There was some relief in Asian and European equity markets overnight, as signs of compromise on the tariffs, began to show. Trump added a month delay of 25% tariffs, on certain automakers, at the request of the ‘Big Three’ US car manufacturers. The signs of flexibility were enough to convince many that there was latitude in the tariff process. Asian markets were stable, and European markets were boosted by the ECB adding a further 25 basis point rate cut. The ECB confirmed inflation was tamed, ignoring the most recent data, and deciding the European economy needed further rate cuts. The German decision to abandon the ‘Debt Brake, boosting deficit/debt spending, was a sugar high for equities. This can only end in future disaster. The US Dollar continued to collapse, with the EUR reaching 1.0800, despite the rate cut and the GBP reaching 1.2900.The reserve crash has boosted commodity currencies further, with the AUD consolidating above 0.6300, while the NZD surged above 0.5700. Fears of the impact on the US economy as a result of tariffs are widespread, with the Beige Book noting it ‘could result in significant rises in input costs’, while others predict inflation will be reignited. This will be true in the short-term, but the long-term impact will be extremely positive for the US economy, meanwhile achieving many of Trumps political goals.
