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Trump's Taco trade is a major headache for ECB rate setters

Irish Times

10 hours ago

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.

Market uncertainty created by Trump worse than his 10% tariff on Australian exports, say analysts

The Guardian

13-05-2025

Business
The Guardian

Market uncertainty created by Trump worse than his 10% tariff on Australian exports, say analysts

Easing tensions between the US and China on trade is good news for Australia's China-dependent economy, experts say, but they warn market uncertainty created by Donald Trump is 'worse than the 10% tariff'. After promising to 'tariff the hell' out of China, Trump reverted to a much more conciliatory tone this week, saying 'we're not looking to hurt China' and that the agreement represented a 'total reset'. While Wall Street rallied hard on Monday night, Australian investors were less impressed. The benchmark S&P/ASX 200 share market index, which received a boost on Monday afternoon, retraced modest early gains on Tuesday to end the day just 0.4% higher at 8,269 points. Jenny Gordon, an honorary professor at the ANU and a former chief economist at the Department of Foreign Affairs and Trade, cautioned there was no end in sight to the market uncertainty. Gordon said the experience of the UK and China demonstrated that countries were not coming to the White House as supplicants. 'I think the one thing that has changed is that the world is pushing back against this idea that there would be countries turning up to the US and offering things,' she said. 'And part of that is the Americans don't know what they want. The Japanese asked the Americans 'Tell us what you want', and the response was 'Tell us what you've got to give'. 'Certainly countries are not coming on bended knees.' After negotiations in Switzerland over the weekend, the US said it would slash crippling tariffs on Chinese imports, from 145% to 30%, for 90 days. Sign up for Guardian Australia's breaking news email In return and as part of a deal that went much further than anticipated, China reduced its levy on most American imports from 125% to 10%. The Chinese also committed to removing non-tariff countermeasures taken against the US since the 2 April 'liberation day', including export controls on rare earths. Hayley Channer, a director at the University of Sydney's US Studies Centre, said it was now obvious that 'Trump is fundamentally overestimating the US's ability to unilaterally change trade relations across the board. 'He is seeing that other countries have a lot of power in terms of global supply chains that can replace the US,' Channer said. Despite the progress, experts agreed there would be no immediate end to the huge uncertainty attached to America's trade policy, despite the euphoric response in financial markets. Channer said Australian businesses could find a way to cope with American import taxes. It was the uncertainty about what Trump would do next that 'scared' companies, she said. 'That uncertainty is worse than the 10% tariff. Sign up to Afternoon Update Our Australian afternoon update breaks down the key stories of the day, telling you what's happening and why it matters after newsletter promotion 'If Trump had said there would be 10% tariffs for the rest of his four-year term, then they (businesses) would manage that risk. It's this unpredictability that has so many second and third order effects.' The ANZ chief economist, Richard Yetsenga, said it was positive that the worst-case scenario of an effective trade embargo between the US and China had been lifted. 'The good news is that the safety cover is back on the mutually assured destruction button, so we can at least book-end the range of outcomes into a more manageable range,' Yetsenga said. But he warned recent negotiations with the UK suggested Trump's 'baseline' 10% tariff on imported goods into America were set to stay. 'The world is still less globalised and the US is still imposing tariffs, but they are more of a disruptive kind than a destructive kind. 'And it still leaves Australia facing a global economy that is less open and less multilateral. The assumption would be 10% tariffs on Australia, with the hope of something better on steel and aluminium.' Reflecting what was good news for Australia's economy, financial markets now see less scope for the Reserve Bank of Australia to cut interest rates this year – pricing in three rather than four moves this year. The consensus remains, however, that the central bank will cut its cash rate from 4.1% to 3.85% next Tuesday. While the wind-back of the US-China tariffs were welcome, Channer said there was no resolution of the underlying and long-held American grievances with China. These included Trump's original complaint during his first term about America's huge trade deficit with China, the coerced acquisition of American companies' technology and theft of intellectual property, as well as accusations that the world's second-largest economy was abusing its developing nation status to gain favourable treatment by the World Trade Organization.

Warby Parker price target lowered to $22 from $30 at Telsey Advisory

Yahoo

10-05-2025

Business
Yahoo

Warby Parker price target lowered to $22 from $30 at Telsey Advisory

Telsey Advisory lowered the firm's price target on Warby Parker (WRBY) to $22 from $30 and keeps an Outperform rating on the shares. The company reported a 'solid' Q1, with adjusted EBITDA beating expectations, the analyst tells investors. The firm is moderating its price target given the increased macro uncertainty. Discover companies with rock-solid fundamentals in TipRanks' Smart Value Newsletter. Receive undervalued stocks, resilient to market uncertainty, delivered straight to your inbox. Published first on TheFly – the ultimate source for real-time, market-moving breaking financial news. Try Now>> See today's best-performing stocks on TipRanks >> Read More on WRBY: Disclaimer & DisclosureReport an Issue Warby Parker price target lowered to $20 from $30 at TD Cowen Warby Parker Reports Strong Q1 2025 Results Warby Parker: Strategic Initiatives and Financial Resilience Underpin Buy Rating Warby Parker's Growth Potential: Strategic Measures and Promising Projections Drive Buy Rating Warby Parker lowers FY25 revenue view to $869M-$886M from $878M-$893M Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data