Weekly house view | Tariffs’ trial
The week in review
The US Court of International Trade ruled that President Trump’s “Liberation Day” tariff plan is illegal, buoying stocks at the end of a strong month for equities. The court found Trump did not have the authority to use the legislation he cited when imposing the tariffs. The Trump administration has appealed the ruling, which makes it harder for the US to escalate tariffs on countries, as it did with China, but not with individual sectors. The court’s challenge to the tariffs, which remain valid pending an appeal by the Trump administration, outweighed investor jitters about a provision in the “One Big Beautiful Bill Act” that would allow the US to increase tax rates on foreign capital.
US and European equities rose by 1.2% and 0.8% respectively on the week, helped by a surge in revenue at the leading AI chip maker.
The S&P500 enjoyed its best month of May since 1990.
Despite the global cheer, there was trouble in Japan, where a 40-year debt auction was poorly received. In addition, four of Japan’s biggest life insurers reported about USD60 bn of combined unrealised losses on their domestic bond holdings for the latest fiscal year. The losses highlight the risks the life insurers face as interest rates rise and raise questions about their reliability as a source of demand for government bonds.
Geopolitics
“The United States of America is never going to default, that is never going to happen,” said Treasury Secretary Bessent.
Key data
The US core PCE index, the Fed’s preferred inflation measure, slowed to 2.1% in April from 2.3% in March. The US labour market showed cracks, with jobless claims increasing 14,000 to 240,000. In positive news, the Conference Board said its consumer confidence index improved in May after deteriorating for five straight months. US Q1 GDP growth was revised up 0.1 percentage point to -0.2% (quarter-over-quarter annualised). However, the revised data showed a decline in private consumption to 1.2% growth, down from an initially reported 1.7%. In France, consumer price inflation slowed to 0.6% year-on-year in May, its lowest level since December 2020.