Tariff storm "intensifies" to stir up market waves. Investors: It's time to take Trump's policies seriously!

As the market fluctuates, investors express that it is time to seriously consider Donald Trump's policy actions. Nowadays, the market no longer considers Trump to be just blowing hot air. With him building tariff barriers against the world's largest economy and various countries' trading partners beginning to take corresponding retaliatory measures, the market has quickly reacted, with many expecting the slowdown of the U.S. and even global economic growth. In the six weeks since the beginning of Trump's second term, he has imposed 25% tariffs on imported goods from Mexico and Canada, an additional 20% tariff on Chinese goods, and threatened to implement equivalent tariffs globally, while also cutting military aid to Ukraine. However, contrary to investors' bets in November last year, the "Trump trade" is now fading away. Previously, investors expected rising yields and a stronger U.S. dollar, but now with trade conflicts erupting, the U.S. dollar is depreciating and bond yields are falling significantly. America's allies are also in panic. Goldman Sachs analysts pointed out that the average tariff rate on Chinese imports in the U.S. has now reached 34%, almost double the increase during Trump's first term. Now, no one dares to bet that all sides will quickly reach a compromise or agreement. Chang Wei Liang, currency and credit strategist at DBS Bank, stated: "Given that U.S. tariff policies can change at any time, it is difficult for the market to take aggressive positions." He also mentioned: "In the credit market, considering the changing risk environment and the more unfavorable and uncertain trade backdrop, current spreads are clearly too low." This week, indicators of U.S. Treasury bond volatility, U.S. stock market fear index, and Japanese stock market volatility hit their highest levels this year, and implied volatility in the forex market has also increased. As a result, defense stocks prices rose, while tech stocks plummeted. As Mexico and Canada prepare to retaliate with tariffs, investors expect a global economic slowdown and increase in expectations of interest rate cuts in the U.S. Futures market pricing indicates an expected 75 basis point rate cut in the U.S. this year, higher than the approximately 50 basis points two weeks ago, while the 10-year U.S. Treasury yield fell to 4.115%, reaching a new 4.5-month low. Investors believe that the current outlook is full of uncertainties, and defensive sectors such as real estate or healthcare have become safe havens for funds. While protected companies like U.S. steel manufacturers may benefit, price increases in the supply chain will bring unpredictable effects. Goldman Sachs CEO David Solomon stated at a conference in Australia: "I've spent a lot of time talking to CEOs trying to understand the implications of these policies." He added: "Before the situation becomes clearer, there will be a period of volatility in the market. I believe market volatility will remain slightly higher. But Trump has a clear policy direction, and we should take his statements seriously, as he will push policies in that direction." Trading Dilemma The depreciation of the U.S. dollar is one of the most notable reversals in foreign exchange trading, with investors' once firm expectations now in disarray. In January, speculative bets on the U.S. dollar reached their highest level in almost a decade, but these positions have since been quickly unwound. As of last week, speculators held short positions on the U.S. dollar against emerging market currencies, while long positions in the Japanese yen hit a historic high. Over two trading days, the USD/EUR exchange rate fell by nearly 1%. As Europe prepares to increase defense spending and Trump backs off on the Ukraine issue, U.S. Treasury yields declined, while European bond yields rose. In the White House, Trump accused China and Japan of deliberately lowering their own currency exchange rates. In fact, the Chinese yuan is at a historical high against a basket of trade partner currencies, while Japan has been intervening in the forex market to buy yen in recent years. However, as the U.S. dollar depreciated on Tuesday, Hoe Lon Leng, global head of foreign exchange markets at Nomura Securities, stated that for those expecting the U.S. dollar to appreciate, this seemed like the "final blow." He pointed out: "The bullish view on the U.S. dollar is gradually losing ground, and we continue to see price movements going in the opposite direction." He also mentioned that if both China and the U.S. do not want to see the dollar appreciate against the yuan, "then the dollar will depreciate." Indeed, the current market volatility has not reached a huge level, and many analysts still believe there is some room for trade negotiations to avoid further escalation. However, the frequent changes in policies have gradually worn down investors' hopes for a breakthrough agreement. Moreover, no one can be sure if Trump is just bluffing. Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia, stated: "For now, the tariff threat has temporarily subsided, but in the next phase, everyone has to bear the consequences of tariffs." He added: "The market must take this reality into pricing consideration, and these data are not very optimistic."