital in debt underwriting will not be just reflected in equities and currencies alone. Our market will feel the full force of Americans in retreat, which is why, and returning to Goldman Sachs for example, its downward revisions for oil includes demand growth to fall from 600kbpd to 300kbpd in 2025 and further cut its forecast for Brent in 2026 to $58/barrel and WTI to $55/barrel. While taking note of OPEC’s decision in bringing back more oil than previously expected as a contributary factor, its main concern for oil demand growth is motivated by diminishing prospects for global GDPs. All market views are subject to White House decision reversal, but at this moment of peak belligerence, damage to GDP is commensurate in damage to oil demand and prices.

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