Wall Street slid on stagflation and Trump trade war concern

·       Gold slid on the progress of an imminent Ukraine war ceasefire; oil is also under pressure

·       Softer US real GDP growth, higher jobless claims, and higher imported inflation as a result of Trump tariffs may push the US economy toward stagflation

·       Techs are also under stress on Trump’s potential export restrictions of AI Chip to ‘competitor’ China

On early Wednesday, Wall Street Futures were green on hopes of an imminent Ukraine war ceasefire and blockbuster report card of AI Chip bellwether NVIDIA; Consumer discretionary and techs were the top performing sectors while healthcare and consumer staples underperformed amid Trump’s hawkish policy on pharma pricing and subdued discretionary consumer spending (Trump chaos/recession concern).

In addition on early Wednesday, Lowe's Companies surged after reporting a 0.2% increase in same-store sales, marking its first positive growth in nearly two years. General Motors also jumped following the announcement of a 25% increase in its quarterly dividend. On the other hand, Apple slipped about after the company's shareholders rejected a proposal to scrap diversity, equity, and inclusion programs.

But Wall Street Futures also stumbled late Wednesday after Trump almost poured cold water on the delayed trade war narrative. Trump confirmed additional tariffs on the EU, Canada and Mexico. Trump has significantly escalated trade tensions by announcing a series of tariffs targeting multiple countries:

European Union (EU):

A proposed 25% tariff on EU imports is expected to reduce EU exports to the U.S. by 15-17%, potentially contracting the EU economy by 0.4% and the U.S. GDP by 0.17%. The German manufacturing sector, especially the automotive industry, could see a nearly 20% drop in exports to the U.S. Trump has threatened to impose a 25% tariff on EU goods, particularly cars, which has heightened trade tensions with Germany. Trump threatens to slap 25% tariffs on EU, says bloc was always meant to hurt the U.S., a mini-version of China, but more harmful than China!

Mexico and Canada:

Starting March 4, 2025, a 25% tariff will be imposed on imports from Mexico and Canada. This decision aims to pressure these countries to address drug trafficking issues, particularly concerning fentanyl. Both nations have expressed concerns and are in discussions with U.S. officials to possibly avert these tariffs. Trump intends to impose a 25% tariff on imports from these countries, effective March 4. This decision follows earlier postponements and is linked to concerns over drug trafficking and border security regarding illegal immigration.

China:

The existing 10% tariff on Chinese imports will double to 20%. This move is intended to compel China to take stronger actions against the smuggling of illicit drugs into the U.S. Trump has announced plans to add a 10% tariff on Chinese imports, which would bring the total tariff to 20% on many goods. This move is part of an ongoing trade confrontation with China.

Trump tariffs have led to notable economic repercussions:

European stock markets experienced declines, led by the automotive sector. The tariffs have introduced substantial uncertainty, leading to market volatility and decreased consumer confidence. In summary, President Trump's recent tariff policies have heightened global trade tensions, impacting international relations and economic stability.

The imposition of these tariffs is expected to have significant economic implications, including:

Inflation: Rising tariffs could lead to increased prices for consumers, affecting inflation rates and potentially influencing Federal Reserve decisions on interest rates.

Trade Relations: The tariffs have strained relations with major trading partners, with the EU, China, Canada, and Mexico- all considering retaliatory tariffs on U.S. goods.

Global Economy: The escalation of trade tensions is causing synchronized global economic uncertainty, impacting stock markets, trade & diplomatic dynamics on both sides of the Atlantic as-well-as Pacific.

Political Repercussions

Trump's tariff policies are also having political repercussions, both domestically and internationally. The tariffs are part of his broader trade strategy aimed at reshaping U.S. trade relationships and addressing perceived imbalances. However, they have been met with resistance from trading partners and could impact their political standing, especially if they lead to economic downturns or increased consumer costs. Trump has significantly escalated his trade war strategy by imposing and threatening a variety of tariffs aimed at reshaping U.S. trade relationships.

Canada, Mexico, and China tariffs:

On February 1, 2025, Trump signed executive orders imposing 25% tariffs on most imports from Canada and Mexico (with Canadian energy imports like oil and gas facing a lower 10% rate) and a 10% tariff on all imports from China. These tariffs were initially set to take effect on February 4 but were delayed by 30 days for Canada and Mexico after negotiations with their leaders, Justin Trudeau and Claudia Sheinbaum, who agreed to enhance border security measures to curb drug trafficking and illegal migration. The China tariffs, however, went into effect on February 4, prompting China to retaliate with targeted tariffs on about $20 billion of U.S. exports starting February 10.

Steel and Aluminum tariffs:

On February 10, 2025, Trump expanded existing Section 232 tariffs, removing all previous exemptions (e.g., for Canada, Mexico, and Australia) and raising the aluminum tariff from 10% to 25%. These changes are scheduled to begin on March 12, 2025, aiming to bolster U.S. metal industries but raising concerns about higher costs for manufacturers and consumers.

Reciprocal Tariffs Announcement:

On February 13-14, 2025, Trump declared a policy of "reciprocal tariffs," promising to match tariffs imposed by any country on U.S. exports. This broad initiative, set to be detailed by April 1 and implemented possibly from April 2, targets nations with trade surpluses or high duties like India (17% weightage average tariff rate) and the EU. This move has heightened fears of a global trade war, with the EU and others signaling potential retaliation.

Automobile tariffs (Proposed):

Trump has threatened 25% tariffs on all auto imports starting April 2, 2025, with suggestions of even higher rates (up to 100%) on electric vehicles (EVs), targeting major exporters like the EU, Japan, South Korea and Mexico (Chinese EV indirectly enters the US through Mexico production facilities). This follows a pattern from his first term when tariffs on steel and aluminum impacted the auto sector.

Semiconductors and Pharmaceuticals (Proposed):

Trump indicated tariffs on semiconductor chips and imported pharmaceuticals could start at 25% or higher, though no specific timeline has been confirmed beyond a phased increase over a year.

Economic and Global Reactions

Economic Impact:

Economists predict these tariffs will raise U.S. consumer prices, with estimates suggesting an inflation bump of 0.8 to 1.5 percentage points depending on retaliation. The Tax Foundation estimates a long-run U.S. GDP reduction of 0.3% from the Canada/Mexico tariffs alone, with additional impacts from steel/aluminum (less than 0.05%) and auto tariffs (0.1%). Mexico’s GDP could drop by up to 16% due to its heavy reliance on U.S. trade, while Canada and the U.S. face supply chain disruptions, especially in autos and food (e.g., Mexican avocados).

Retaliation:

Canada and Mexico have vowed retaliatory tariffs—Canada targeting $155 billion in U.S. goods, and Mexico preparing a mix of tariff and non-tariff measures. China’s response has been more restrained but includes a WTO challenge. The EU, facing potential reciprocal tariffs, is preparing countermeasures while seeking negotiations, with leaders like Ursula von der Leyen (VDL) emphasizing a united front.

Trump’s Stated Goals:

Trump justifies these tariffs as tools to address illegal immigration, fentanyl trafficking, and the U.S. trade deficit (over $1.2 trillion in 2024). He frames them as leverage, citing past successes like forcing Mexico to deploy troops to its border in 2019. However, critics argue the tariffs may exacerbate inflation and fail to achieve non-trade goals, as seen in his first term when China tariffs led to higher prices and farmer bailouts costing $28 billion.

Ongoing Developments

Negotiations: Trump has paused some tariffs (e.g., Canada and Mexico) to allow talks, but he’s in "no hurry" to speak with China’s Xi Jinping, suggesting further escalation unless Beijing acts on fentanyl. India’s PM Modi met Trump on February 13, offering tariff reductions and a $500 billion bilateral trade goal by 2030, potentially averting immediate action.

Future Targets: Trump has hinted at tariffs on the EU "pretty soon" and even Russia if it doesn’t negotiate over Ukraine, broadening the trade war’s scope beyond traditional economic rivals.

Critical Outlook:

While Trump touts these measures as an "America First" triumph, the strategy risks isolating the U.S. economically. Retaliation could shrink U.S. exports (10% of GDP), hitting sectors like agriculture and manufacturing hard, as seen with soybean losses in 2018. The reciprocal tariff plan, if fully enacted, could disrupt decades of trade norms, potentially benefiting rivals like China by pushing allies toward alternative markets. The delay in some tariffs suggests tactical flexibility, but the lack of clear benchmarks for lifting them adds uncertainty.

On Thursday, Trump pledged an additional 10% tariff next week and said:

·       Canada/Mexico tariffs still on

·       Mexico, and Canada tariffs will start March 4, plus an additional 10% on China.

·       Trump's Bold Plan: Boost Egg Imports To Reverse Biden's Bird Flu Blunder That Tanked Nation's Hen Population

·       Canada And Mexico Tariffs to Take Effect As Planned

·       Will discuss Russia and Ukraine with the UK's PM Starmer

·       I will also discuss trade with Starmer

·       I will visit the UK shortly

·       We're having great success in slimming down the government

·       Zelenskyy is coming on Friday morning

·       Having the rare earth deal will be a backstop for Ukraine

·       We're very well advanced on the deal, the deal is not done yet

·       Russia has been acting very well, we are well advanced on a peace deal

·       Trump criticizes EU VAT taxes

·       We don't like the way the EU is treating our businesses

·       We will have reciprocal tariffs on the EU

·       EU & UK is tough with the US with trade

·       Apple's EU decision was ridiculous

·       We were paying a disproportionate share of NATO

·       Trump asked if there will be sanctions on the UK: I will have to take a look.

·       I don't think Putin would invade again if there is a peace deal with Ukraine.

·       China tariffs would be an additional 10%

·       April 2nd is the reciprocal tariff date

·       On Canada & Mexico: I'm not seeing progress on drug flows

·       Canada should be stopping much more fentanyl

·       The relationship with Zelenskyy got a little bit testy

·       Russia acting well and a peace deal is ‘well advanced’

·       We'll certainly try to get as much land back for Ukraine

·       UK's PM Starmer is a tough negotiator

·       The US and UK have a special relationship

·       Meetings with the UK's PM Starmer were tremendously productive

·       I am working very hard to get the war in Ukraine to end, it is moving along rapidly

·       Trump on ending war: It'll either be fairly soon or not at all

·       The agreement with Ukrainian President Zelenskyy will make the US a partner in developing Ukraine's minerals, rare earths, oil and gas

·       US taxpayers will effectively be reimbursed for money spent on Ukraine

·       I told Starmer that the next step is an achievable ceasefire in Ukraine

·       The Ukraine disaster shows the importance of NATO partners investing in defense. In some cases, 4-5% of GDP would be appropriate

·       We will have a great trade agreement between the US and UK

·       We will have a trade agreement for the UK and the US very quickly

·       Trump on UK trade deal: We'll have a deal done rather quickly

·       I support NATO Article 5, but I don't think we'll have any reason for NATO Article 5

·       Ukraine is like a huge economic development project

·       I will meet Ukrainian President Zelenskyy at 11 AM ET

·       We have good talks going on regarding Gaza

·       Tariffs are going to make our country rich

·       UK's PM Starmer tried to persuade on no UK tariffs

·       Tariffs wouldn't be necessary with a trade deal, we'll see

·       Tariffs will go on, not all, but a lot of them

·       Social security will not be touched

·       Trump uses the 'competitor' code word for China

·       Trump's decision on tariffs on EU: 25%

·       Details on EU tariffs coming soon

·       EU can try to retaliate on tariffs

·       EU tariffs to be 25% on autos, and other things

·       I think we'll have a deal with Putin. Putin had no intention of settling the Ukraine war.

·       Putin will have to make concessions on Ukraine

·       NATO you can forget about

·       There will not be restricting too much in terms of countries for gold cards

·       I want to see if we make a deal with Russia before talking about loosening sanctions

·       I want to get as much land back in Ukraine as possible

·       Trump Wants Keystone XL Built

The UK's PM Starmer said:

·       The US and UK remain each other's first partners in defense

·       Trump and I discussed a Ukraine peace plan that is tough and fair

·       The UK is ready to put boots on the ground and planes in the air to sort out a Ukraine peace deal

·       We will deliver the UK's biggest increase in defense spending

·       Trump and I will work on a new economic deal with advanced tech at its core

·       We are hosting 18 countries on Sunday in the UK to further talks on Ukraine

On late Thursday, Navarro, a close Trump confidant and now senior counselor for trade and manufacturing, said:

·       Trump is clear on Canada and Mexico tariffs

·       On Canada and Mexico tariffs: Trump presented a schedule

·       Mexico and Canada's tariffs depend on fentanyl cooperation

·       Trying to establish more copper refining capacity

·       Trump issues decree to implement DOGE's government efficiency initiative

·       We are dedicated to making Trump's tax cuts permanent

On late Thursday, the US Tread Secretary Nominee Bessent said:

·       Dedicated to working with Congress on Trump tax cuts

·       To pursue making Trump tax cuts lasting with Congress

On Thursday, the WH Sr. Adviser Hassett said:

·       Had the first big meeting With House leaders yesterday and discussed the next stage of the House reconciliation package

·       There's a study coming out on tariffs on April 1st

·       Trump will decide what to do about tariffs after that

On late Thursday, the US Commerce Secretary Nominee Lutnick said:

·       We may utilize postal workers as census workers

·       China is my major worry

·       China dislikes the United States

·       We will not allow Chinese vehicles in the US

·       We will decrease interest rates

·       April 2 is baseline reciprocal tariff data

Conclusions:

In summary, almost all actions by Trump 2.0 on global geopolitical fronts may help China gain global influence and supremacy. China is far ahead of the US in terms of industrial and infra ecosystems. Thus Trump can’t compete with Chinese manufacturing global supremacy by simply imposing tariffs and encouraging domestic inefficiencies. Trump has to invest much more in fragile US infra to compete with mighty China and Make America Great Again!

It may be also very tough to predict whether the present US-Russia ‘Bromance’ will continue or not after President Trump’s 2nd term ends in 2029. Trump is also now interested in having a good competitive relationship with arch-rival China as the two largest economies, now contributing almost 50% of the global GDP- also needs each other for prosperity and development.

For most of the US MNCs, China is now the 2nd largest market. Thus corporate America led by Musk & Co (US tech lobby) may not allow Trump 2.0 as Trump 1.0 in terms of trade and tech war. Trump 2.0 may be much more moderate than Trump 1.0 in terms of trade, tech, and cold war with China and also Russia. Trump 2.0 may be much more hawkish with the EU, Canada, Mexico, Japan, and other allies. Trump 2.0 may even abandon NATO in the future!

Market impact:

On Thursday, Wall Street Futures crumbled on Trump trade war tantrum despite the initial boost by NVIDIA’s in-line-with-expectations report card. The market slid on the wrong foot as Trump indicated Canada/Mexico tariffs will be on hold till 1st April’25. Wall Street was also dragged by Trump’s tech war stance; NVIDIA also stumbled on Trump’s potential AI chip export restriction to China. Also softer US GDP growth and hotter-than-expected initial jobless claims (after mass firings of Federal employees by Trump & Musk) - dragged the market sentiment as the market is now concerned about an imminent stagflation.

On Thursday, Wall Street was dragged by techs, utilities, communication services, consumer discretionary, materials, healthcare, industrials, and consumer staples, while dragged by banks & financials, energy, real estate, and consumer staples. Dow Jones (DJ-30) was dragged by NVIDIA, Salesforce, American Express, Goldman Sachs, and Microsoft, while boosted by Travelers, 3M, McDonald’s, Visa, Merck and United Health. The Dow Jones initially gained over 200 points but struggled to hold onto gains, trading nearly 100 points lower as strength in Walmart, and Visa helped limit losses. Salesforce slid on subdued guidance.

Gold slid on the progress of an imminent Ukraine war ceasefire; oil is also under pressure despite OPEC not increasing production from April due to the Trump trade war and policy tantrums.

Weekly-Technical trading levels: DJ-30, NQ-100, and Gold 

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 44650) now has to sustain over 45300-45500 any further rally; otherwise sustaining below 45200, DJ-30 may again fall to 44500/44100-43700/43300 and 42800/41900 and further 41200/40600-40400/40000 in the coming days.

Similarly, NQ-100 Future (22300) has to sustain over 22400 for a further rally to 22500/22700-23000/23300 in the coming days; otherwise, sustaining below 22350-22100, NQ-100 may again fall to 21700/21300-21100/20700 and further 20500/20300-20100/19250 in the coming days.

Also, technically Gold (CMP: 2945) has to sustain over 2965-2975 for a further rally to 3000/3025-3050/3075; otherwise sustaining below 2955-2950 may again fall to 2925/2895-2875/2860 and 2840/2825-2800/2780 and 2750/2740-2725/2690 and further 2675/2655-2610/2560 in the coming days.