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In the days following his decision to retreat, the market witnessed its most pronounced surge. However, this brief optimism was soon overshadowed when, shortly thereafter, he introduced a fresh wave of tariffs, causing the market to plummet once more.
The ramifications of these recent moves have proven to be significantly more severe than any economic turbulence experienced during his initial term. Analysts suggest that two primary factors contributed to the distinct nature of his first administration.
Firstly, it appears he may not have anticipated a victory in the presidential race, leaving him without a concrete strategy upon taking office. Secondly, his administration at the time included experienced advisors and cabinet members who were able to temper some of his more impulsive decisions.
“One was that he didn’t expect to win, and so he didn’t really have a plan.
“And second, there were adults in the room, both on his staff and in the cabinet, to restrain his worst instincts.”
“When markets feel very uncertain about the economic or geopolitical outlook, the US dollar goes up and US bond yields go down,” Eslake said.
Now, that safe-haven status has switched to the Swiss franc and to precious metals like gold and silver.
“Donald Trump tends to see the share markets as a barometer of his success,” AMP economist My Bui said.
“Donald Trump actually backed out last year to appease the voters a little bit by getting rid of tariffs on furniture and cocoa, beef and bananas.”
But said traders were buying and selling on the assumption Trump would back out of his war in Iran.
Trump has been sending mixed messages in the meantime on the duration of the war, claiming simultaneously it was nearly over or with much worse to come.
But this war with Iran does not give him an easy option to “chicken out”.
“He has always had an off-ramp,” Eslake said.
“And most of the time when there’s been an adverse market reaction to something stupid he has said or done, he takes the off-ramp.
“But it’s not obvious that there’s an off-ramp here.”
Peace with Iran appears a difficult proposition. The US attacked the country during its negotiations, which should make it less likely to willingly enter ceasefire talks.
For the US, simply pulling out of the region won’t guarantee the Iranian regime won’t use its weapons to stop shipping traffic in the Straits of Hormuz.
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