The increased scrutiny on AI winners is hitting the market when worries are already high about President Donald Trump’s tariffs and about a weaker-than-expected U.S. economy.
Trump on Thursday gave a one-month reprieve from his 25 per cent tariffs on most goods from Mexico after a conversation with President Claudia Sheinbaum. That followed his giving a a one-month exemption on Wednesday for U.S. automakers on his stiff new tariffs for Mexican and Canadian imports.
The moves resuscitate hopes on Wall Street that Trump is using tariffs as just a tool for negotiations and that he may ultimately avoid a worst-case trade war that grinds down economies and sends inflation higher.
But Trump is still pressing ahead with other tariffs scheduled to take effect April 2. And the dizzying back-and-forth moves on tariffs are amping up the uncertainty that has already upset the market. It was just on Monday that Trump said there was “no room” left for negotiations that could lower the tariffs on Mexico and Canada, which took effect Tuesday.
“Much will depend on whether these new tariffs prove temporary or are toned down,” according to strategists at BNP Paribas. “But even if they are ultimately removed, we anticipate lasting damage to global economic activity.”
U.S. households are already bracing for higher inflation because of the tariffs, while U.S. businesses say they’re confronting “chaos” because of all the uncertainty coming out of Washington.
Such reports have raised the possibility of a worst-case scenario known as “stagflation.” It’s something that doesn’t happen often, where the economy is stagnating and inflation is high, and policy makers at the Federal Reserve don’t have a good tool to fix it.
Loading
That has Wall Street’s attention on a report coming Friday from the U.S. Labor Department, which will show how many workers U.S. employers hired last month. A solid job market so far, which has allowed for solid spending by U.S. households, has been the linchpin preventing a recession.
Some big retailers have been offering warning signals recently about how much U.S. consumers can keep spending.
Macy’s on Thursday reported slightly weaker revenue for the end of 2024 than analysts expected, though its profit topped expectations. It also gave a forecast for profit in 2025 that fell short of analysts’. Its shares fell 0.2 per cent.
It was a similar story for Victoria’s Secret, which beat Wall Street’s fourth-quarter sales and profit forecasts but gave a revenue forecast for the upcoming year that fell short of analysts’ expectations. Its stock fell 5.8 per cent.
In stock markets abroad, indexes mostly rose in Europe after the European Central Bank cut interest rates, as was widely expected.
German stocks rallied 1.5 per cent as the market continues to feel reverberations from an agreement by the two parties that will form the country’s next government to loosen constitutional limits on borrowing. It’s a major turnaround in German budget policy and opens the way for new borrowing and spending over the next decade.
Stocks also rose in Asia, including jumps of 3.3 per cent in Hong Kong and 1.2 per cent in Shanghai.
China’s commerce minister said Thursday that his country will not yield to bullying and that its economy can weather higher tariffs imposed by Trump, though he added that there are “no winners in a trade war.”
AP
