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How Are Tariffs Impacting Market Sentiment?
Market sentiment took a hit after Trump threatened 200% tariffs on alcoholic beverages from the European Union. This was in response to the EU’s 50% tariff on whisky. His comments raised concerns about trade tensions and their potential economic impact.
Futures initially sold off following the announcement but pared losses after February’s producer price index (PPI) came in flat, below economists’ expectations of a 0.3% increase. This followed a softer-than-expected consumer price index (CPI) report on Wednesday, easing some inflation fears. However, traders remain cautious about how tariffs could affect inflation and growth.
Will Inflation Data Support a Fed Rate Cut?
Despite easing inflation pressures, uncertainty over tariffs complicates the Federal Reserve’s path forward on interest rates. Scott Helfstein, head of investment strategy at Global X, noted that while rate cuts are still expected, the market remains uncertain about whether tariffs will have a greater impact on inflation or economic growth.
The rates market is currently pricing in three Fed rate cuts for this year. However, the timing and extent of these cuts will depend on how inflation trends in the coming months.
How Are Stocks and Bonds Performing?
All three major indexes are on track for steep weekly losses. The S&P 500 and Nasdaq are both down about 3% for the week, while the Dow has dropped 3.4%, heading for its worst week in a year. The S&P 500 briefly entered correction territory on Tuesday, down 10% from its February high.
In the bond market, U.S. Treasury yields remained little changed Thursday as investors weighed inflation data. The 10-year Treasury yield rose 2 basis points to 4.33%, while the 2-year yield inched up to 3.99%. Yields had previously moved lower following the softer CPI reading, suggesting the market is pricing in slower economic growth.
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