Global Tariffs Overturned - Are We Back To The 'Old' Normal?
Introduction
Asian traders and investors woke up early this morning to news headlines repeating that the US Court of International Trade (CIT) issued a unanimous ruling that President Trump had illegally and wrongfully invoked an emergency law which allowed him to impose his widespread tariffs on countries, which led to a violent sell off in the markets back in early April.
The US CIT's ruling has effectively blocked the tariffs, unless Trump succeeds with an appeal in the appeals court. At the time of writing this article, it is reported that the US Department of Justice (DoJ) has filed an appeal and is preparing to challenge the CIT's ruling. While this is happening, the US CIT has also given Trump and his administration 10 days to withdraw his initial tariff laws.
How Did Markets React?
At the Asian open this morning, both $E-mini S&P 500 Futures (SEP5) (ESmain.US)$ and $E-mini NASDAQ 100 Futures (SEP5) (NQmain.US)$ gapped up and pushed higher, adding 1.49% and 1.83% respectively. Surprisingly, Asian markets except Japan were pretty muted and showed only a slight uptick across the board. The $OSE Nikkei 225 Futures (SEP5) (NK225main.JP)$ showed a strong positive correlation with the US stock futures and pushed higher by 3.39% as well. This is mostly due to the the markets turning more risk on and hence moving away from the safe haven JPY. The $USD (USDindex.FX)$ also strengthened strongly, at one point adding 0.66%.
Instinctively, upon hearing the news, the sentiment of the market in general has turned to be more risk on as they expect the "old" normal to be restored. 'Pre-2025' as some would call it.
Tariffs (some of them) Are Still Expected To Stick
However, some analysts are saying that this rally could be short lived. For the following reasons:
1. Taking a closer look at what the International Emergency Economic Powers Act (IEEPA) entails. Trump argued at the start that the IEEPA had to be invoked because of drug related problems brought into the US by China, Canada and Mexico.
2. In Trump's administration appeal, not all the tariffs are enacted under IEEPA. Because the US Court of International Trade (US CIT) only ruled against the tariffs brought under IEEPA, this means that as long as tariffs are enacted under a different section of the US law, it is possible for these tariffs then to be exempted from the withdrawal.
Here, we can see that under sections 201, 232 and 301 across the US law provides for Chinese products, metals, automobiles and solar products to still have their tariffs in place. Moreover, the tariffs that could be kept in place would still be higher than the tariffs that the US CIT claims were wrongly imposed in the first place under IEEPA.
What Can Investors Do?
Clearly from the above, we can come to the following conclusions:
1. The USD is going to strengthen in the short term - This does not mean that the US market will start outperforming other geographical regions. Rather, it signifies that we could be seeing a short term increase in demand for USD so that investors can allocate capital to certain US stocks that are not impacted by withdrawal of tariffs
2. Should tariffs on Canada and Mexico be struck down, this would definitely be good for huge automakers with North American supply chains such as $General Motors (GM.US)$and $Ford Motor (F.US)$. As both companies rely heavily on Mexican production lines as well as certain car parts from Mexico, their supply chains will definitely be able to take a breather here
3. Should the reciprocal tariffs be struck down, consumer staples such as $Walmart (WMT.US)$ and $Best Buy (BBY.US)$ will stand to gain as they will benefit from lower tariffs and improving margins on goods sold. Further, as they are within the consumer staples sector ( $Consumer Staples Select Sector SPDR Fund (XLP.US)$, which is known to be a defensive play, they will also stand to gain in light of market volatility.
Finally, with the Trump Administration appealing the US CIT ruling in the Court of Appeals, do not expect this process to be a quick one. From a timeline perspective, the appeal case could take as long as Q4 2025 to be resolved. Expect more volatility and uncertainty till then. As always, trade safe and stay safe my friends.
Prepared by:
Moomoo Singapore
Isaac Lim CMT, CFTe
Chief Market Strategist
Disclaimer: This report is provided for informational and general circulation purposes only and should not be construed as an offer, solicitation, or recommendation for the purchase or sale of securities, futures, or other investment products. It does not take into consideration any particular needs of any person. This advertisement has not been reviewed by the Monetary Authority of Singapore.
For full disclaimers, please visit https://www.moomoo.com/sg/support/topic5_935.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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Cui Nyonya Kueh : He is appealing...
152472350 : noone approves of his tarriffs being used as a bargaining chip anyway. Plus it hurts US businesses more
Cui Nyonya Kueh : if appeal, pass how?![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
Cui Nyonya Kueh : Mr Lim I have been saying to see Dow jones $E-mini Dow Futures (SEP5) (YMmain.US)$ two beautiful mountains..... as compared to tech. I'm not sure what is your view about this.
Trader’s Edge OP Cui Nyonya Kueh : Hello! Just like the S&P and NASDAQ, markets are a bit toppish at the moment. This includes the DJIA. We need at least a weekly close above 45200 in order to call it a bullish breakout. But otherwise, in the near term (1-2 weeks) we will see price consolidate between 45200 resistance and 40170 support. hope this helps!
Cardinal-BagHolder Cui Nyonya Kueh : Trump will win in court, just takes time. Wild how the lower courts think they run the country.
mobilebilly : how it turns out is still hard to predict at the moment, given that trump still has the control over senate and house. not to mention trump has records of not respecting the court orders. if the situation goes bad and turns into a national constitutional issue, i dont know what will be the impact
Cui Nyonya Kueh Trader’s Edge OP : Thank you very much Mr Lim
Raffierca 152472350 : Most people do actually approve of tariffs used as bargaining chip. It hurts US business more…than what?
stitchmailbox : sound like market manipulating again
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