Over the past couple of days, the new Trump administration has announced sudden changes that can impact the Macro economy…bigly.
- Tariffs against our largest trading partners, Canada, Mexico and China.
Canada, Mexico Want America to Feel the Pain of Tariffs Too
Both countries are planning precision strikes against U.S. exports in response to Trump’s unilateral tariffs
By Santiago Pérez and Anthony Harrup in Mexico City and Vipal Monga in Toronto. The Wall Street Journal, Feb. 2, 2025
…
The tariffs risk pushing the U.S.’s top trade partners [Canada and Mexico] into recession, as both nations send 80% of their exports to their bigger partner. The Canadian dollar and the Mexican peso are likely to weaken against the U.S. dollar.
Mexico and Canada can’t inflict the same kind of damage on the U.S. economy that the new 25% tariffs on all goods and 10% duties on energy products will on theirs…
Both Mexico and Canada are likely to focus on what experts call precision strikes against U.S. exports from Republican strongholds and industry groups with political leverage in Washington. A trade war between the U.S. and its two largest trading partners would hit U.S. income, hurt employment and increase inflation, said the Peterson Institute for International Economics…
The Peterson Institute estimated that U.S. inflation would be 0.54 percentage point higher with the tariffs this year than without. The U.S. depends on Canada for most of its imported oil, which is refined into gasoline in the Midwest, while Mexico is a supplier of everything from fruits, vegetables, meat and beer to electronics, household appliances and medical equipment… [end quote]
The WSJ calls this " The Dumbest Trade War in History."
https://www.wsj.com/opinion/donald-trump-tariffs-25-percent-mexico-canada-trade-economy-84476fb2?mod=trending_now_opn_1
- https://www.nytimes.com/2025/02/01/us/politics/elon-musk-doge-federal-payments-system.html
Elon Musk’s Team Now Has Access to Treasury’s Payments System
Treasury Secretary Scott Bessent gave Mr. Musk’s representatives at the so-called Department of Government Efficiency a powerful tool to monitor and potentially limit government spending.
Treasury Secretary Scott Bessent gave representatives of the so-called Department of Government Efficiency access to the federal payment system late on Friday, handing Elon Musk and the team he is leading a powerful tool to monitor and potentially limit government spending…Musk representatives have yet to gain operational capabilities and no government payments have been blocked…
Similar DOGE teams have begun demanding access to data and systems at other federal agencies, but none of those agencies control the flow of money in the way the Treasury Department does…
In a process typically run by civil servants, the Treasury Department carries out payments submitted by agencies across the government, disbursing more than $5 trillion in fiscal year 2023. Access to the system has historically been closely held because it includes sensitive personal information about the millions of Americans who receive Social Security checks, tax refunds and other payments from the federal government…Social Security and Medicare benefits, grants, payments to government contractors, including those that compete directly with Musk’s own companies…
One of the people affiliated with DOGE who now has access to the payment system is Tom Krause, the chief executive of a Silicon Valley company, Cloud Software Group, according to one of the people familiar with the situation… [end quote]
Talk about giving the fox the keys to the henhouse! What could possibly go wrong? [shudder]
Wall Street Is Nervous About Scott Bessent’s Borrowing Plans
New Treasury secretary has criticized a borrowing strategy that helped calm markets
By Sam Goldfarb, The Wall Street Journal, Feb. 2, 2025
The prospect of increased borrowing by a second Trump administration has spooked bond investors in recent months. One major concern: how the government will execute that borrowing.
At issue is a strategy pursued by the Treasury Department since late 2023 to lean more on short-term Treasurys to fund the government. Many on Wall Street credit that approach with calming markets buffeted by sticky inflation and a swollen federal budget deficit…
Still, some worry that he might ramp up issuance of longer-term debt, or “duration” in Wall Street parlance, putting upward pressure on already elevated U.S. Treasury yields—a key benchmark for borrowing costs throughout the economy…[end quote]
Economists generally agree that the federal deficit will increase in 2025. Funding the deficit with longer-duration bonds could increase the interest rate on mortgages and other long-term debt.
The markets haven’t had a chance to react to this blitzkrieg of sudden changes. It’s also not clear yet how they will impact the Macro economy.
4Q24 real GDP increased 2.3%. This is slightly lower than mid-2024 but still strong enough to keep the Federal Reserve from cutting the fed funds rate.
Economic activity in the manufacturing sector contracted in December for the ninth consecutive month and the 25th time in the last 26 months, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®. The overall economy continued in expansion for the 56th month.
The Fear & Greed Index is neutral.
The METAR for next week is cloudy. It’s hard to tell whether or how the markets will respond to these sudden changes.
Wendy