Trump’s Tariffs: Economic Impact Unfolding

As April comes to a close, financial markets are cautiously stabilizing after a volatile period sparked by Trump’s tariffs. While initial market reactions were sharp, deeper economic consequences are beginning to emerge, raising new concerns about the U.S. growth outlook.

Key Developments Today:

• U.S. Treasury Secretary Scott Bessent distanced himself from Trump’s claim that tariff negotiations with China were progressing.
• Trump called on Russia to halt its offensive in Ukraine, suggesting that Ukraine might consider ceding Crimea to achieve peace.
• A tragic event unfolded in Canada, where a Vancouver resident was charged with multiple counts of murder after driving an SUV through a crowded festival.
• Economists warn that the euro’s unexpected surge since the tariff announcement could significantly reduce European corporate earnings.

Lingering Anxiety Despite Trump’s Tariffs Impact

Although Wall Street enjoyed a modest recovery last week, concerns remain high. Trump’s recent comments reassured some investors that Federal Reserve Chair Jerome Powell would not be dismissed, temporarily stabilizing U.S. Treasuries and the dollar. Nevertheless, key economic and corporate uncertainties persist, and the future direction of Federal Reserve policies remains murky.

On Monday, U.S. stock index futures edged lower. The S&P 500, while recovering slightly, remains down 2.6% since the April 2 tariff announcement and 6.5% year-to-date. Meanwhile, the Nasdaq has suffered an 11% decline in 2025 alone.

Economists are increasingly concerned that Trump’s tariffs will have a lasting impact on both corporate profits and consumer prices.”

Adding to the uncertainty, Treasury Secretary Bessent over the weekend did not validate Trump’s remarks about ongoing China talks, suggesting a potential miscommunication at the highest levels.

Trump’s Tariffs: The Economic Toll After 100 Days

Attention now shifts to evaluating the economic toll of Trump’s first 100 days in office. Although Wednesday’s first-quarter GDP data will not reflect post-tariff developments, early indicators suggest a risk of negative growth.

This week also brings a flood of corporate earnings, with about 40% of S&P 500 companies reporting. Heavyweights like Microsoft, Meta, Apple, and Amazon will unveil their results mid-week, with analysts focusing on their forward guidance amid trade uncertainty.

Fresh labor market data will arrive throughout the week, culminating in Friday’s employment report. Jobless claims have so far remained stable, offering some reassurance that employment remains resilient for now. However, any wage inflation pressures linked to tariffs will be closely monitored by the Federal Reserve.

How Trump’s Tariffs Are Affecting Inflation and Markets

March’s personal consumption expenditures (PCE) inflation reading—closely watched by the Fed—is expected to remain muted. Still, analysts caution that this could simply be the calm before a potential inflationary surge driven by tariffs.

Meanwhile, bond markets are bracing for the Treasury Department’s new quarterly borrowing estimates. Last week’s concerns about Fed independence left yields volatile, and this week could bring further surprises.

In currency markets, the U.S. dollar index firmed slightly, while Canada’s dollar weakened ahead of the country’s elections, where Prime Minister Mark Carney’s Liberal Party looks poised for a surprising comeback. Tariff tensions and sovereignty concerns have notably shifted Canadian public opinion.

Against the Japanese yen, the dollar eased slightly. The Bank of Japan is expected to maintain its current stance, holding off on rate hikes despite rising inflation figures, given the global uncertainty fueled by trade disruptions.

Chart of the Day: GDP in Focus

The Atlanta Fed’s ‘GDPNow’ model continues to signal a potential contraction in Q1 GDP, even after adjusting for gold imports that skewed trade data. Consensus estimates point to a tepid 0.4% expansion—far weaker than the 2.4% growth recorded in Q4 2024.
A confirmed contraction would be an ominous sign for the economy, especially considering it predates the April 2 tariffs. If negative growth extends into Q2, a technical recession could become a real risk.

Today’s Key Events to Watch

• Canadian Federal Election: Polls open as political momentum shifts.
• Dallas Fed Manufacturing Survey: Regional economic health under review.
• ECB Annual Report (2024): Featuring Vice President Luis de Guindos and Governor Olli Rehn.
• Major U.S. Earnings Reports: Including Domino’s Pizza, Microsoft, Meta, Apple, Amazon, NXP Semiconductors, and more.
• U.S. Treasury Quarterly Borrowing Plans: Funding strategy for upcoming quarters.

Conclusion

While markets may have found short-term relief, the underlying risks from Trump’s tariff strategy continue to ripple across the global economy. The coming days—marked by crucial GDP and employment data—will offer clearer insight into whether the damage is temporary or more profound.
As we await this week’s crucial GDP and employment data, the full cost of Trump’s tariffs is still unfolding.