Making sense of the forces driving global markets |
By Jamie McGeever, Markets Columnist |
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- Wall Street's rally fades, and benchmark indices end up a maximum of 0.4%. Nvidia shares hit a 4-month high following the firm's results and outlook, up 3.2% on the day and 65% from the April 7 low.
- In Asia Japan's benchmark Nikkei 225 index rises nearly 2%, its best day in over a month, and Chinese tech stocks climb 2.5%.
- U.S. Treasury yields fall as much as 5 bps across the curve, with a 7-year note auction registering strong demand.
- Japan's 40-year bond yield slides 21 bps to 3.10%, its lowest in over a month and sharply down from last week's record high 3.675%.
- Gold snaps a three-day losing streak, rising nearly 1% to $3,315/oz.
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As if the fog of uncertainty shrouding markets wasn't thick enough, investors' visibility has been dimmed further by a U.S. court ruling that most of Trump's tariffs are unlawful, then an appeals court reinstating them while the appeal process unfolds. The administration will likely find other legal avenues to implement its tariffs if need be, so the net effect may ultimately be minimal. But the ruling and appeal could affect Washington's negotiations with major trade partners, timelines, and how countries play their hand. For investors, the upshot is more uncertainty and even less visibility. |
The latest twists come just as it looked like tariff revenues were beginning to pick up. Donald Schneider at Piper Sandler on social media platform X this week estimated that tariff revenues were coming in at an annualized pace of $255 billion, up from a "norm" of about $85 billion, while analysts at UBS on Thursday said tariffs were on track to generate $300-450 billion in annual revenues. Wednesday's court ruling, however, would cut that to below $200 billion. On the other hand, of course, lower tariffs are immediately positive for growth and reduce the likelihood of retaliation from other countries. Senior administration officials downplayed the impact of the trade court block, but it is notable that Trump himself hasn't commented yet. He was busy on Thursday, to be fair. He had a "meaningful" telephone call about trade and tariffs with Japanese Prime Minister Shigeru Ishiba, then later hosted a private meeting at the White House with Federal Reserve Chair Jerome Powell. The two discussed growth, employment, and inflation, and Trump reiterated his view that the Fed is making a "mistake" by not cutting interest rates. The meeting, their first since 2019, comes a day after Fed minutes underscored exactly why policymakers haven't cut rates - unprecedented uncertainty. Before all that, investors on Thursday were also digesting Nvidia's earnings and forecasts, and revised U.S. GDP data. They have an even heavier dose of top-tier data to deal with on Friday, which includes the latest inflation snapshots for Tokyo, Germany and the United States, as well as first quarter GDP readings from India, Brazil and Canada. |
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| High yields bring US fiscal 'precipice' even closer |
Few would disagree that U.S. public finances are deteriorating, but debt Cassandras have been warning of a fiscal day of reckoning for 40 years and it has yet to arrive, so why should this time be any different? The non-partisan Congressional Budget Office's baseline forecast sees federal debt held by the public rising to 117% of GDP over the next decade from 98% last year, and net interest payments rising to 4% of GDP, a sixth of all federal spending. While these eye-watering figures are concerning, it still seems difficult to fathom the United States experiencing a genuine debt crisis where investors turn their backs on Treasuries and the dollar, the two cornerstones of the global financial system. |
Both should enjoy strong demand – at least for the foreseeable future – even if their prices may need to fall to attract buyers. And in times of extreme crisis, like 2008 and 2020, the Fed can always buy huge quantities of U.S. bonds to stabilize the market. But that doesn't mean investors should ignore the swelling tide of fiscal gloom. We may not see a full-blown debt crisis, but there's a sense that "the fiscal" matters for markets more now than it has for decades. |
To better understand the risk at hand, it's useful to explore the assumptions baked into the current U.S. debt and deficit projections. The CBO's comprehensive fiscal projections are a benchmark for many policymakers and investors. But amid the fog of uncertainty created by U.S. President Donald Trump's trade war, the baseline economic assumptions underlying this outlook may be too optimistic. |
What could move markets tomorrow? |
- Japan retail sales, industrial production, unemployment (April)
- Japan Tokyo CPI inflation (May)
- India GDP (Q1)
- Brazil GDP (Q1)
- Germany retail sales (April)
- Germany CPI inflation (May)
- ECB Governing Council member Fabio Panetta speaks
- Canada GDP (Q1)
- U.S. PCE inflation (April)
- University of Michigan U.S. consumer sentiment, inflation expectations (May, final)
- Three Federal Reserve officials scheduled to speak - Atlanta Fed President Raphael Bostic, San Francisco Fed President Mary Daly, and Chicago Fed President Austan Goolsbee
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. |
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