analysis
ASX market analysis: Donald Trump swings by for more MAGA market chaos

One person has never wreaked so much economic damage in so short a time. In the space of little more than a week, Donald Trump’s tariffs wrecking ball has undermined relationships with trusted trading partners, triggered upheaval on world financial markets, weakened superannuation savings and risks sending his own country into an economic downturn. And he still isn’t finished despite this week’s backdown in the face of a looming crisis on the US bond market where surging bond yields threatened to make it harder for the US President to finance debt and cut taxes at the same time. The overwhelming conclusion, particularly outside of the US, is that the chaotic tariffs rollout has undermined confidence in the US economy and could keep markers on edge for months. Investors don’t see any sustained reprieve from the daily mayhem until the self-acclaimed dealmaker actually brings China to the negotiating table, or at the very least, wins promised trading concessions from some of the targeted countries he says are “kissing ass” with the US. That’s raised the prospect of the rollercoaster of wild daily swings on equity bourses extending into a third week. “It’s way too early to say that we have seen the low in shares as there is a long way to go with the tariff battle, stress is continuing to build in US asset markets and much damage has already been done to the growth and profit outlook,” AMP’s head of investment strategy and chief economist Shane Oliver said. “The good news is that Trump clearly has a pain threshold and that share and bond markets are still able to impose some constraints around his policies. “We expect this to become more apparent in the second half of the year, forcing Trump to back down further on tariffs and pivot towards the positive aspects of his agenda, for example, tax cuts and deregulation, helping to support a more sustained recovery in share markets. “But it’s likely to be a rough ride.” Since Mr Trump announced his minimum 10 per cent tariff rises on Wednesday, April 2, the S&P-ASX200 has lost nearly 4 per cent, whipsawing within a 600-point range and closed as much as 4.5 per cent down or up on a daily basis. However, it is down almost 11 per cent since its record high in mid-February, which is when markets started to price in the then-threat of the President’s tariffs. Wall Street’s sharp reversal overnight on Thursday was symptomatic of the ham-fisted tariffs policy, which was rolled out on dubious modelling and then suspended within 24 hours amid often contradictory messaging from Mr Trump and the White House. US markets had assumed the total tariffs on China to be 125 per cent, only for the White House to confirm that the levies stood at an even more extraordinary 145 per cent. That sparked another sell-down that was so severe and sudden that the S&P 500 was pushed to within one per cent of triggering circuit breakers that pause trading for 15 minutes. Investors are confused about the end game and concerned about the threat of a trade war between China and the US that would hurt both nations and scatter collateral fallout around the world. “Trump could bring the effective tariff rate back down to 2024 levels tomorrow with a tweet,” Royal Bank of Canada said. “But the chaos and recklessness with which both trade policies and other administrative actions have been rolled out in the first few months of Trump’s second term have injected a large dose of uncertainty and negative sentiment into (executive) and consumer psyches. “That toothpaste will not so easily be put back into the tube, even if tariff threats continue to be dialled back.” Westpac senior economist Mantas Vanagas said buying confidence on US equity markets had quickly been replaced “by a realisation that the current US trade policy settings ... will still inflict very significant damage to the US and other countries”. “Trump’s comments that he is close to securing the first trade deal with another country failed to provide more confidence,” Mr Vanagas said. However, the 90-day pause on the tariffs and the resetting of all countries, apart from China, to the base rate of 10 per cent was enough for global investment bank UBS to upgrade US equities to “attractive”. “We believe the demonstrated willingness from the Trump administration to change its stance in response to equity and bond market turbulence indicates some sensitivity to market stress,” Mark Haefele, the chief investment officer of UBS’ global wealth management arm, said. “To be sure, the significant tariffs on China will cause economic disruption if they remain in place. UBS said “while downside risks do remain, we believe the risk of a more severe economic downturn is now more limited” but it noted the US economy was “likely to experience a notable slowdown owing to weaker consumer confidence and potential disruptions related to exceptionally high tariffs on China”.

analysisASX market analysis: Donald Trump swings by for more MAGA market chaos

analysis
ASX market analysis: Donald Trump swings by for more MAGA market chaos