Moneycontrol Pro Weekender | Capital strikes back

It’s difficult to separate the messages from the cacophony that has erupted in the markets since President Trump’s decision to impose so-called reciprocal tariffs. But amid the manic volatility in the markets this week, one clear signal stood out---the markets can force Trump’s hand.

This is not the first time that markets have forced policy makers to either roll back measures distasteful to them or prevent such policies in the first place. Capital has been known to strike and strike hard when its interests are at stake. Nevertheless, that Trump caved in so soon is a reason for markets to be happy. They will also be happy that the ‘Trump put’ came in before the ‘Fed put’, indicating the President has a lower pain threshold. This FT story, free to read for Moneycontrol Pro subscribers, said, ‘His decision to cave, at least partially, is a sign that Trump is still susceptible to a backlash from investors, lawmakers and donors — even on one of his signature policy promises.’

We pointed out, however, that Trump’s U-turn was a reprieve, not a resolution. The implications of the U-turn were analysed in detail in this column, which considered what it meant for the US Federal Reserve, for US consumers and for US inflation.

Trump has other weapons that could temporarily boost the US stock markets, such as tax cuts. But the bond markets are unlikely to be impressed, and at the time of writing, despite a lower-than-expected inflation print, bond yields are still around 4.4 percent, around the level they were at before Trump’s about-face.

There are two questions here. The first one is: to what extent will the revised tariff structure—10 percent for all countries except China, which gets 145 percent—impact growth and inflation in the US? The Yale Budget Lab has done the math and it says that ‘’The price level from all 2025 tariffs rises by 2.9% in the short-run, the equivalent of an average per household consumer loss of $4,700 in 2024$’’. On growth, it estimates US real GDP growth will be 1.1 percentage point lower because of the tariffs and the unemployment rate will rise by 0.6 percentage point by the end of 2025. In short, higher inflation, lower spending, and lower growth.

Even more consequential for businesses will be rising costs and the inability to pass them on in a slowing economy and, most importantly, the disruption in supply chains. No business will invest in the midst of such uncertainty.

That brings us to the second question: is the Trump U-turn merely a tactical retreat and will he continue to press for concessions, but this time less impetuously? In a recent note titled ‘’A pause to the means, not the end’’ Kotak Institutional Equities said, ‘We would assume that the US government will continue to pursue its stated strategic objectives of (1) a reduction in large trade deficits with other countries and (2) reshoring of manufacturing and an unstated objective of a weaker US dollar.’  We too had said here that, ‘Trump’s policy seeks to redraw the global map—economic, financial, geopolitical—in a way that locks the US at the top, with everyone else scrambling for scraps. The old model, where the world fed America’s consumption and America fed the world’s growth, is being torched.’’ And our columnist Vivek Kelkar has written that Trump’s tariffs signal a hard pivot to security-driven economic nationalism. This column talks of the changing global financial order.

If Trump is indeed bent on carrying out this strategy to the end, then the markets can hardly be expected to be calm about it while everything is changing around them. As Martin Wolf says in his column, ‘Stock markets are surely right to guess that a good part of today’s productive capital stock will turn out to be scrap: continued market turmoil is likely.’ Moreover, as Saibal Dasgupta says here, Donald Trump's actions could end up hurting the US rather than helping it.

Indian policy makers have to Trump-proof the economy on the one hand and strike trade deals with both the US administration and other countries rapidly. On the former objective, the Monetary Policy Committee cut its policy rate by another 25 basis points this week, and holds out the promise of more cuts to come, as we said here and FD rates, although much depends, as Rajrishi Singhal pointed out here, on how borrowers respond. The longer the uncertainty continues, the longer will businesses put off investment plans.

On striking deals, this article says ‘By staying agile, monitoring the evolving landscape, and addressing sector-specific challenges, India can not only navigate this disruption but also emerge stronger and more competitive on the global stage.’’ Our columnist Ananya Roy has pointed to the risks and opportunities for India.

For investors, we have compiled a list of sectors and stocks to watch as Trump hits the pause button.

If you have had a stomach-churning, sleep-deprived week in the markets as a result of Trump’s tweets and rants and policy U-turns, remember this advice in Tim Harford’s column ‘’The realm of national and international events is important, but it is not a place in which to live. It’s a place to visit.’’

As for me, I would like to say, with Brian Bilston, a ‘Prayer for Uninteresting Times’

‘Send me a slow news day,

a quiet, subdued day,

in which nothing much happens of note,

save for the passing of time,

the consumption of wine,

and a re-run of Murder, She Wrote.

Grant me a no news day,

a spare-me-your-views day,

in which nothing much happens at all,

except a few hours together,

some regional weather,

a day we can barely recall.’

Cheers,

Manas Chakravarty

In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets:

Stocks

TCS Q4 FY25 – Is it worth a look post the U-turn on US tariff? This auto ancillary player is immune to trade tension, Indian IT stocks: value buy or value trap? Trent: What should investors do after a disappointing Q4? Should investors bet on banking stocks? Is it time to bottom-fish Tata Motors? What Delhivery’s latest bet signals, Senco Gold—time to shine again? Titan, Godrej Consumer, Tactical pick: This stock is well-placed to ride the tailwinds from global supply-chain changes,

Markets

Time to buy stocks?

Why 'safe' consumer stocks may disappoint – and where real value is emerging now

Trade War: How should investors position for the likely Fed pivot?

Can FMCG stocks benefit from this aftereffect of Trump’s tariffs?

Why Indian metal stocks got scorched

Sharper correction in mid and smallcap indices moderates broader market valuations

Financial maturity of Indian investors

Financial Times

A reliable safe haven trade is feeling the heat from Trump’s tariffs

The weekend Trump’s tariff threats became real for global investors

Jamie Dimon delivers a masterclass in managing up

Companies and sectors

Shipping lines face tariff whipsaw

Monsoon prospects cheer fertilisers firms, but pressure builds on agrochemicals companies

NHPC

How hard will JLR’s pause on US exports hit Tata Motors?

Changing topography of PE investments in real estate

Have banks cut FD rates pre-empting RBI's move?

Economy & Policy

A looming currency war?

More rate cuts likely, but RBI eyes global risks closely

Tech & Startups

Trump’s tariffs’ impact on Indian start-ups

Indian IT's guidance, deal pipeline to shed light on Trump tariff impact: Five factors to watch

A year on, CEO Srinivas Pallia steers Wipro steady, but turnaround journey isn’t over

Others

What will be the impact of Waqf Act on Bihar state elections?

GuruSpeak| How a life-threatening accident transformed Vamsi Krishna's career

Pink slips for the masses, perks for the bosses

Britain’s talking about renationalising privatised utilities. Should we be, too?