Tracking and studying Trump’s tariffs has all the hallmarks of tarot card reading. Flipping the cards, as appears the case in the White House, seems to only convene chaos, whatever equivalent face that may be in so-called seer’s nonsense. Fortunately, spooking your friends in a derelict building when growing up is easily dismissed, but tariffs are not. Just take the words of some of the executives of companies that have or are about to release results in the United States. The Wall Street Journal aptly rounds up a sentiment it has been privy to that CEOs of American Airlines, PepsiCo, Procter & Gamble and many other major U.S. companies warned that shape-shifting tariff threats make it virtually impossible to plan and are frightening consumers. Even negotiations with China are not clear cut. Utterances from the Oval Office suggested daily engagement with Beijing are being denied by Chinese authorities with the Commerce Ministry calling for the US to cancel all tariffs and that “the person who tied the bell, must untie it.” The overnight rally in stock markets and other cowed assets owes all to the outperformance of Alphabet/Google. Revenues in many areas were higher, a $70 billion share buy back and confirmed AI spends push all tech companies forward, but with the warnings outlined in the WSJ, one decent result does not a bull market make.

For an oil worry, and sourced from the same WSJ opinion, airlines are spotting softer future ticket sales as US citizens quibble on spending which adds to corporate uncertainty and thereby leads to reductions in staff, new aeroplane orders and indeed possibly fuel use. Crude markets are experiencing some tightness in the front part of curves and have been settling into the ‘roll up’ trade where successive spreads take on the backwardation of predecessors. Arguably much of this is inspired by the coming summer months and the usual hype around the ‘driving season’, its Gasoline use and indeed, the number of flights being taken. Any continued dent to this yearly pattern will be fatal to continued Crude strength in structure. Indeed, the steepness shown in Brent for example is so amplified it ignores how the Dec25/Dec26 calendar spread is trading in contango. Yes, the weakness is very much flat price related and does not entirely pour scorn on spread bulls, but it is worthy of note and possibly warning.

Woe is Europe

Our collective eyes can be forgiven for taking them from Europe, mitigation need not be called for, the multiplicity oozing from the White House is enough to corner anyone’s thinking. Yet, the massive, planned stimulus spree from Germany which loosely values at €1 trillion, half of which on arms, has scaled the eyes of scrutiny to the economic fortunes of the Old World. However, laying this brutally stark were Wednesday’s flash HCOB PMIs that outlined a Eurozone economy struggling to expand in April. In Manufacturing, Services and Composite order they read as follows: France; 48.2, 46.8 and 47.3, Germany; 48, 48.8, and 49.7 with Europe as a whole; 48.7, 49.7 and 50.1. While they are not as ugly as in recent years, all but Manufacturing missed expectations with a singular reading tickling expansion. As for the UK, which does not wish to be lumped in with its former partners (although it is), the S&P/CIPS data fared even worse with 44, 48.9 and 48.2 using the same order. Yes, these sorts of data have been here before, but the plight of the services industries foregrounds a lack of confidence sweeping across the continent and the low soft data of confidence is now being represented in the hard bearings of industry. Admittedly, the uptick in all but the UK’s Manufacturing PMI is a surprise and would ordinarily be encouraging, but as seen with the level of exports pouring from China recently, Europe’s manufacturing industry is likely front-running US tariffs before they kick in, whatever style and size they eventually are.

Even with such a short-term reactive uptick the future does not bode well for manufacturing. Within the Hamburg Commercial Bank overview came warnings of a falling in volumes of new orders and more worryingly, backlogs of work shrank more quickly than at any time in the last three months. Analysts and economists alike view backlogs of work with great seriousness, they are the fallback to any current predicament and when future business starts to deplete alarm bells are sounded. This then mainstays the reason why multilateral confidence in manufacturing, business and services are dwindling. According to S&P Global, services confidence is at its lowest for five years and, prior to the pandemic, confidence across the services economy has not been this low since the region's debt crisis in 2012. On Tuesday the Eurozone Consumer Confidence Flash showed a fall by 2.2 points from March to April, therefore, the state of morale in European nations had already been heralded. Not even the recent rate cut by the European Central Bank seems enough to inspire. In the ECB’s press release of 17th April it noted that services inflation eased markedly over recent months which on the face of it is a welcome development when a central bank is trying to stimulate, but not so when disinflation is occurring due to decreasing activity and consumer disposition.

An ailing Europe is nothing new. Laying the finger of blame on any particular driver is to fall into the trap of modernist and populist thinking. The very nature of Europe’s diversity is cause enough. However, there is successive failure to invest in modern technology, try naming a European Google or some such equivalent, with high taxation, energy costs and regulatory levels Europeans are hamstrung. It may be disingenuous to compare its economy with the other side of the pond bearing in mind differing social priorities, but measures need a mark of comparison. Currently the IMF United States GDP per capita shows $89k, on average in Europe it is half of that. Indeed, for the last ten years, the US GDP has been doubled that of Europe, therefore a paucity in economic activity and growth already has precedent. At present there is no immediate ‘however’, and a following reprieving argument offering a brighter future. For the future is Trump, Europe’s horizon is dominated by the gloom of tariffs and the inconvenient truth that its backstop ally is no longer such. If Europe wants to contain Russia, it will have to do it without its historical military benefactor. Whatever has befallen Europe’s economic pathway in the past five years will no longer be the sole focus of reparation. Individual and collective countries within the Eurozone and Europe will roll out counter measures of tariff appeasement or reciprocity and the continent’s basket case growth continues to see no end in sight.

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