Trending
Written by: Susannah Streeter | Hargreaves Lansdow
- Reports that Donald Trump will declare a national economic emergency to bring in tariffs prompts selling.
- The rumours have dashed hopes of a more contained tariff policy next year.
- European indices head lower and Wall Street futures reverse course with tech stocks expected to fall.
- The pound falls to $1.234, a level not seen since April 2024.
- Government borrowing costs rise amid expectations interest rates will stay higher for longer.
Stocks are riding the rumour rollercoaster when it comes to Trump’s tariff plans. Hopes for a more contained policy which emerged earlier in the week have been dashed, with indices sinking lower. It follows reports that the 57th President will declare a national economic emergency to provide legal justification for a vast array of tariffs which would be imposed across the board, and not just on specific ‘critical’ sectors. European indices have fallen back, as investors mull the potential ramifications for trade and borrowing costs, while Wall Street futures went into reverse and now indicate a flat open, after losses yesterday. Of course, the latest rumours could yet be more bluster and a way of forcing other countries to buy more US goods or implement new policies on immigration or drug enforcement which Trump says he wants to see. But there is nervousness about what the coming years will bring given his unpredictable governing style.
Aside from the impact on global trade and growth prospects the big worry is that a big swathe of tariffs will stoke the embers of inflation and fan consumer prices. Expectations are growing that this will tie the Fed’s hands and limit interest rate cuts in the US even further this year. This is weighing on big tech stocks in particular, given that a higher rate environment pushes down the value of their future earnings. The Magnificent Seven are all expected to fall back with chip giant Nvidia leading the pack lower. Amid expectations of higher interest rates lingering for longer, the dollar has strengthened, pushing the pound down to levels not seen since last April. Government bond yields have continued to rise which is also making equities less attractive. 10-year Treasuries rose to over 4.7%, the highest level since October 2023. UK government borrowing costs have also soared, with 10-year gilts climbing to around 4.8% the highest level since 2008. The increase is set to constrain Chancellor Rachel Reeves headroom even further, leading to concerns the government may be forced into further tax hikes, to ensure it meets its fiscal rules.
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