Following pressure from U.S. industry, President Donald Trump has decided to suspend tariffs on cars and other automotive products. That news has sparked a surge in relief on Wall Street.
“We're going to be granting a one-month exemption for all cars coming through USMCA. At the request of the companies associated with USMCA, the president is granting them a one-month exemption so that they're not economically disadvantaged,” White House spokeswoman Karoline Leavitt said Wednesday during a White House briefing.
That means a large portion of the 25 percent tariffs imposed on Canada and Mexico did not survive even 24 hours. Financial markets interpreted that as a signal of easing by the Trump administration’s trade policies. Of course, Wednesday’s decision does not eliminate all the uncertainty surrounding the tariffs, but it does at least show that President Trump is not deaf to economic signals and is prepared to change his policies if he encounters stronger resistance. Ford shares gained 5.8 percent, while General Motors shares rose more than 7 percent.
“Investors see the administration as responding to market pressures,” said Ross Mayfield, an investment strategy analyst at Baird, adding that the White House will seek to adjust policy as needed.
But most importantly, the relief surge has spread to almost all sectors of the US stock market. Of course, with the exception of oil companies, which could benefit from the tariff on Canadian oil. Crude oil itself (Brent type) fell by 2.5% and for the first time since September cost less than $70 per barrel.
The main New York indices were up. The Dow Jones Industrial Average rose 1.14% and ended the day at 43,006.59 points. The S&P 500 Index gained 1.12% and finished at 5,842.63 points. The Nasdaq gained 1.46% and registered at 18,552.73 points.
– We are on a rollercoaster ride. Economic data, the Fed and things like that have faded into the background. It is a reminder of how much this policy has an impact on the long term and markets are reacting to it – Wasif Latif, the general manager at Sarmaya Partners, commented philosophically on the whole mess, quoted by Reuters.
It should be added that on Wednesday, macro data did not disturb stock market optimists. The ISM index for the services sector in February unexpectedly rose to 53.5 points from 52.8 points in January. This result signals an acceleration in the growth of economic activity in the most important sector of the US economy, which surprised most economists. The market consensus assumed a decline of this indicator to 52.6 points. In addition, January saw a strong (by 1.7% mdm) increase in orders in the US industry.
The Fed’s Beige Book, released Wednesday, reported growing concern among traders about tariffs. The economic summary mentioned tariffs 45 times, a sharp increase from recent publications and higher than the president’s last tariff initiation in April 2018, when tariffs appeared in the report 32 times.
The futures market has a 93% chance that the FOMC will keep the federal funds rate unchanged at its March meeting. A rate cut from the Fed is not expected until June, and the probability is currently priced at close to 80%.
Only one thing remains the same. That something is the heightened volatility in the US stock market. Wednesday was the fifth session in a row during which the S&P500 changed its value by at least 1%.
KK/PAP
