Stock Markets Brace for Macro Impact After Trump Tariff Whipsaw
Stock Markets Brace for Macro Impact After Trump Tariff Whipsaw
By:Ilya Spivak
Markets face meaty macro event risk after Trump tariff whipsaw
- Stocks end up broadly lower after DeepSeek AI and Trump tariff shocks
- U.S. jobs and service-sector ISM data are in focus as the Fed outlook churns
- A widely expected Bank of England rate cut puts the guidance into focus
Wall Street took a beating last week, even as initial losses after the revelation of China’s DeepSeek AI model moderated. The S&P 500 and the Nasdaq 100 shed 1.1% and 1.5% respectively. Perhaps most tellingly, a downswing in Treasury bond yields failed to rescue risk appetite, marking a notable departure from recent cross-market dynamics.
Another market-open shocker awaited markets this week, with stocks plunging as the Trump administration announced new tariffs aimed at Canada, Mexico, and China.
The North American portion of the plan has since been put on pause after the U.S. President spoke with his Mexican and Canadian counterparts. Stocks fell on the day anyway.
Against this backdrop, here are the key macro waypoints to consider in the days ahead.
U.S. ISM services PMI data
Purchasing managers index (PMI) data from the Institute of Supply Management (ISM) is expected to show that the U.S. service sector continued to expand at a solid pace in January. Traders will be keeping a close eye on the inflation component of the data after price growth surged to the highest in almost two years in December.
The companion ISM manufacturing survey revealed a brisk pick up on this front: prices grew at the fastest rate since May. That came alongside an unexpected expansion in overall activity growth as new orders and employment gathered steam. Similar buoyancy on the services side may pressure Treasury bond yields and the U.S. dollar higher.
Bank of England (BOE) interest rate decision
The U.K. central bank is expected to deliver another interest rate cut when the policy-setting Monetary Policy Committee (MPC) gathers for its first meeting of 2025. Benchmark SONIA futures reveal that markets have fully discounted a 25-basis-point (bps) reduction, bringing the target Bank Rate to 4.50%.
This is likely to put the spotlight on the forward guidance on offer in an updated quarterly Monetary Policy Report (MPR) as well as the press conference with Governor Andrew Bailey after the policy announcement. As it stands, 60bps in cuts are priced in for this year, implying two 25bps reductions and a 40% chance of a third one.
U.S. employment data
The U.S. economy added 170,000 jobs in January, according to economists’ consensus forecasts. The unemployment rate is expected to remain unchanged from the prior month at 4.1%. Average hourly earnings growth is seen ticking down to 3.8% year-on-year, marking the slowest pace of wage inflation since July.
Analytics from Citigroup suggest that U.S. economic data has narrowly tended to surprise on the upside relative to baseline expectations in recent weeks. If that extends to an upbeat jobs report, a pushback on Fed rate cut expectations may boost Treasury yields. For now, the markets see 41bps in cuts this year.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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