Will Chinese tariffs spark inflation surge?

• European markets surge as Trump pauses reciprocal tariffs.
• Will Chinese tariffs spark inflation surge?
• Oil, gold, and bonds.

European markets soaring in the slipstream of a US market rebound that saw the S&P 500 gain an incredible $4 trillion in market cap. While Donald Trump will claim that the 12% spike in the Nasdaq highlights what a great job he is doing, it is quite obvious that it instead highlights just how happy markets would be if he abandoned his tariff policies altogether. While European markets are surging higher on the prospect that Trump’s 90-day delay will enable a trade deal, we are already starting to see some of the early gains fade as traders weigh up the ongoing uncertainty. European exporters do still have to contend with a 10% global tariff and 25% applied to automotive sales, while Trump has warned that a targeted approach to pharmaceuticals could be around the corner.

While Trump’s trade war appears to be more global in nature compared with his first term in office, China has once again become the central focus as Trump pushed tariffs on their imports to a historic 125%. With 14% of all US imports coming from China, this could swiftly result in a spike in US inflation over the coming months. We have seen US manufacturers stockpiling over recent months and there is a hope that this could stave off some of the inflationary effects over the short-term, but traders will be watching today’s US CPI report closely for signs of a resurgence in price pressures.

The commodity space has seen an interesting divergence between gold and oil today, with yesterday’s pop in crude giving way to a more cautious approach today. Despite the avoidance of heightened tariffs against some of the hardest hit countries, global demand concerns remains hugely prevalent as China and the US break trade ties. Demand for crude looks to be an ongoing issue, and the joint push for higher production in OPEC and the US provides the basis for ongoing consternation in the energy space. Meanwhile, we are seeing gold push higher once again, with the precious metal now less than 2% off record highs. China has been a huge stockpiler of gold over the years, and the breakdown in trade with the US will likely provide fresh support for the metal. Trump’s decision to implement a 90-day reprieve comes down to a recent surge in US bond yields, highlighting how the dumping of US treasuries can be used by the likes of China as a tool in this ongoing trade war.