Anticipation of Trump’s Trade Policy Announcement

As the market awaits President Trump’s forthcoming announcement, termed “liberation day”, on trade policy and reciprocal tariffs, analysts from Wall Street have compiled insights suggesting a range of expectations.

Key Agreements on Tariff Expectations

• The proposed tariff structure is likely to impose average levies of 10-20% on U.S. trading partners, with many estimates clustering towards the lower end of this spectrum.
• Immediate tariffs are anticipated on key nations with whom the U.S. has substantial trade imbalances, including China, the EU, and Mexico, among others.
• Additional sector-specific tariffs may be postponed pending further study, although industries like semiconductors and pharmaceuticals are on the radar for future tariffs.
• Some analysts speculate that Trump may indicate a softening stance on tariffs concerning Mexico and Canada, possibly affirming that compliant goods under the USMCA will continue to be tariff-free.

Market experts note the ambiguity surrounding the stacking of tariffs and the treatment of non-tariff barriers, which further complicates the economic picture.

Market Implications of Tariffs

Broadly, analysts perceive the announcement and ensuing tariff implementations as likely detrimental to equity markets, potentially leading to reduced earnings, while bolstering the value of the dollar and benefiting bond prices. According to Michael Zezas, head of U.S. policy research at Morgan Stanley:

“The outcome that would be most beneficial for fixed income relative to equities is the one where investors receive high clarity on substantial tariff hikes.”

The prevailing sentiment is that, despite the current uncertainty surrounding Trump’s declarations, markets may soon respond to concrete actions once communicated.

Consumer Spending Trends Among the Wealthy

Recent data underscores the increasing importance of high-income households in the U.S. consumption landscape. Households within the top decile accounted for 50% of last year’s consumer spending, bolstered by rising stock and real estate values.

Potential Impact of Market Corrections

While asset inflation has spurred post-pandemic spending growth among the wealthy, indications suggest a potential pullback in consumption as market conditions fluctuate. The University of Michigan’s consumer sentiment survey indicates a decline in confidence among higher earners, potentially foreshadowing reduced spending.

Wealth Distribution and Economic Resilience

Data from the Federal Reserve reveals that the wealthiest households, particularly the top 10%, hold the majority of equities and have weathered recent market corrections better than less affluent families. Despite significant losses in brokerage accounts, the overall impact on their wealth remains relatively minor.

Historically, wealthy consumers have sustained their levels of spending during market downturns, reflecting a resilience that might not change quickly. Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, notes:

“The top 20 per cent of households by income kept increasing their spending in 2001 and 2002, despite significant market falls.”

Though a further market leg down could spur caution in spending by affluent consumers, current indicators suggest a robust continuation of their economic participation.

Correction Notice

Please note an error from the prior report regarding core PCE, which was stated as a 4% month-on-month increase. The corrected figure is 0.4%, the highest monthly rise since January 2024. We apologize for the oversight.