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It’s premature to relax on tariff concerns

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It’s premature to relax on tariff concerns: Sevens Report Analysts Quoted in Investing.com

Strategist explains why tariff fears shouldn’t be exaggerated

The stock market’s rally this week, driven by the absence of immediate tariff announcements under President Trump’s new administration, has led some investors to believe tariff risks may have been overstated, according to the latest Sevens Report.

However, Sevens warned that it’s premature to relax on tariff concerns, highlighting potential volatility ahead.

“‘Day One’ of the Trump administration contained no blatant and additional tariff threats, as investors had feared,” Sevens Report analysts noted.

Yet, they cautioned, “tariff headlines will remain a consistent source of short-term volatility in markets this year.”

The report points out that Trump’s administration cannot unilaterally impose tariffs without first building a legal case.

“It’s not a surprise that Trump didn’t announce any new tariffs yet, Said the firm, adding that presidents do not have the power to just decree tariffs, especially with trading partners under existing legal trade treaties approved by Congress.

Also, click here to view the full article featured on Investing.com published on January 24th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Why Did Stocks Hit New Highs?

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Why Did Stocks Hit New Highs?: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why Did Stocks Hit New Highs?
  • Weekly Market Preview: Major Tech Earnings and Wednesday’s Fed Decision
  • Weekly Economic Cheat Sheet: Fed Wednesday (Do They Push Back on Pause Fears?)

Futures are sharply lower (down more than 2%) on AI and tariff concerns.

Tech stocks are extremely weak (Nasdaq futures are down 4%) on news that a Chinese AI company “Deep Seek” has produced cutting edge AI with minimal costs and no next-gen chips, and this is seriously undermining AI enthusiasm.

Geopolitically, Trump threatened Colombia with tariffs over the weekend and while they ultimately weren’t implemented, it’s a reminder that trade volatility is back.

Today there is only one notable economic report, New Home Sales (E: 669K) and that shouldn’t move markets.  Instead, tech (and specifically the Mag 7) will lead the markets and for stocks to rebound from these steep early losses, we’ll need to see the Nasdaq stabilize and rebound, otherwise this is looking like an ugly day in the markets.

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Are Stocks Pricing in an Economic Contraction?

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What’s in Today’s Report:

  • Bottom Line – Are Stocks Pricing in an Economic Contraction?
  • Weekly Economic Cheat Sheet – Is Stagflation Imminent?

Stock futures are trading modestly lower with European markets this morning as recession fears continue to weigh on sentiment.

Economically, global Composite PMI data was better than feared but broader concerns of a slowdown remain.

Today, investor focus will be on economic data early with Motor Vehicle Sales (E: 13.5M) and Factory Orders (E: 0.5%) both due out before the opening bell.

There are no Fed officials scheduled to speak today but the Treasury will hold auctions for 3-Month and 6-Month Bills at 11:30 a.m. ET which may move bond markets and ultimately move equities.

Trade Hopes, Momentum, and New Highs

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What’s in Today’s Report:

  • Bottom Line: Momentum and Hope Continue to Fuel the Rally
  • Weekly Economic Cheat Sheet: Focus on Friday’s Flash PMIs

U.S. futures are modestly higher and most international markets rallied overnight thanks to more trade war optimism and unexpected stimulus by China’s central bank.

A “constructive” phone call between China’s Liu He, USTR Lighthizer and Secretary Mnuchin reportedly took place on Saturday which is helping boosting hopes for a trade deal.

Additionally, the PBOC cut a key interest rate for the first time in 4 years, offering a dovish tailwind to risk assets this morning.

Today is lining up to be a fairly quiet session as far as catalysts go as there is just one economic report: Housing Market Index (E: 71) and only one Fed official is scheduled to speak: Mester (12:00 p.m. ET).

With trade war optimism continuing to be the main driver of this most recent run to new all-time highs the markets will remain keenly focused on any new developments or news regarding the “phase one” trade deal.

Tom Essaye Quoted in Invest Records on November 11, 2019

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“Stocks hit fresh new highs last week on a familiar theme: Positive chatter/headlines on phase one of a U.S./China trade deal, while earnings and global data…” wrote Tom Essaye, president of the Sevens Report, in a Monday note to clients. Click here to read the full article.

Tom Essaye

Tom Essaye Quoted in NBC News on November 7, 2019

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“The market is already partially pricing in removal of the tariffs that were implemented on Sept. 1. That also means the risk is of disappointment is now real on an actual phase-one announcement, because if all we get is…” said Tom Essaye, founder of The Sevens Report, in a note to clients. Click here to read the full article.

Stock traders

Bond Yield Breakout

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What’s in Today’s Report:

  • Did Global Bond Yields Finally Breakout?

Futures are slightly lower following a quiet night as markets digest Thursday’s “tariff reduction” headlines while economic data continued to show mild improvement.  There was no new trade news overnight.

Economically, Chinese and German exports slightly beat estimates (Chinese exports down –0.9% vs. (E) -3.9%), German exports up 1.5% vs. (E) 0.3%) in another sign that global growth may be stabilizing.

Today there is just one economic report, Consumer Sentiment (E 96.0) and three Fed speakers, Daly (11:45 a.m. ET), Williams (8:00 p.m. ET) and Brainard (8:45 p.m. ET) but none of that should move markets as U.S./China trade is totally dominating the market narrative right now.

Given that, any confirmation of immediate tariff reduction with a phase one agreement will extend the rally in stocks and yields, while any contradiction of yesterday’s tariff reduction headlines will weigh on markets.

Trade Truce

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What’s in Today’s Report:

  • Is A Trade Truce a Bullish Gamechanger?  No.  Here’s Why.

It’s green on the screen and futures are 1% higher as optimism for a U.S./China trade truce surged after the close.

President Trump said talks went “very well” yesterday and will meet Liu He in the White House at 2:45 p.m. today and a trade “truce” with no more additional tariffs is expected.

Economically, the only notable number was German CPI, which met expectations at 1.2% yoy.

Markets will be focused on any trade headlines as that’s clearly the most important topic today.  From a timing standpoint, I’d expect some sort of announcement on the outcome of the negotiations between lunchtime and the close, as Trump is meeting with He at 2:45 p.m.  At this point, a trade truce with some elimination of pending tariff increases is fully expected and anything less would be a disappointment.

Away from trade, we get Import & Export Prices (E: -0.1%, 0.0%) as well as Consumer Sentiment (E: 92.0), but unless the later is very bad, neither number should move markets.  There are also several Fed speakers today including Kashkari (8:00 a.m. ET), Rosengren (1:15 p.m. ET) and Kaplan (3:00 p.m. ET) but none of them should move markets.

Is the Tariff Delay Bullish?

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Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • Why Isn’t the Tariff Delay Causing a Bigger Rally?
  • Bond Market Update:  Not Confirming 3000 in the S&P 500

Futures are marginally higher ahead of the ECB decision and following a short tariff delay by President Trump.

Trump announced that the October 1 tariff increases (25% to 30% on 250 bln of imports) will be delayed till October 15th as a gesture of “goodwill.”

Economic data was again soft as German Industrial Production dropped –0.4% vs. (E) -0.1%, continuing the trend of disappointing EU manufacturing data.

Today the key event is the ECB Meeting.  The decision is at 7:45 a.m. and the Press Conference will be held at 8:30 a.m.  For the ECB to meet expectations we need to see 1) A rate cut, 2) More QE and 3) A “Tiered” deposit system.  Outside of the ECB we also get two important economic reports,  CPI (E: 0.1%) and Jobless Claims (E: 215K) and they could move markets if they are surprises (especially is CPI runs hot).

ECB Preview

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What’s in Today’s Report:

  • ECB Preview
  • Have Treasury Yields Bottomed?

Stock futures are flat while most international markets rallied overnight thanks to incremental progress on trade amid a continuation of the recent rotation into cyclicals.

There were no notable economic reports overnight.

China announced tariff exemptions for multiple U.S. imports o/n which is an incremental positive as both sides have made modest concessions in recent weeks.

The rotation from momentum to cyclicals is continuing overseas, a theme that will remain in focus today. Remember that because of the heavy weighting of big tech stocks in the major indexes, this rotation could remain a headwind on the broader stock market in the near term.

Today, there is one economic report to watch: PPI (E: 0.1%) and no Fed officials are scheduled to speak.

There is a 10-Yr Treasury Note Auction at 1:00 p.m. ET and depending on the reaction from the bond market, there could be an impact on stocks however investor focus has largely shifted forward to the ECB tomorrow which will likely keep stocks largely paralyzed for the next 24 hours.