Trump spooking markets again
Once again, President Trump has spooked markets with his warning about trade tariffs against China (FXI). The White House released a transcript of Trump’s interaction with reporters on March 20. He commented about the tariffs, “We’re not talking about removing them. We’re talking about leaving them and for a substantial period of time because we have to make sure that if we do the deal with China, China lives by the deal.”
Optimism about a trade deal has been a major reason for markets’ rally year-to-date. The Fed’s shift to a dovish stance has also played a major role in this rally after a dismal fourth quarter. The Fed’s two-day policy meeting ended on March 20, and the Fed gave a more-dovish-than-expected stance on future rate hikes with no hikes expected this year. The Fed is likely to slow the pace of trimming its balance sheet and halt the process in September.
Fed and trade talks
While the Fed now seems firmly in bulls’ favor, the same can’t be said about the ongoing US-China trade negotiations. Following Trump’s remarks about China and the tariffs, the Dow Jones Industrial Average Index (DIA) dropped 0.6% and the S&P 500 (SPY) fell 0.3%. Nvidia (NVDA), AMD (AMD), and Micron (MU) fell 0.75%, 1.15%, and 0.59%, respectively.
In the next part of this series, we’ll analyze the US-China trade talks in more detail.