A look at the day ahead in U.S. and global markets from Mike Dolan
With Wall Street about to log off for what’s effectively a four-day Thanksgiving holiday, trade tariff jitters are replaced by inflation angst as the Federal Reserve gets another price check.
Although big automakers took a hit, broad U.S. stock indexes seemed unperturbed on Tuesday by President-elect Donald Trump’s threat of 25% tariffs on imports from Canada, Mexico and China. The main heat was in the Mexican peso, Canadian dollar and their related bourses – while stocks in Europe, Japan and South Korea wobbled again.
But the S&P500 gained more than half a percentage point through the session, closing back above 6,000 at another record high. Futures were back off marginally ahead of today’s bell.
With trading thinning this week, stocks are still feeding off assumptions about the extent of Trump’s agenda of tax cuts, tariff rises and immigration crackdowns. Surveys showing a jump in consumer confidence this month helped.
There’s also been some relief this week from a calming of the Treasury market, with yields retreating in a week of big debt sales – due to mix of optimism about money manager Scott Bessent’s nomination as Treasury Secretary and an ebbing crude oil price following the Israel-Hezbollah ceasefire.
Minutes from the Fed’s post-election meeting this month showed policymakers divided over how much further they may need to cut interest rates from here, avoiding much guidance on the forward trajectory.
Part of the Fed’s problem is visibility over the impact of Trump’s economic plans.
Goldman Sachs’ ‘ready reckoner’, for example, shows a 25% tariff on U.S. imports from Canada, Mexico and China – more than 43% of all U.S. imports – would generate government revenue of about 1% of GDP. But, by lifting the effective U.S. tariff rate by 8.6%, it would boost the core PCE price index by 0.9%.
Wednesday gets two cuts of that personal consumption expenditures inflation gauge – along with third quarter GDP revisions and the monthly update from October.
The latter is expected to show annual headline and core PCE inflation gauges – the Fed’s favored measures – ticking back up to 2.3% and 2.8% respectively.
And yet Treasury yields continued to retreat ahead of those releases, falling back to levels seen just after the November election. Even market inflation expectations, captured by 10-year inflation swaps or ‘breakeven’ rates in inflation-protected Treasuries, are ebbing too.
Some of the optimism in Treasuries may have come from indications in the Fed minutes that some policymakers believe it may soon be time to lower the interest rate on funds that banks and money market funds park at the Fed – so that it once again matches the bottom of the Fed’s policy rate range.
