We thought the next few days would see us back to watching tariff news and potentially “headline havoc” after President Trump lashed out at the EU on Friday. He threatened to impose a 50% tariff on EU goods by 1 June, reigniting fears of a transatlantic trade war. The VIX, Wall Street’s fear gauge, spiked up to 24, stocks and the dollar slid while gold and sovereign debt rallied. Recently, there had been more focus on the US deficit but the broad macro picture is still very much dependent on the current trade ructions. But a Sunday call between Brussels and Trump has agreed a delay to the 50% tariffs.
Economists say that if fully implemented, 50% US tariffs on European products would have shaved off some 0.6% of GDP growth and bring the eurozone economy close to recession territory. Across the pond, it would also increase stagflationary pressures in the US again. Of course, we have seen this Trump tactic before with China – “escalate to de-escalate” – which is probably why we saw some of the moves turn around into the US close late last week. In the event, markets have cheered the delay news, though it highlights again the chaotic, adverserial nature of Us deicsion-making. The dollar especially, looks weak as bearish momentum recently picked up with the greenback closing on its weekly lows.
Last week, the S&P 500 traded back down to its 200-day simple moving average which currently sits at 5,773. The 100-day SMA is just below at 5,766. As well as trade war headlines, stocks will also have to contend with Nvidia’s results, released after the US close on Wednesday. Q1 EPS is expected at $0.92 with revenue printing at $43.09bn, and next quarter’s revenue is seen at $46.59bn with EPS of $1.01. All eyes will be on commentary around the US tightening of China chip export controls, plus what is said on any continued supply constraints. The options market implies a move in Nvidia’s share price (on the day after reporting) of -/+7.2%. If that move is realised, in isolation, it will impact the Nasdaq 100 index by around -/+0.5%. Interestingly, over the past eight quarters, the stock has recorded just above an 8% move on earnings.