Guotai Junan: Trump's tariffs are contrary to expectations, may adopt a negotiation strategy of "small amounts multiple times"

Guotai Junan released a research report stating that after assuming office as President of the United States, Trump's tariff policy did not land as quickly as expected. He may adopt a "small amount multiple times" negotiation strategy, bringing new macro variables to the financial markets. The US dollar interest rates and exchange rates have experienced a retreat, and US stocks rebounded due to lower interest rates and Trump's policy push, with inflation becoming the focal point of market games. Due to significant uncertainties, the market will mainly follow the carry logic before the release of non-farm employment data and CPI reports in early February, with the bond market closely associated with the US dollar exchange rate. The main points of Guotai Junan are as follows: After Trump took office as President of the United States, the long-awaited tariff policy did not land "smoothly" as imagined, instead focusing more on domestic issues. Multiple sources indicate that Trump will probably use tariffs as a bargaining tactic and apply a "small amount multiple times" approach to pressure trading partners. For the financial markets, Trump's "hesitation" on tariff policy has brought two new macro variables First, if the imposition of tariffs is delayed, the market's outlook on US inflation may face downside risks; secondly, if tariffs are imposed slowly and lighter than expected, the exchange rates of corresponding trading partners may rebound, meaning the US dollar exchange rate may weaken. As a result of these changes, both US dollar interest rates and exchange rates have experienced a certain retreat after Trump took office, but because the market still worries about Trump's "unconventional behavior," they dare not increase their reverse positions and can only wait for Trump's next steps, as well as judge based on the US data from the first two weeks of February. The logic of US stocks appears more straightforward, with interest rates declining and the seesaw effect of stocks and bonds leading to a rebound in US stocks; at the same time, Trump's "protectionism" and improving profits have also driven the consistent performance of US stocks. Generally, when the 10-year US bond rate approaches 4.8% or even close to 5%, market concerns about inflation will significantly increase, affecting overall risk appetite. However, when US bond rates decline, market risk appetite will rise along with the weakening of the US dollar. In these aspects, inflation remains the focal point of the market game and concern, and restraining inflation seems to be one of Trump's top priorities. On his first day in office, Trump withdrew from the Paris Climate Agreement and declared his intention to increase oil and gas exploration and supply. Considering the importance of gasoline prices to ordinary American residents, the intention to increase oil and gas supply to curb inflation is also very clear. Of course, all of these factors will give way to the non-farm employment data and CPI report in early February, which means that the market will find it difficult to find direction before the data is released, and can only rely on carry as the most reliable trading logic. At the same time, the bond market may need to use the exchange rate as a leading indicator; if the US dollar exchange rate strengthens, interest rates are likely to rise; and vice versa.