ON DECK FOR TUESDAY, JANUARY 28
KEY POINTS:
- Markets stabilize after DeepSeek deep sixed equities
- Infighting signals uncoordinated US trade policy
- Neither Bessent's nor Trump's tariffs make any sense...
- ...but tariffs seem highly probable. So does retaliation.
- US durables and consumer confidence on tap
- Chile's central bank expected to hold
Another day, another example of the US administration behaving like the Keystone Cops. For now, markets are taking it in stride as a little more stability creeps in after DeepSeek deep sixed markets. I still say that more competition is a good thing.
The US administration clearly does not have its act together on trade. They can't even coordinate views on the same day. Treasury Secretary Bessent one moment repeats his view that a universal tariff hike of 2.5% per month is being considered. Hours later Trump douses that by saying he wants much more than 2.5% as an opening salvo.
Both proposals are nutty. 2.5% per month a little less so in that it bakes in some policy optionality along the way to see the effects and to perhaps one day dissuade Trump from going too far. But it still arrives at the same end point for prices and inflation in a slow drip water torture approach that saps confidence in serial fashion and creates an impression held by consumers that prices will keep rising sharply. Pass through is assured in an economy that is in excess demand. This path invites progressive retaliation. Or perhaps it invites front loaded and coordinated retaliation to turn the tables on the US administration given that trading partners would see the path laid out before them and perhaps bring the fight sooner. In a gun fight, you don't stand around waiting for the other guy to draw first. All of which is extraordinarily foolish in violation of very basic economics in the first place and based on Trump's constant and manipulative victim narrative. I remain of the view tariffs are very likely and so is retaliation.
Otherwise, either enjoy the calm while it lasts or salivate over the volatility that we’re likely to get over the back half of the week. Your role, you pick. All the central bank fun, ‘Magnificent 7’ earnings, and data risk starts tomorrow.
Relatively light US data and one LatAm central bank will bide the time today and there was nothing by way of on-calendar risk overnight. Off-calendar risk may dominate again depending on Day Two of the DeepSeek shock and random policy remarks.
Tops among potential market influences will be US consumer confidence (10amET) which arrives after durable goods orders (8:30amET). Total durable goods orders are expected to grow given a surge n Boeing's orders. Core durable goods orders have been moving sideways for a long time now (chart 1). Repeat sale home prices are also expected to rise again (9amET).
Consensus unanimously expects Chile’s central bank to hold its policy rate at 5% (4pmET).
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