Trade Skirmish Gives Markets WhiplashTradeSkirmishGivesMarketsWhiplash

Tensions between the US and key trading partners escalated this week, jolting global markets as investors judged how a new slate of tariffs might impact growth, inflation, and business investment. The US’s 25% tariffs on Canada and Mexico, plus another 10% levy on Chinese imports, took effect on Tuesday, triggering retaliatory tariffs and a selloff in US stocks. Investors were granted some relief on Wednesday when the US agreed to give automakers a one-month exemption from its tariffs on Canada and Mexico. Additional tariffs could be around the corner, however. In a Tuesday address to Congress, President Donald Trump said he plans to begin imposing reciprocal tariffs on April 2. 

Tariffs contribute to a murky outlook for the economy. The Federal Reserve’s preferred inflation index cooled in January, although it remains above the 2% target. Meanwhile, the Atlanta Fed’s GDPNow model had the US economy on track for a first-quarter contraction following signs that consumers cut back on spending. In the manufacturing sector, growth slowed to a modest pace in February amid price increases and weaker hiring that reflected the impact of tariffs and an uncertain business environment, according to the Institute for Supply Management. On Friday, investors will get an update on the health of the labor market. Forecasts suggest that hiring improved in February with 170,000 jobs added, compared with 143,000 in January. PGIM Fixed Income’s Weekly View from the Desk examines the latest economic indicators, defense spending in Europe, and potential market implications.