\u003cc-45/\u003e
\u003cc-48/\u003e
The market generally bets that Trump will not truly implement a hardline tariff policy. Even if this assessment is incorrect, the market believes the Federal Reserve will step in to provide support.
Currently, Trump is gradually increasing tariffs, having imposed a 30% tariff on Mexico and Europe last weekend, yet the stock market is still hovering near historical highs, as the market expects Trump will ultimately make concessions.
At the same time, the market is also betting that if tariffs impact the U.S. economy, the Federal Reserve will choose to cut interest rates; however, if the Federal Reserve prioritizes controlling inflation over saving the stock market, such cuts may not occur.
From the market performance perspective, Bitcoin prices in Europe, Asia, and the U.S. this morning are close to historical highs, with U.S. Bitcoin prices earlier surpassing $122,000, although there was a slight sell-off afterwards, it did not raise concerns.
However, Wall Street believes this optimistic outlook is unreasonable. Investors are ignoring Trump's threat of a 30% tariff on Mexico and the EU last weekend because they feel these tariffs will ultimately be resolved through negotiations or postponed to a later date.
J.P. Morgan points out that the market may be mistaken if it believes that the Federal Reserve will step in to save the day if Trump unexpectedly insists on raising tariffs.
Deutsche Bank also stated that Trump's tariff policy (i.e., the 'TACO deal') hides significant risks. Its analyst Henry Allen told clients: "The market clearly has not factored in these increased tariffs into pricing considerations, and it may take until the last few hours to know the results, which could trigger a strong market reaction and exacerbate volatility."
His colleague Jim Reid shares a similar view: "To be fair, a month ago, Trump threatened to impose a 50% tariff on the EU, and now it's down to 30%. Some may see this as 'progress.' But the market generally views this as a negotiation tactic, and such a high tax rate is unlikely to be implemented in reality."
However, he also warns clients: "But one day, this bluster may be punctured. Currently, the U.S. risk markets are near highs, and the bond market is relatively stable, with little pressure on Trump to concede. If high tariffs are indeed imposed on August 1, coinciding with a holiday period of low market trading, it could trigger significant market volatility."
Goldman's view is similarly aligned: "Market participants and the bank's economists mostly believe that these tariffs will not actually come into effect. Similar situations have occurred multiple times this year, and the market may have determined that such high floating tax rates are unsustainable."
UBS's Paul Donovan also stated: "Financial markets seem to be happy to assume that Trump will ultimately abandon the latest threat of trade taxes."
The market also believes that if the 'TACO deal' encounters problems, the Federal Reserve will step in to save the market. But the reality is that if tariffs drive up inflation, the Federal Reserve may not be able to cut rates as the market expects.
J.P. Morgan's Bruce Kasman and others predict that as tariffs and supply shocks impact the economy, there may be a tendency towards 'stagflation' in the second half of this year.
They told clients over the weekend: "This forecast shows a clear gap from the market's expectations of significant corporate profit growth and minimal inflationary pressure in the U.S., which is surprising.
