Trump Revives Trade War Headlines between US and EU to Counter a Liquidity Curb

Trump Revives Trade War Headlines between US and EU to Counter a Liquidity Curb

The S&P 500 broke its strongest four-week rally in five years as President Trump revived trade wars threats.

Talking Points:

• The S&P 500 broke its strongest four-week rally in five years as President Trump revived trade wars threats
• Top event risk this week includes the US Conference Board consumer sentiment survey they will be working to contextualize a severe UofM surprise a week ago
• Nvidia earnings will carry outlier hope of salvation while the Friday PCE deflator and EM GDP updates will speak to more tangible fundamentals

A Last-Minute Trade War Spark to Pressure Liquidity Issues

Liquidity conditions turned from a potential boon for the buy-and-hold crowd into an explicit risk with the turn in fundamental headlines and sentiment through the end of this past week. We are marching closer and closer towards the historical ‘summer doldrums’ for capital markets and volatility, and the historical course for volume and volatility is a powerful sedative for market participants looking for a quiet period of yield collection and compounding. However, stability has once again been put at risk by open-ended threats with potentially expansive consequence for the markets made by US President Donald Trump. 

Seemingly frustrated by the lack of progress in negotiations with the European Union, the President threatened a 50 percent tariff on all the regional economy’s imports starting January 1st should a deal not be struck by the deadline. He would also warn that a 25 percent tax would be slapped on Apple (the largest public company by market cap) if it did not produce its iPhone in the US, and latter included Samsung in his sights. Is this just a threat aimed at nudging discussions along or is it a serious threat? The market may very well maintain a sense of skepticism around the risks, but the consequences of downplaying the risks it represents are serious.

Chart of the iShares Eurozone ETF, Apple Stocks, Samsung Stock (Daily)

Source: John Kicklighter, TradingView

 

Whether Trump follows through with this newest round of tariff threats, there is a fluctuating liquidity horizon and active macro calendar to contemplate through the coming week. Monday will fill the absence of both the US and UK markets, which is a large portion of liquidity notionally, but the expectation of these financial centers will exert a further curb on intent – that is unless volatility is stoked by a surprise, critical headline. In that case, thin liquidity and a fundamental hit can result in extreme volatility – even if short lived. With the market participation considerations accounted for, the scheduled docket items will carry meaningful weight. Though this may be a week without singularly-dominant event (like a FOMC rate decision), there are updates that can touch off deeper currents.

Calendar of Top Global Macro Event Risk

Source: John Kicklighter

 

If the US Consumers is Afraid, Beware Risk Trends and Rate Forecasts

Tuesday’s US consumer confidence survey for May from the Conference Board will take on a particular important role following the release of the University of Michigan’s update a week ago. The leading sentiment survey dropped to a three year low with its expectations component sliding to its worst read since 1980 while the one-year inflation forecast hit its highest since 1981 – and those are readings for the current month, after the reciprocal tariffs were deferred and the US and China announced their own de-escalation. If the Conference Board survey reinforces these troubling changes, it could exacerbate concerns around the primary engine of US growth.

Chart of Conference Board’s Consumer Present and Expectations Indices (Monthly)

Source: The Conference Board

 

Can Nvidia Salvage Tech Stocks’ Shepherding of Risk Appetite Trends?

As far as the earnings seasons goes, we are at the very tail end of the periodic theme. That said, one of the last companies to report also carries some of the greatest weight – not just for the size of its revenues or its market cap but also for its symbolic influence over risk trends. Nvidia is the second largest American company by market cap and it is due to report its quarterly performance after the close Wednesday at 20:20 GMT. Forecasts project an EPS (earnings per share) of $0.88 (slightly lower than the past quarter) on revenue of $43.3 billion (a material increase over the $39.3 billion the previous period).

There is a lot of weight and hope that can be afforded to their particular ticker. With an uneven performance after the rest of the Mag 7’s earnings season, could NVDA restore conviction? Is there still a speculative anchor that the perma-bears can feed capital into without prompting a view of an over-valued market? Could AI find a second wind as an absolute disruptive force? The hope will be high, but the realities will likely fall far short of the mark.

Chart of Nvidia Stock and Nasdaq-Dow Ratio (Daily)

Source: John Kicklighter, TradingView

 

US PCE Carries Serious Fed Implications but EM GDP is More Thematic

Through the coming week, there may not be singularly-weighted economic releases, but a sleeper event that should be kept on the threat dashboard is Friday’s US PCE deflator. This inflation indicator is the Fed’s preferred measure for assessing price growth – one of the two critical elements of its dual mandate for determining monetary policy. Given the inflation expectations in sentiment surveys, this could prove a very meaningful and disruptive update, particularly if it feeds expectations that no rate cut is on the horizon for the Fed.

On the other hand, it also comes at the very end of the week; and anything short of a substantial surprise could see the market fade into the weekend liquidity drain. Carrying a little more thematic scope and global reach Friday, we are also due a run of 1Q GDP readings. Canada is due to report its March and quarterly figures, but it is really the updates from key emerging market economies that should be closely observed. On Friday, we are due first quarter readings from Turkey, India and Brazil. These three countries account for approximately 7 percent of global GDP, so any strong collective readings one way or the other can exert significant weight more broadly.

Table of Growth Forecasts from IMF WEO April 2025

Source: IMF World Economic Outlook April 2025

 

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--- Written by John Kicklighter, Global Head of Content