Markets' tariff resilience surprises

Investors have been living in a real-time economic experiment ever since US President Donald Trump returned to the White House in January.

- Jamie McGeever

Whether it’s tariffs, “America First” isolationism, overt politicisation of independent economic institutions, or upended global economic norms, markets are having to deal with challenges few investors have faced before.

So how are they reacting to the leader of the free world ripping up the economic playbook that has shaped the global financial system for 40 years?

Wall Street and world stocks are at record highs, US high yield corporate bond spreads are the tightest since before the 2007-08 global financial crisis, and Treasuries are remarkably calm, with the 10-year yield below its average of the last two years.

It's not all serene, of course. The US “term premium” — a measure of the extra compensation investors demand for holding long-dated Treasuries over short-term debt — is the highest in over a decade. Inflation expectations and long-dated yields have shot up, too.

And one needs to acknowledge that the full impact of Mr Trump's tariffs has yet to be fully felt.

But, at this point, there has been no US recession, even if growth is slowing. And the market plunge on the back of Mr Trump's April 2 “Liberation Day” tariff debacle lasted a few weeks.