Markets:
- The S&P 500 rose 0.3%.
- Gold fell $7 to $4,615
- The yield on US 10-year bonds fell by 1.8 basis points to 4.37%.
- West Texas Intermediate crude fell $2.68 to $102.68
- The US dollar advances and the Japanese yen lags
It’s Friday, so there’s the usual concern about Trump’s escalation of the Middle East war. This led to some late selling in stocks and some buying in oil, but the story of the tape shows that the bulls won. Stocks still ended at record highs, and oil was lower. We learned that Iran made a new offer late yesterday (just as the market went parabolic) but Trump said he didn’t like the new offer. Of course, Trump is hard to read, which doesn’t mean bombs will fly. However, there are always a few anxious hours after lockdown given the events of the past 10 weeks.
Overall, there was a continuation of the risk-positive and war-negative market movements on Thursday at the start of the US session which subsequently faded. The euro’s movement was particularly sharp, as it rose to 1.1780 and then fell to 1.1714. The reason for this is that Trump announced new tariffs on cars in the European Union, due to what he says is the European Union’s non-compliance with the previous deal. Naturally, this also comes after an escalating war of words between him and Germany’s Merz, along with disagreements with Italy and Spain.
I’m afraid this could open the door to a lot of words, as some buyers regret having to accept 15% tariffs last year in order to appease Trump. The danger is that instead of negotiating, they decide to respond, and we get a new trade war on top of the real war.
The economy has been mostly ignored but inflationary signals are rising with the prices paid component of the ISM survey reaching 84.6 from 78.3 and this is the highest since 2022. The effects of government spending, immigration, superspending on AI, the trade war and the Iran war are becoming harder to ignore. It is difficult to imagine that any of this would lead to inflation of 2%, or even 3%.
Have a wonderful weekend.
