Trump Tarrif Regime Dictating Markets
Financial markets continued their roller coaster ride as the Trump tariff regime continues to see volatility remain at elevated levels. While the US VIX Index has moved off its five year high of 53pts, its still remains at an incredible 32pts. To put this into context, the recent move in the index only surpassed in Nov 2008 (GFC) and March 2020 (Covid).
The uncertain moves in bond markets along with the sharp reversal of the USD remains another telling sign that investors are becoming increasingly disenchanted with the policy framework out of the US. At this stage of both the political and market cycle, no longer are either US Treasuries or the USD seen as the safe haven investments that they have been for over many decades.
The moves by the Trump Administration are upending much of the post war trade environment and capital is exiting the country. While the 90 day pause by the Administration will allow the potential for individual country deals, the sheer complexity and messy approach in any negotiation is likely to have minimal impact on calming markets in the near term.
Gold To Hit US$4,000?
Its no surprise that gold continues to move higher. The potential for gold to hit US$4000 p/oz cannot be ruled out after hitting US$3500 though the back end of last week.
US Reporting Season and Forward Guidance
As we head into the US reporting season, we are already witnessing many corporates reducing their guidance levels going forward. We do expect EPS growth across the S&P500 Index to decline around 8% over the quarter as the impact of the tariffs and uncertain macro outlook continue. Whether the US goes into a recession will become clearer through the 2q25, however, with S&P500 trading at 17x fwd earnings, its clear the growth outlook will be lower.
Pressure on Fed and Powell
Finally, with the Fed set to remain on hold at its May meeting the political pressure on Chair Powell is likely only to increase. In our view, this could be a step too far for markets, which see ongoing Fed independence as crucial to a functioning market.
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