Key Points
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Trump has proposed a 50% tariff on the European Union starting June 1.
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He also threatened Apple with 25% tariffs if the company does not make iPhones in America.
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As a result, the stock market is fearful again, and certain stocks are selling off.
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Stock market volatility seems to have returned for now, as the market is quite bearish today. Across the board, stocks have declined, and this includes even the tech names that held more steady in recent sessions.
Stocks have mainly turned bearish due to increasing treasury yields and the budget deficit problem not being solved. The U.S. credit risk was downgraded by Moody’s earlier, and there does not seem to be anything in the immediate term that could rebalance spending and fix the deficit. Instead, the new tax bill is expected to increase the deficit.
On top of that, President Donald Trump is starting to get more hawkish on tariffs. He threatened Apple (NASDAQ: AAPL) with a 25% tariff if the company does not build in America. He also recommended placing a 50% tariff on the European Union starting June 1. Perhaps this is to fix the deficit by using revenue derived from tariffs, though the side effects of such high tariffs could be painful.
Here’s a market update as of 10:00 AM (ET) today.
- The S&P 500 is down 61.72 points, or 1.06%.
- The Nasdaq Composite is down 254.16 points, or 1.34%.
- The Dow Jones Industrial Average is down 363.14 points, or 0.87%.
Treasury Secretary Scott Bessent Speaks
The Treasury Secretary made the following notable comments:
- “Most countries are negotiating in good faith, except the E.U.”
- “Many Asian nations have come up with very good deals.”
- “We are far along with India in trade talks.”
- “We just have to be careful on the timing of the tax bill.”
- “I am not expecting the U.S. Senate to change the budget bill much.”
- “We would like to have Apple help the U.S. to make the semiconductor supply chain better.”
- “The E.U. has a collective action problem.”
- “We hope this lights a fire under the E.U.”
- “Trump believes E.U. proposals have not been of good quality.”
Just like the first round of tariffs, this second round of aggressive trade posturing is causing significant fear on Wall Street.
According to the Fed’s Goolsbee, a “50% E.U. tariff is an order of magnitude different from the current situation.” According to him, “tariff rates that high would be scary for the supply chain.”
Treasury Yields Fall
U.S. Treasury yields were rising sharply preceding today, but new tariff threats have now caused them to fall sharply instead. Because of the escalation that will come from a 50% tariff on E.U. goods, this is expected to lead to weaker economic growth in the eurozone and has prompted a flight to safety. Investors now expect more rate cuts from the European Central Bank (ECB) to counteract this, and this expectation is pushing yields down in both the U.S. and Europe.
Plus, tariffs could significantly alleviate the deficit. The income tax cuts from the tax bill could be offset by these tariffs, though tariffs would also cause inflation to rise in the coming months if held at 50%.
Other Assets
- Gold Futures are up 1.6% to $3,347.
- Crude Oil Futures are up 0.3%.
- Natural Gas Futures are up 1.54%.
- Bitcoin is down 1.6% to $109,935.
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