Trump's tariffs: How US stock market's exceptional move forced U-turn? EXPLAINED with five crucial reasons

Trump's tariffs: The global markets sighed in relief last week when US President Donald Trump announced an unexpected 90-day pause in his protectionist tariff policy. This triggered strong buying across international markets, including the Indian stock market. The Nifty 50 index opened upside at 22,695 and closed at 22,828, recording an intraday rise of 429 points. The BSE Sensex opened upside at 74,835 and closed at 75,157, logging an intraday 1,310-point rally during the intraday trading session on Friday. Likewise, Bank Nifty today had a gap-up opening at 50,634, and the banking index closed at 50,995, logging over 750 points gain during Friday dealings.

This unexpected shift in Trump's tariff policy might surprise most stock market investors. Still, for some experts, it was expected that the US President was under massive pressure due to the unexpected crash in the US bond and treasury markets after the US stock market crash. Experts say that the US bond market usually moves in the opposite direction of the equity market. Still, after the imposition of Trump's tariff, It was a big surprise for the White House officials and investment experts as investors sold in both equity and bond markets.

Trump's tariffs: 5 reasons for unexpected shift

Experts said that sharp selling in the bond and equity markets put the US government under pressure as it came under the massive pressure of rising trade imbalance and liquidity crisis. They listed five reasons that forced the unexpected shift in Donald Trump's tariff policy: the bond market following the stock market, liquidity crisis, debt-income imbalance, Tesla losing Asian business to the Chinese BYD Company, and hawkish US Fed. However, they maintained that later, four reasons emerged due to the unexpected selling on the US stock markets and the US bond markets.

1] US bond market following stock markets: "In normal circumstances, the US bond market and the US stock market move in opposite directions, but after the implementation of Trump's tariffs, both bond and stock market in the US crashed, which was a big surprise for the White House officials and a big section of investment experts. This could become possible as countries like China and others had accumulated US bonds after the inauguration of Donald Trump as the 47th President of the US, keeping his tariffs in mind. Once Trump's tariffs became a reality, these countries started selling the US bonds, which forced the US bond market to follow the US stock market crash," said Sandeep Pandey, Founder of Basav Capital.

2] Rising liquidity crisis: "After the sharp selling in the US bond and the US stock market, and curb on the US business activities after the US tariffs on its trade partners, inflation in the US was expected to increase at an alarming rate. So, rising liquidity crisis in the US economy was also a reason for motormouth Donald Trump to announce a 90-day pause to open the window for negotiations with its trade partners," said Avinash Gorakshkar, Head of Research at Profitmart Securities.

3] Tesla losing Asian business to Chinese BYD company: Avinash Gorakshkar of Profitmart Securities said that Elon Musk's Tesla has made massive announcements and investments in the Asian electric vehicle markets. "However, after the announcement of the US tariff, Tesla started losing business in the Asian markets to Chinese BYD Company, which is also in the electric vehicle business. Most importantly, Chinese EVs are much cheaper than Tesla's EVs," said Avinash Gorakshkar.

4] Debt-income imbalance: "After Trump's tariffs flair, US income was under heat, due to the higher inflation concerns and lowering the US dollar led to a rise in debt repayment. This was taking the debt-income imbalance to an alarming level, which forced Donald Trump to announce this unexpected U-turn on his protectionist tariff policy," Gorakshkar said.

5] Hawkish US Fed: "Ever since his inauguration as the 47th US President, Donald Trump has been re-iterating about the US Fed rate cuts at various platforms, but the US Fed Chairman Jerome Powell remained committed to his stance of containing the US inflation first before going for a sharp US Fed rate cut. After the implementation of Trump's tariffs, inflation concerns further shot up, which made the US Fed hawkish on interest rates. So, the American economy was moving against the wishes of the US Fed chairman, and hence, chances of the US Fed rate cut became grim," said Sandeep Pandey of Basav Capital.

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