Trump’s tariffs hit the global economy. New data show Japan and Switzerland contracting while China reels from plunging exports and slowing investment. That matters now because levies have taken effect and are reshaping demand ahead of U.S. jobs and a fresh round of Fed commentary. Short term the shock is weighing on trade flows and risk appetite. Longer term higher tariffs could slow growth across the U.S., Europe and Asia.
Market preview and near-term risk drivers
Overnight macro releases from Asia and Europe add a fresh downside risk to risk assets as the U.S. session opens. Traders will be parsing weaker external demand for cyclical exports alongside central bank signals about the timing of rate cuts. The delayed September jobs report due Thursday remains the most important American data point for markets this week. For now the focus is on whether weaker global demand will push U.S. growth and inflation lower enough to make the Fed more willing to ease.
Currency and commodity moves are likely to reflect the trade shock. The dollar may get some safe-haven support if global data continue to disappoint. Oil and industrial metals are vulnerable to weaker global demand. Equity sectors tied to exports and cyclical manufacturing could feel the pressure. At the same time defensive sectors and sovereign bonds could see inflows as investors reassess growth assumptions.
Tariffs, trade flows and the data that matter
New national accounts paint a clearer picture of the real cost of higher trade barriers. Japan’s economy contracted at an annualized rate of nearly 2 percent in the third quarter. That is the first quarterly contraction in more than a year. A sharp pullback in auto shipments to the U.S. was a key component. Many exporters had earlier accelerated shipments to avoid tariff increases but demand faded once levies hit.
Switzerland posted a 0.5 percent decline in quarterly GDP. U.S. duties that rose to near 40 percent on selected Swiss items this August hit watch and chocolate exports especially hard. These moves illustrate how concentrated, large tariffs can quickly re-route trade and dent production in countries that rely on U.S. buyers.
China’s recent data add to the global picture of slowing trade. Factory output expanded by roughly 5 percent year on year last month but that was the slowest pace so far this year. Investment spending on buildings and equipment declined by 1.7 percent over the 10 months ending in October. Exports fell unexpectedly more than 1 percent in October, the worst print since February when the first major tariff increases were announced. Shipments to the U.S. sank about 25 percent year on year.
These readings show both supply side and demand side strains. On the supply side firms that benefited from strong exports earlier in the cycle now face abrupt demand losses. On the demand side slowing investment and consumer spending in key markets reduce the pool of potential buyers for exporters, creating a negative feedback loop.
Fed commentary heats up as officials weigh risks
Domestic monetary policy will be central to how markets absorb the global trade shock. Vice chair Philip Jefferson signaled a cautious middle path this morning. He said downside risks to employment have increased while upside risks to inflation have likely eased. He described his approach as meeting by meeting to judge whether policy needs adjustment.
That wording keeps the door open to rate cuts but stresses prudence as policy moves closer to a neutral stance. Governor Christopher Waller is scheduled to speak later today in London at 3:35pm ET. He is known to favor rate cuts, so his comments will be watched for any sign of compromise between the Fed’s more dovish and more hawkish camps.
Other Fed news will also matter for market pricing. Over the weekend we learned why Governor Adriana Kugler resigned in August. She was under investigation for breaching the central bank’s stock trading rules. The development adds to scrutiny of governance at the central bank even as officials debate the policy path for December.
What to watch during the trading session and scenarios for traders
Key items on the calendar for the session include multiple Fed speeches and updates on trade developments. Markets will also track any confirmation that upcoming trade agreements have materially reduced tariffs or whether higher levies remain broadly in place. Recent deals have cut some tariffs, but rates are still well above pre-tariff norms which means trade costs may continue to weigh on activity.
Commodity and agriculture markets will be alert to trade behavior that affects shipments and purchases. For example China promised to buy 12 million metric tons of U.S. soybeans this year but purchasing appears to be slower than expected. That example shows how trade pledges can translate into limited physical flows when economic incentives shift.
Trader scenarios to monitor include a continued run of weak foreign data that pushes market pricing toward a longer path of looser monetary policy in the U.S. Another scenario is that central banks push back against easing plans if inflation remains more persistent than expected. Both scenarios create volatility but they lead to very different outcomes for bonds, currencies and equities.
In addition to data and speeches, watch market breadth and sector rotation. Export exposed companies and materials names will be sensitive to trade headlines. Interest rate sensitive sectors will respond to any change in the perceived timing of Fed easing. Finally, monitor cross asset flows between equities, bonds and safe haven currencies for early signs of risk reappraisal.
This trading session will be shaped by a mix of fresh macro evidence and central bank language. The interplay between weaker foreign demand and Fed guidance will determine whether markets treat the tariff shock as a temporary disturbance or a driver of a more prolonged slowdown in global growth.
