Wall Street banks on potential decrease in import taxes.
Trade Tensions Easing, but Inflation Remains a Concern
Wall Street's week ended on a high note, with a positive buying sentiment due to signs of easing in U.S.-China trade conflicts. Despite disappointing economic data, the market rallied. The Dow Jones Index soared 0.8% to close at 42,655 points, while the S&P-500 and Nasdaq Composite climbed 0.7% and 0.5%, respectively. On the New York Stock Exchange, there were more gainers than losers—1,916 to 831— with 61 stocks remaining unchanged [data source].
Trade on the Horizon
The U.S. government is set to discuss agricultural tariffs and other trade barriers with the European Union in upcoming trade talks. Additionally, economic security and digitalization issues will be addressed. Despite ongoing trade tensions, investors remain optimistic. According to Alexandra Wilson-Elizondo of Goldman Sachs, a resolution to the trade dispute, even temporarily, could shift the focus to budget, tax, and deregulation issues [source].
Inflationary Pressures
U.S. import prices rose more than expected in April, signaling strong inflationary pressure from tariffs, particularly those against China. Imports increased by 0.1% from the previous month, despite predictions of a 0.4% decrease due to lower oil prices. Excluding the impact of lower oil prices, imports would have increased by 0.4%. This, according to a trader, shows a clear sign of inflationary pressure from tariffs [source].
The University of Michigan's consumer sentiment index unexpectedly fell, which, when combined with higher U.S. import prices, points to increased inflationary pressures. These typically lead to purchase hesitation or forward buying, not long-term purchase intentions [source].
Other Market Moves
- Boeing lost 0.2% despite Etihad Airways ordering 28 wide-body aircraft. The order includes a mix of Boeing 787 and 777X aircraft powered by GE engines, as well as a service package. However, the new aircraft are not expected to enter service until the end of the decade [source].
- Two of the largest cable and broadband providers in the U.S., Charter Communications and Cox Communications, are merging for $21.9 billion. Cox is valued at $34.5 billion including debt. Shares of Charter Communications rose 1.8% [source].
- Applied Materials (-5.3%) reported better-than-expected Q2 results but disappointed with its revenue outlook. The numbers from video game developer Take-Two Interactive (-2.4%) for the Q4 were mixed, with its guidance for the current fiscal year falling short of market expectations [source].
- The dollar recovered slightly, with the Dollar Index gaining 0.2%. Higher import prices and inflation expectations suggest that the U.S. Federal Reserve might not pursue further rate cuts [source].
- Oil prices stabilized after a drop the previous day. OPEC+ production cuts and a potential Iran deal continue to weigh on sentiment [source].
[Source: ntv.de, mau/DJ]
Wall Street, Tariffs, Inflation, Trade Conflicts
Bonus Insight:While recent tariff reductions offer some relief, overall trade policies have contributed to inflation, reduced GDP growth, and increased challenges for businesses and consumers. The tariffs have also led to higher consumer costs, particularly affecting clothing and textiles, and increased pressure on companies to raise prices [source].
Community policy should be reviewed to address the impact of escalating trade conflicts on employment, as continued tensions could lead to higher unemployment rates and poor business sentiment. In light of the increasing inflationary pressures due to tariffs, the employment policy must consider adjustments to financial support for impacted sectors to maintain stability.
Given the adjustments needed in community and employment policies, it would be prudent for businesses to closely monitor the ongoing trade talks and prepare for potential changes in the financial landscape as a result of trade resolutions or continuing tensions.
