Powell flags trade tariff risks, signals cuts still in play – UBS

Federal Reserve Chair Powell noted US President Trump’s trade taxes would raise inflation and lower economic growth. Markets have already worked this out, but Powell saying it has policy implications. On the evidence of (unreliable) sentiment surveys, over a third of US consumers think inflation will exceed 10% this year. Powell emphasized longer-term inflation expectations, which should still allow for rate cuts. The self-inflicted nature of the economic slowdown may limit the number of cuts, UBS' analyst Paul Donovan reports.

Trump’s trade strategy back in focus as Japan talks progress

"Trump attended trade talks with Japan—this matters as deals require Trump’s assent. Trump talked about a “big deal” which markets are interpreting as a big retreat. Japan’s trade data today emphasized that imbalances in an ageing society are unlikely to be concerning—Trump’s focus on Japan seems more reminiscent of 1980s economics."

"The ECB is expected to cut rates (62 economists agree, and how could so many economists be wrong?). Comparing ECB President Lagarde’s comments with those of Powell might be instructive, as the European economy will suffer less damage from Trump’s taxes than will the US."

"The US Philly Fed business sentiment survey is due. All sentiment data is extremely suspect nowadays, but markets are focused on the corporate inactivity amidst policy uncertainty. Even unreliable evidence therefore has influence."