Latest news with #TacoTrade
Mid East Info
14-07-2025
- Business
- Mid East Info
Equities shrug off trade threats—but correction risk builds - Middle East Business News and Information
By Daniela Sabin Hathorn, senior market analyst at Despite a growing list of geopolitical and trade tensions, markets have remained surprisingly calm. With U.S. tariffs of up to 30% threatened on the European Union—mirroring earlier actions against Canada and Mexico—one might have expected heightened volatility, particularly with the August 1 deadline now looming. Yet equity markets, especially in the U.S., continue to show strong momentum. The prevailing view among investors seems to be that these tariff threats are more bark than bite—a negotiating tactic rather than a firm policy stance. This perception, while perhaps justified by historical patterns, introduces a significant asymmetry in market pricing. As one geopolitical strategist recently pointed out, only a fraction of the threats made during Trump's two terms have actually materialized. Markets appear to be betting that this pattern will hold, and that the so-called 'Taco Trade' strategy—bluster without follow-through—will once again play out. However, this assumption leaves markets vulnerable. Positive trade news continues to be bought into, fuelling a rally that has pushed indices like the S&P 500 and Nasdaq toward fresh record highs. But if August 1 arrives and tariffs are imposed at the scale currently proposed, it could lead to a sharp reversal as investors rapidly reprice risk. In short, markets have priced in a great deal of optimism, but very little of the potential downside. European equities tell a slightly different story. The continent's indices have already begun to unwind recent gains as the threat of trade retaliation grows more tangible. In contrast, U.S. indices have shown little evidence of concern, supported by strong momentum and a resilient appetite for risk. Still, with just over two weeks until the deadline, the clock is ticking on trade negotiations, and investors could be caught off guard if progress stalls. There is, however, still room for upside. If trade talks yield positive outcomes and tariffs are avoided or softened, markets could push even higher. While much good news is already priced in, equities still appear to be holding something back. A favourable resolution could remove the remaining risk premium, reignite risk appetite, and extend the rally. This dynamic is especially visible in valuations. While U.S. equities are trading above their 10-year average on a price-to-earnings basis, multiples have actually declined slightly from earlier in the year—particularly before the announcement of the Liberation Day tariffs. This suggests a modest discount is still being applied to account for unresolved trade risks. Should those risks be lifted, valuations could expand, bolstered by improved sentiment and earnings optimism—especially in U.S. tech stocks, which are set to dominate the upcoming earnings season. Ultimately, markets are at a crossroads. The rally, particularly in U.S. equities, has been driven by optimism and underpinned by assumptions about political behaviour. But those assumptions will be tested on August 1. Until then, the asymmetry remains: room to rise on good news, but the potential for a swift and severe correction if trade tensions escalate.
South China Morning Post
20-06-2025
- Business
- South China Morning Post
Will markets wake up from the Taco bubble before it's too late?
Stock markets have roared back to levels seen before 'Liberation Day' , seemingly on the mere belief that US President Donald Trump always chickens out – otherwise known as Taco – so no harm will be done in the end. However, the Taco trade is based on a bubble. Collective self-deception can work for a while but only when there is enough money behind it. Despite recent talks to de-escalate, the US-China trade war is still pushing the global economy to the brink. A looming recession and higher inflation will mean there is a lot less money available for speculation, especially for the Taco bubble. The Taco trade has worked because three major fund management firms – BlackRock, Vanguard and State Street – control large swathes of the market. These firms have a vested interest in supporting their assets. A lot of money is in circulation due to the US$8 trillion in quantitative easing undertaken by the US Federal Reserve between 2008 and 2022. Moreover, quantitative easing policies are still taking place around the world, which means there is enough money to keep the bubble going. Taco is just another psychological fix to bring back speculative courage. Trump would like to sell the recently concluded US-China trade negotiations in London as a victory for Washington. He talks about a 55 per cent tariff on China versus 10 per cent the other way round, and that rare earth minerals will soon flow to the US again.
South China Morning Post
06-06-2025
- Business
- South China Morning Post
May's Taco market lull may well be the calm before the storm
The final classic of England's horse racing season is the St Leger's Day race at Doncaster, on September 13 – made famous by the stockbroker's mantra, 'Sell in May and go away, come again St Leger's Day'. This referred to well-heeled brokers taking long summer holidays when trading was subdued and left in the hands of junior dealers. Mantras like these recognise that markets show a definite seasonality, with quiet summers giving way to an often-exciting October as money movers return to work. These indicators can be combined with more traditional forecasts of the near-term future, made by looking at the near-term past and assisted by our experiences. The near term says markets have had a pretty good May. Pretty much anything sounded good after the shock of April 2 , when US President Donald Trump announced his swinging tariffs on friend and foe alike. Indeed, a cut in additional tariffs on China to a mere 30 per cent is surely good news after the 145 per cent rate. In some ways, Trump's extreme negotiating technique sounds smart in making us think 30 per cent is good – when it still essentially hurts all but the highest added-value trade. May was a calming month that saw most of the economic metrics announced, such as US employment, inflation and interest rates, being largely supportive. Each small piece of 'good news' saw equity markets ticking up. Investors were starting to believe in what has been described as Trump's Taco trade – Taco being short for 'Trump always chickens out' – meaning whatever he says is soon reversed. Yet we should remember the massive tariffs have only been postponed , not cancelled. 03:53 China, US slash most tariffs on each other after first round of trade talks China, US slash most tariffs on each other after first round of trade talks To gain a little insight into what the summer might hold for investors, one indicator is the wisdom of the crowd, of which the best illustration is the late US economist Jack Treynor's bean jar experiments. In one, the professor filled a jar with 810 beans and asked his class to estimate the number – the mean estimate was 841, and only two of the 46 guesses were closer to the true value. The conclusion? The crowd is better at estimating a value than an individual.
Irish Times
05-06-2025
- Business
- Irish Times
Trump's Taco trade is a major headache for ECB rate setters
The so-called 'Taco trade' has been a boon for a certain cohort of Wall Street investors but a headache for almost everyone else, businesses and policymakers in particular. The acronym – short for 'Trump Always Chickens Out' – refers to the US president's habit of making tariff threats, resulting in a drop in markets, before walking back on the threat (in response to market pressure), causing markets to rebound. It was coined after Trump's so-called 'Liberation Day' tariff announcement in April which triggered a major market wobble followed by a 90-day pause one week later, followed by a market rally. The impact of tariffs is one thing but Trump's increasingly erratic pronouncements and the general uncertainty surrounding US trade policy poses quite a different proposition, one that can't be planned for. READ MORE [ Irish exports surged ahead of Trump's 'liberation day' tariffs Opens in new window ] Precedent tells us that uncertainty stops consumers making big purchase decisions and stops businesses investing, hence economic forecasts are being pared back. But the uncertainty also, from the European Central Bank's (ECB) perspective, complicates the path for interest rates. There is lag between the monetary policy changes and the effect of these changes on the real economy (days, weeks, months, even years – it is still debated). So not knowing where consumers and businesses will be in six months makes rate setting something of a stab in the dark. If ECB policymakers keep rates at relatively restrictive levels and Europe is enveloped in a nasty trade war with the US, they will be caught out. Conversely, if the ECB lowers rates quickly in response to tariff threats and Brussels and Washington agree a trade deal, they will similarly be caught out, particularly with massive defence spending plans – in Germany and elsewhere – likely to add to inflationary pressure in the coming months. 'While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defence and infrastructure will increasingly support growth over the medium term.' That is how the ECB characterised its current predicament in a statement accompanying its latest rate decision on Thursday. The central bank reduced its headline deposit rate by a further quarter point to 2 per cent, a move that had been seemingly locked in by the latest inflation data for the bloc, which put headline price growth at 1.9 per cent below the bank's target rate of 2 per cent. The ECB's latest rate reduction, the eighth in the current cycle, came with a fresh set of forecasts for the euro zone economy. The ECB now thinks inflation will be below target in 2026, at 1.6 per cent, with the economy expanding at a slower-than-expected rate of 1.1 per cent. Despite strong labour markets, rising real incomes and easier financing conditions, ECB president Christine Lagarde warned that risks to growth were still skewed to the downside. 'A further escalation in global trade tensions, and associated uncertainties, could lower euro area growth by dampening exports and dragging down investment and consumption,' she said. Most EU exports currently face a 10 per cent levy in the US, though that risks rising to 50 per cent in July if negotiations fail. The relationship between Washington and Beijing also remains uncertain even after both sides lowered their tariffs from prohibitive levels. Even Lagarde's tenure as head of the ECB is now subject to a downside risk. According to World Economic Forum (WEF) founder Klaus Schwab, arrangements for Lagarde to take over the organisation before her tenure at the ECB ends in 2027 are in train. Lagarde made something of a feeble attempt to scotch this speculation with an insistence that she was determined 'to deliver' on her mission and complete her term.
South China Morning Post
05-06-2025
- Business
- South China Morning Post
Why Taco trade is no laughing matter for the global economy
Everyone loves a catchy acronym. In financial markets, investment analysts spend a lot of time trying to come up with initialisms that encapsulate a popular theme or trend. A good example is FOMO, or fear of missing out , especially when it comes to stock market rallies. Another one is Brics, first coined in 2001 by former Goldman Sachs economist Jim O'Neill to draw attention to opportunities in Brazil, Russia, India and China. However, it is not often that a journalist coins an acronym that takes markets by storm. Last month, Financial Times commentator Robert Armstrong came up with Taco – which stands for ' Trump always chickens out ' – to describe the recent rally in global markets. He attributed the rally to investors 'realising that [US President Donald Trump] does not have a very high tolerance for market and economic pressure and will be quick to back off when [his trade] tariffs cause pain'. The Taco trade took hold on April 9, the day Trump suspended the 'reciprocal' tariffs he imposed on nearly all America's trading partners a week earlier. Since then, Trump has made a series of partial climbdowns that have convinced many investors that his bark is worse than his bite. Having threatened to fire US Federal Reserve chair Jerome Powell, Trump backed down and said he had no intention of seeking his ouster despite continuing to pressure the Fed to lower interest rates.
