Morning Brew February 10 2025

Good morning,

A survey of 4,000 traders by Reuters showed that inflation and tariffs are seen as the key factors driving markets this year. This week will be a significant one. Tariffs are the known unknown, with Donald Trump expected to announce reciprocal tariffs today or tomorrow. Yesterday, he announced he would impose 25% tariffs on steel and aluminum as early as today. Canada is the biggest exporter of aluminum to the US, and it is still unclear if the extension of tariffs until March would cover these exports as well. 40% of steel imported by the US are from Mexico and Canada, the bulk of aluminum is from Canada.

Speaking to reporters yesterday, he reiterated that the US should own Gaza and interestingly hinted that the US debt of 36 trillion USD may be smaller because of fraud.

Besides the tariff announcements, key events will include the US CPI, PPI, and Retail Sales in terms of data, Jerome Powell's testimony, and approximately 20% of the 500 S&P companies reporting.

US equities closed negative, with the S&P 500 losing 0.25%, the Dow 0.54%, and the Nasdaq 0.53%. However, the underlying volatility was immense. Nvidia gained more than 8%, Tesla lost more than 10%, and Google lost approximately 9%.

US 10-year yields remain around 4.50, and the USD Index traded a wide range between 109.88 and 107.30, ending the week at 108.08. It is now 108.22. Gold reached 2900 for the first time ever, and silver traded above 32 before losing some ground into the weekend. We are currently at 2888 and 32.05. Precious metals are boosted by overall uncertainty, raised targets by several banks, and the fact that China is allowing certain insurances to invest in gold.

EURUSD is trading at 1.0320, GBPUSD at 1.2410, and USDJPY at 151.90. Overnight, China reported its CPI and PPI; the CPI rose while the producer prices remained low, a very divergent signal.

Overall, markets seem to be taking the uncertainty caused by the US administration quite well. There is nervousness, but levels remain high overall.

Charu compiled a great analysis of the tariffs: Link

Key Takeaways:

• Broadening Tariff Measures: Trump has threatened 25% tariffs on steel and aluminum imports from all countries, and 'reciprocal' tariff measures are expected to be announced this week. These expanding trade actions beyond previous threats to Canada, Mexico, and China are leading to potential new import restrictions and retaliation, signaling more bouts of volatility for investors.
• Multiple Purposes of Tariffs: Tariffs are being used not just to tax imports but also as tools for national security, economic leverage, and revenue generation, indicating a shift towards long-term economic policy rather than short-term trade disputes.
• Investing in Self-Sufficiency: The trend towards protectionism and self-sufficiency suggests a structural shift in the economy, requiring investors to adapt their strategies to focus on domestic manufacturing, energy independence, defense, and cybersecurity, as well as managing inflation and cost pressures.

Key events this week:

• Monday: Earnings; McDonald's
• Tuesday: Earnings; Shopify, Coca-Cola, BP, Supermicro, Lyft, Gilead. Hammack & Williams speak.
• Wednesday: US CPI. Earnings; Barrick, Biogen, Reddit, Robinhood, The Trade Desk, Cisco. J. Powell speaks.
• Thursday: Germany Inflation, UK GDP, US Initial Jobless Claims & PPI. Earnings; John Deere, Sony, Coinbase, Airbnb, Roku.
• Friday: EU GDP, US Import Prices & Retail Sales.