Key Points
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China retaliated with 125% tariffs and the U.S. re-clarified tariffs on China from 125% to 145%.
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Consumer sentiment is falling, according to UMich, with 1-year inflation expectations high. PPI came in cooler than expected.
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The Fed seems uncertain. BlackRock’s CEO thinks we could already be in a recession.
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The U.S. hiked its tariffs on China earlier to 125%, which was later re-clarified by the White House to 145% yesterday as the trade war with China escalates further. China finally retaliated to these massive tariffs by announcing new retaliatory tariffs of 125%. The stock market actually rose early in the morning the last time China retaliated, and it repeated that trend this time as well. It didn’t last, as consumer sentiment data came in worse than expected. We’ll get into that later.
China’s new 125% tariffs could invite another U.S. retaliation and worsen the trade war. Plus, there’s already a 10% baseline tariff on all countries investors are worried about. Blackrock’s CEO was on CNBC today and said he was petrified. He reiterated what he said earlier: “We’re very close, if not [already] in a recession.”
Here’s a market update as of 10:30 A.M (ET) today.
- The S&P 500 is up 14.56 points, or 0.28%.
- The Nasdaq Composite is down 137.58 points, or 0.83%.
- The Dow Jones Industrial Average is down 268.3 points, or 0.68%.
Major Institutional Players Seem Bearish
BlackRock’s CEO Larry Fink isn’t the only person who seems bearish on the economy. JPMorgan CEO Dimon said that “we will be in the crosshairs of trade wars” and that “we’ll just have to deal with that trade war impact.”
Morgan Stanley’s CEO also said that the “forward path of inflation and the settling of trade policy is unclear.” He added, “There will be a kerfuffle in the Treasury markets; the issue will stem from all the rules and regulations. When that happens, the Fed will step in as it has before.”
The Fed’s Collins also made the following notable comments:
“At this point the expectation is Fed will need to hold steady for longer.
“I see a mixed bag on longer-run inflation expectations.”
“I won’t rule out a downturn.”
The Fed’s Musalem said:
“Downside risks to growth and employment have increased, and there are notable headwinds for the labor market.”
“There’s been limited progress on inflation since mid-2024, and risks of a near-term rise have increased. There’s more work to do.”
“Bankers say loan demand is softening, and see consumer loan portfolios weakening, as well as challenging conditions for the agricultural sector.”
Tariffs and Treasuries
Tariffs are not out of the headlines despite Trump pausing them for all countries except China. There is still a baseline tariff, and the trade war with China is escalating fast. A CNN reporter said that in the hours before China announced its retaliatory tariffs, the Trump administration warned China and asked them to request a Xi-Trump call. Instead, China ended up retaliating regardless and a call has not yet happened.
Moreover, there are fears in the market that China could be selling its treasury holdings. The U.S. treasury rates are spiking, and analysts on CNBC are confused about who might be selling. Some are doubting the American exceptionalism trade and believe that foreigners are less confident in the U.S. economy and are dumping.
Macros
Recent macros are relatively good, and so are bank earnings that came in. However, the University of Michigan has released some concerning numbers.
It said that the share of consumers expecting unemployment to rise in the year ahead rose to the highest since 2009.
- The Index of Consumer Sentiment is at 50.8 vs the 53.8 forecast.
- The Current Economic Conditions index came in at 56.5 vs. the 60.8 forecast.
- The Index of Consumer Expectations came in at 47.2 vs. the 50.7 forecast.
- Inflation expectations also soared. 1-year expectations are now up to 6.7% from 5%, and it is significantly higher than expectations of 5.2%.
Conversely, the US PPI did come in lower at 2.7% vs. the 3.3% forecast, and the Core PPI came in at 3.3% vs. the 3.6% forecast. This is due to energy costs plunging, but tariffs are expected to drive up inflation in the coming months.
Other Assets
- Gold is up 2.26%.
- Crude Oil Futures are up slightly by 0.1%.
- Natural Gas Futures are up slightly as well by 0.2%.
- Bitcoin is up 3.5% to $82.360.
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