Fiscal
The tariffs on Canada and Mexico will come into effect as scheduled while the tariffs on China will be doubled. In the Middle East, Iranian response to any attack will threaten Middle Eastern oil supply. Meanwhile, Chinese fiscal support will surprise to the upside at the Two Sessions. But Trump's China policy will cause volatility. Now that the stock market is cracking, reinitiate defensive trades, such as long treasuries versus US stocks and long global defensives versus cyclicals.
Trump’s ceasefire talks are positive for Germany – and so was the German election result. But Trump’s tariffs will hit Germany soon. Investors should use near-term volatility to increase exposure to Germany.
US growth has slowed in recent weeks. This can be seen in the weaker data on retail sales, consumer confidence, services PMIs, and a swath of housing releases (notably starts, existing home sales, homebuilder confidence, and stock prices). It can also be seen in the decline in GDP tracking estimates. The Atlanta Fed's GDPNow model projects growth of 2.3% in Q1, down from a peak of 3.9% on February 3. The Citi US Economic Surprise Index has also dipped into negative territory.
The rise of the far-right is challenging mainstream German politics. The CDU/CSU and SPD will govern Germany again after the election. A ceasefire in Ukraine will offer some relief, but Trump’s policies will keep tensions high.
