The beatings will continue until markets improve

Robert Armstrong (0:06)

Pushkin. The American president, Donald Trump, says he really, really means it this time, on tariffs. You are listening to Unhedged, the markets and finance podcast from the Financial Times in Pushkin. I am Rob Armstrong coming to you from Unhedged headquarters in beautiful New York City, joined by Aiden Reiter.

Aiden Reiter (0:33)

Hello.

Robert Armstrong (0:34)

Aiden, can we believe what this guy says about tariffs? He said just this morning, he would impose another 10% tariff on China and that his threatened levies on Mexico and Canada would go through next week. And yesterday, he said he would slap a 25% tariff on imports from Europe, on the grounds that the European Union was created in order to screw the United States. I feel like he says something different every day. So far, only the aluminum and steel tariffs have happened. And if I might wax Shakespearean, there's been a lot of sound and fury on tariffs, but not a lot of signification. Not a lot has happened. Do we believe him this time?

Aiden Reiter (1:26)

Well, I believe him on China. So, he did hit China with 10% tariffs last time around, in addition to the 25% on aluminum. So, if you look at the economic advisors in his orbit, most of them have no interest in negotiating with China, at least judging on their past beliefs and their past writings. So, I believe China will go through. Canada and Mexico, who knows? He surprised everybody when he said he would do it on the first day of his presidency. And then, since then, he called it off at the 12th hour. Who knows?

Robert Armstrong (1:56)

Yeah, yeah, those relationships are so economically important to us that it seems like maybe he knows he's playing with fire if he hits them hard with tariffs.

Aiden Reiter (2:05)

You know, we've gotten some negative economic sentiment and some potential of negative economic growth. Hitting Canada and Mexico probably has an outsized impact versus hitting China or Europe. So, he might feel like he has less room to actually go ahead with those.

Robert Armstrong (2:18)

Europe is the big one, right? There's an important, for us, of course, we're a European newspaper coming from the UK. Europe, of course, in the broad sense, not in the narrow sense of the European Union. And we haven't seen that strong a reaction to all of this news and to the Europe news in particular. Of course, what we monitor when we are trying to determine if the market believes Trump is the buck. The theory is tariffs mean a higher dollar because they decrease American demand for foreign currencies or buying less stuff, and they increase foreign demand for the dollar because you got to pay the tariffs in dollars.

Aiden Reiter (2:57)

And also theoretically, if they raise inflation, rates stay up higher for longer, that makes the dollar stronger.

Robert Armstrong (3:01)

Dollar stronger once again, indeed. So, but the dollar moved a little bit today. It's a little stronger today, but not loads. It's still in its same trading range.

Aiden Reiter (3:09)

And it's been coming off in the past couple of days.

Robert Armstrong (3:12)

Couple of weeks even. So, the market I think is ambiguous. And one interesting aspect of this that I wanted to get into is that European stocks are doing pretty good this year.

Aiden Reiter (3:24)

They've had a good run.

Robert Armstrong (3:25)

Yeah. So, they are outperforming US stocks by something like 8 or 10 percentage points.

Aiden Reiter (3:31)

Since January 1st.

Robert Armstrong (3:32)

Since January 1st, they've been on a good run. The biggest companies in Europe, from ASML to Nestle to SAP to LVMH, they've all had a good start to the year. And indeed, all the whole wide European index has done well. And this is a remarkable change.

Aiden Reiter (3:51)

Is that because, right now, we've seen the Mag 7 essentially flat and value is doing well? Other people have argued Europe is more value. Yeah. What's going on?

Robert Armstrong (3:58)

This is the traditional wrap on Europe, that its stock markets are full of companies in sectors that just haven't done well in recent years anywhere. So, it's like banks and miners, basically value stocks, industrials, whereas the American stock market is like big tech companies, growth companies, growth retail companies, etc., etc. And so, Europe has been lagging for like 15 years now. Is that starting to reverse? Possibly. I mean, the biggest change in stock markets is, I think we have discussed here on the show in recent weeks, is that the Mag 7 are not Mag.

Aiden Reiter (4:37)

Flatted down.