US president Donald Trump has moved the goalposts on tariffs once again by delaying imposing the heaviest ones until August 1. This endless uncertainty and erratic behaviour are having a welcome, unexpected consequence, however, in making the European capital markets far more resilient.
July 9 was meant to be the big day. The deadline for Trump’s 90 day reprieve on the harshest of US tariffs that he announced on April 2 before postponing a week later.
Europe’s capital markets have been so worried about it that high grade corporate bond borrowers brought their summer funding programmes forward, cramming into the early June market to put as much distance as possible between their borrowing and a potential market cataclysm.
But TACO Trump struck again, and instead of the US punishing countries this week for not doing as he demands, he has extended the tariff deadline once more. Japan, South Korea and South Africa are facing some of the heaviest import taxes. So far, Trump has only managed to sign three trade deals — with China, Vietnam and the UK.
Chaos gone missing
In theory, the extended deadline should be almost as bad for markets as the swingeing tariffs coming into effect. Markets hate uncertainty, and another postponement generates a lot more of it.
But rather than shut down, the primary bond markets have thundered on. Rates issuers had a roaring start to the week, with Land NRW smashing through fair value on overwhelming demand, while IG corporate borrowers priced with small or negative concessions and even debut names have approached investors in the emerging markets.
Aside from the obvious localised wins for the borrowers that managed to get good deals this week, there are other reasons to take heart from the European market’s reaction to Trump’s volatile approach to diplomacy and tariff policy.
Markets are showing that they are becoming immune to Trump’s every utterance, an undeniable strength when, in only six months of his second presidency, he has opined on everything from making Canada a US state to taking over the Gaza Strip.
It makes the days when all the bond market had to worry about was the nuance of central bank monetary policy minutes look positively quaint.
The second major benefit is that if European markets can continue to price deals during such challenging times, with the wars in the Middle East and Ukraine adding to the difficulties, then more peaceful markets should be truly easy for issuers.
Change in an instant
However, as ever with someone as unpredictable as Trump, there is a sting in the tail. The White House has shown it is willing to take surprise, concrete action.
This became clear with US planes bombing Iran at the end of June, a few days into Trump’s self-imposed two-week period of non-violent warnings to the Iranian regime.
Markets shrugged off the attack, just as global leaders played it down as a one-off strike into Iran and not the initiation of total war in the Middle East. The strikes showed that there are occasions were Trump isn’t just talk. The problem is that it is becoming increasingly clear that the market has no choice but to act like he is, right up until the moment that he isn’t.