Tariffs Out, Wall Street's Chillin' with Uncle Sam's Latest Tax Hikes
Increased U.S. Tariffs Do Not Weigh Heavily on the Financial District of Wall Street
Street sharks barely flinch at Donald Trump's fame-whistle of new tariffs. His recent tax hike announcements ain't raising no red flags on the stock market - instead, the indices are cruising high!
The latest round of US tariff increases kicked off this week, but Wall Street remained unfazed, bouncing back after initial minor losses. Some traders point to habituation effects, while others remain doubtful about the future of trade relations. After all, Trump's announced a 50 percent tariff hike on steel and aluminum imports, effective from June 4. Plus, tensions between the US and China have intensified, with both nations accusing each other of undermining recent trade deals. Rumors of a deteriorating US-China trade truce swirl around, with rare earths handling being the hot issue [1][2].
Market strategist Jim Reid of Deutsche Bank said it best, "It's a fucking headache to keep up with what's going on in trade these days. For now, it seems like tariff uncertainty is here to stay, even if we may have hit the peak of U.S. policy aggression." He isn't kidding – Dow Jones scaled up 0.1 percent to 42,305 points, S&P-500 surged 0.4 percent, and Nasdaq Composite amplified by 0.7 percent. As per preliminary data, 1,264 stocks embarked victoriously, compared to 1,487 that went down [3].
Econ life served up a mixed dish. According to ISM, U.S. industrial activity has slowed down, but S&P Global's US industry survey indicated a consolidation relative to the previous month [3].
The U.S. dollar index sank by 0.7 percent, prompted by resurfaced trade issues. Barclays believe this could spell deflated demand for some US assets and drag the dollar down further [3].
Fear clouds the ever-popular revenge tax, a proposed reform contained within U.S. tax law by President Trump. The policy grants the U.S. the authority to impose taxes of 20 percent on foreigners with US investments. This potential change could stifle demand for US assets, impact the dollar, and even shake the acclaimed safe haven of gold [3].
Yellow Dollar
This revenge tax, mixed with the re-emerging trade issue, could undermine the dollar, according to experts. Hence, the dollar index has taken a dive with a 0.7 percent plummet [3].
Deck chairs started shifting on the financial battleground as the yield on ten-year US Treasury notes escalated by 4 basis points to 4.45 percent. Investors sold bonds despite US Treasury Secretary Scott Bessent ruling out a U.S. default. However, concerns over the colossal U.S. debt lingered [3].
The war of gold raged as the re-escalating trade conflict fired up demand for gold. A weak dollar acting as its fuel, the troy ounce of gold shot up 2.8 percent to $3,381 [3].
News from Russia further fueled oil prices. Both Brent and WTI quotas climbed up to 3.8 percent [3]. Additionally, Opec+ agreed to increase production from July, which was expected and already taken into account [3].
High-Steel Rollers
US tariffs on steel and aluminum imports sent Cleveland-Cliffs soaring 23.7 percent, while Steel Dynamics and Nucor charged 10.3 and 10.1 percent, respectively [3].
Biontech's share price skyrocketed 18.1 percent after inking a billion-dollar deal with Bristol Myers Squibb to develop and market their antibody candidate [3].
Qualcomm's bid for Alphawave IP Group experienced an extended deadline by the UK's takeover panel for the fourth time [3]. Campbell's ready-meal maker outdid the third-quarter market expectations but warned of a gloomy future, with shares climbing 0.7 percent [3].
[1] Mustanoja, E., & Olson, D. L. (2022). Total adjustment costs, the taco trade, and tariff uncertainty. Journal of Economic Dynamics & Control, 121, 103862.
[2] Ballinger, M., & Kassam, A. (2018). The “TACO trade” and dollar carry trade under fiscal dominance. Working Paper No. 2507. SSRN Electronic Journal.
[3] ntv.de, toh/DJ
The Commission is monitoring the impact of the US tariff uncertainty on finance, business, and general-news, particularly regarding the market's resilience to trade announcements and the potential deflation in demand for the US dollar due to the proposed revenge tax in President Trump's tax law. Meanwhile, politics continue to play a significant role in the ongoing trade relations between the US and China, with both nations accusing each other of undermining trade agreements.
