Trump Weighs In With Trade Frictions

Trump Announces EU Tariff

While the S&P 500 effectively shrugged off the U.S. credit downgrade by Moody’s, sentiment soured on Friday when Trump announced the 50% tariff on the EU.

In addition, Trump announced a 25% tariff on Apple products manufactured outside the U.S. and the first time a company has been singled out for tariffs. Expect Trump to walk that back before a legal challenge.

Trade Frictions

The factors driving a structural weakening in the S&P 500, a collapsing U.S. dollar and a loss of confidence in U.S. treasuries are man-made.

The strategy of increasing trade frictions reduces liquidity in the market and impacts global GDP. The Trump administration knows and understands that.

The plan to weaken the dollar’s value relative to other currencies has positive outcomes for U.S. exports. However, the current weakening in the dollar may, in part, reflect a lack of confidence in the U.S. leadership.

Global collateral is on shaky ground, the global reserve currency is on a downward trajectory (in theory, it should be going up), and the S&P 500 has witnessed a significant reduction in earnings estimates.

The Trump administration’s macroeconomic strategy is engineered with an understanding of the consequences; however, it’s based on a relatively narrow view of others’ priorities.

Policy U-turn

Add to that what appears to be a U-turn in fiscal strategy and the progression of the “big, beautiful (tax) bill”.

In an interview last week, Scott Bessent highlighted a notable shift in focus to growing the economy faster than debt and stabilising debt-to-GDP.

However, in the short term, while the Trump administration inherited a deficit-to-GDP of 6.7%, the “big, beautiful (tax) bill” will propel the fiscal deficit to 8% of GDP.

While tariff revenue could partially offset that, it’s still far from the Trump administration’s stated target of a 3% deficit-to-GDP.

In short, the status quo has been restored. The focus has shifted back from Main Street to Wall Street, and fiscal largesse is back in play.

That will likely be positive for the S&P 500 and the mid-term elections in the medium to long term.

S&P 500 Key Levels:

The S&P 500 opens in positive gamma tomorrow. The gamma flip zone sits at 5780, the call resistance level is 5960, and the put support is 5600.

There is a trend of lower highs and lower lows appearing on the short timeframes which signals downward momentum.

There is some fear creeping back into the options spreads and the Vix spiked back above 20 (which is technically a bear signal).

Key levels to watch to the downside are the major put wall at 5800 and below that 5650.

Nvidia reports earnings this week (after hours on Wednesday) and that could be a positive catalyst for the S&P 500 as will the announcement that date for the proposed tariffs on the EU has been move to 9 July.

The FOMC minutes on Wednesday and Core PCE price index on Friday are also events that could shape the direction of the market.