Welcome to Monday and if you were hoping for a reprieve from the edicts or anticipation of them from the US President you will be sorely disappointed. In a reveal to the press gaggle aboard Air Force One, Donald Trump seemed to put to bed the idea of limited sanctions this week by saying all countries would be covered by punitive trade measures. There is time between now and ‘Liberation Day’ on Wednesday for a change of heart, but markets this morning are pricing-in a global trade war as the clock ticks down. Despite an encouraging reading in the Chinese PMI over the weekend in which the NBS data posted an on call 50.5 for Manufacturing but a better 50.8 for Non-Manufacturing, it is not enough to stop ‘flight’ indulging in a spate of buying in sovereign bonds, Gold and the Yen which has become the replacement haven currency due to mistrust of the US Dollar.

As for oil prices, they spent most of last week underpinned by the threat of secondary sanctions on Venezuelan oil and receding inventories in the United States. Maintaining a three-week rally saw M1 WTI finish +$1.08/barrel (1.58%), Brent +$1.47/barrel (2.04%), Heating Oil +1.13c/gallon (0.50%), RBOB +3.93c/gallon (1.79%) and Gasoil +$1.00/tonne (0.15%), but it is worth pointing out, and apart from RBOB, prices are almost the same as the last trading day of December 2024. Not exactly a great return so far this year and belies the endeavour involved. Therefore, it is not surprising that oil has shown little reaction from a widening of the conversation aboard the US leaders grace and favour jet. In a telephone interview with NBS, using language that we will not print, Mr Trump said he was fed up with Vladimir Putin over his attitude to the Ukraine ceasefire and indicated he would levy a 25% or 50% tariff that would affect countries buying Russian oil. He also said that bombing Iran is an option to bring the nation to the nuclear negotiating table. Such moves ought to be greeted with more of a bullish bias, but observers note that later President Trump spoke on step-by-step progress with Russia and with the overriding fear of a global trade relationship meltdown after Wednesday, oil prices this morning are adhering to the sombre mood being experienced in the wider suite.

Confidence or bust

The vulnerability of stock markets, particularly those of the United States was very much on display on Friday as the DOW Jones Industrial Average trawled the depths of the year so far by coming off some 700 points. Taking the all-time high of December, the most important historical bourse is now 3500 down, nearly 8%. While a little way from being -10% and correction, the jubilant mood that US investors enjoyed for calendar 2024 is disappearing at pace and correction is almost an inevitability bearing in mind the way in which data is being received. Last year, any sort of a slowdown in economic activity or a longer predicted state of higher interest rates was rescued by the surging Magnificent 7. However, current sentiment does not allow for such tolerance and even when inflation readings are only slightly faster than expected, judgement is swift, and risk takers vote with their selling feet.

Friday's catalyst to the new behaviour was the release of February's Core PCE Index. It is a market maxim acknowledging this is the price rise marker which the FED recognises as the most important. It takes out the swinging influence of energy and food but takes into account a vast array of 'live' pricing. PCE has not been at 2%, the FED target, since 2021 but has been granted leeway from the lucrative stock market bull run. However, Friday's 2.8% reading was not only stubbornly above the desired FED target, it was also 0.1% above expectation when measured on a year-to-year basis.

At the last Federal Reserve meeting, the committee was at best uncertain as to the immediate effect tariffs might be bring to the economic situation in the United States and that it would, as always, 'follow the data'. This small but probably decisive rise in its own data leader makes any sort of aggressive cut in interest rates impossible. The cost to capital has now once again risen and boardrooms of the vast enterprises of the US will adjust accordingly, but this time without a 'rather buy them than count them' bullish investor populace. The resultant fall in investment reliant tech companies dragged the S&P 500 down by over 3% for the week.

However, the PCE flunk was an icing on what would have been a bad week anyway. The blanket 25% tariff on all foreign cars and parts announced by the White House sent a shudder of reality through the world's stock markets as all the automotive names one might think of suffered a mini collapse. Whatever one might think of the tariff policies of Donald Trump, he is not an unintelligent man. Taking a swing at one of the most emotive industries of the world must only force reaction. Indeed, car manufacturing is such an integrated, international affair where supply chains meander across many borders to achieve the finished article, the imposition of such a tax is almost friendly fire on the US's own auto industry.

Globally, verbal reaction was swift with protests coming from Canada, China, Japan, Germany, France and many more that conduct four-wheel business with Uncle Sam. Ursula Von der Leyen, the President of the ECB succinctly and aptly described the move as, 'Bad for businesses, worse for consumers.' A wise warning for would be car buyers in the US who by some analytical reckoning will have to pay between $5000 and $10,000 more for new cars in the future. Again, the Donald must be aware of this and upsetting the love affair US citizens have with cars is an apple pie to the face of the 'American Dream'. We here have accused the US President of tarifflippery and are not alone. It does seem incredible and incredulous that to prove his political mettle he is willing to sacrifice such an important part of his shared native culture but, the world is talking, and to apply a touch of Donald, the negotiations are set to be 'beautiful'. Yes, this extra turn in the thumb screws of bringing confrontational negotiation will bring interested parties to the table. However, the cost of all this is impossible to predict but the earliest and continuing casualty is confidence.

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