Trump Exhibits Patience on Trade, But Not on Immigration: Jan. 21, 2025

An easing of Trump’s tough tariff talk is allowing stocks to reach for further upside in the first trading day of the new administration. Treasurys are also participating in gains, sporting a bull flattening formation across the curve following President Trump delaying imminent levies on China and planned duties on Mexico and Canada for now. The moderation in rigid trade rhetoric is subduing inflation expectations and incrementally opening the door to a Fed rate reduction sometime this summer, according to real time pricing from the IBKR ForecastTrader marketplace. Still, folks are fastening their seatbelts and putting on their helmets in preparation for plenty of Trump bumps in the next four years, ladies and gentlemen. Meanwhile, drill baby drill is weighing on oil prices with some energy players worried about oversupply amidst production levels that are at record heights. And offering a prelude to the potential for mounting geopolitical tensions, heads of state from Beijing and Moscow met via video conference this morning to strengthen their Far East relationship against the backdrop of a Washington cabinet that is likely to become increasingly adversarial.

Drill Baby Drill, Trade Patience to Hedge Immigration Policy Risk

President Trump struck a hardline posture on immigration during his inauguration speech and ensuing remarks. His stance included bold positions of sending the military to the border, labelling gangs and cartels as terrorist groups, suspending asylum and refugee operations, and intending to end birthright citizenship for children of undocumented migrants. The aggressive developments could lead to an acceleration in wage pressures against the backdrop of a tight labor market that is already featuring stable hiring, light unemployment, low participation amidst a scarcity of skilled workers and strong paycheck growth. Indeed, the shift toward a softer viewpoint on trade in light of an uncompromising immigration policy is part of the administration’s efforts to achieve non-inflationary growth. Moreover, drill baby drill is another consideration enacted to hedge the possible inflationary upticks stemming from trade and immigration sternness.

UK Job Market Eases

The UK job market appears to be softening as December saw a decline in payrolls, fewer job openings and a marginal increase in the unemployment rate. The country’s Office for National Statistics estimates that the total number of filled jobs last month declined by 47,000 month over month (m/m) after falling by 32,000 in October. In addition to laying off workers, employers have removed help wanted signs with job vacancies dropping by 24,000 during the three months running through December. The metric has weakened in every three-month period during the past two-and-a-half years. Encouragingly, the number of claims for unemployment benefits increased by only 700, better than the 10,300 anticipated by analyst but worse than November, when the number declined by 25,100. The country’s unemployment rate, furthermore, increased from 4.3% to 4.4% in November. Forecasters expected no change. Despite the weakening labor market, real wages with bonuses and without bonuses climbed 2.5% and 2.4% year over year (y/y) in the September through November period. Nominal wages advanced 5.6% y/y for both metrics, meeting projections and strengthening from the two gauges’ 5.2% reading in the prior three-month period.

Canada’s CPI Retreats

Canada’s headline and core Consumer Price Index (CPI) dipped 0.4% and 0.3% m/m in December, in-line with expectations, with the results being heavily influenced by the country waving its sales tax. In November, the headline number was flat while the core descended 0.1%. On a y/y basis, the headline advanced 1.8%, a tenth of a percent lighter than projections and easing from 1.9% in November while the core gauge accelerated from 1.6% to 1.8%. Within the broad index, shelter led the gain, climbing 4.5% y/y, while alcoholic beverages purchased at stores and food at restaurants fell 1.3% and 1.6%, respectively.

Asia Reports Accelerating Inflation

Meanwhile in Asia, December price pressures picked up slightly in Hong Kong at the consumer level and in South Korea at the wholesale stage. Hong Kong’s CPI rose 0.1% m/m and 1.4% y/y, near November’s rates of 0% and 1.4%. Forecasters expected a climb to 1.5%. South Korea’s Producer Price Index (PPI) increased 0.3% m/m and 1.7% y/y, accelerating from the previous month’s 0.1% and 1.4%. The annualized figure increased at its fastest pace since July of last year while price pressures were led by information services, electric power, gas and steam.

3M Beats Expectations While Homebuilder Thrives

3M (MMM) posted a 0.1% y/y revenue increase and a 1.2% earnings drop, but both fourth-quarter results exceeded expectations. For fiscal year 2025, 3M said it anticipates earnings per share to increase as much as 8.2% y/y, which was roughly in-line with analysts’ expectations. The company, which is well known for its Post-It notepads, generated a 2.4% y/y increase in its safety and industrial segment and a 2% gain its transportation and electronics market.

Homebuilder D.R. Horton (DHI) also posted a strong quarter with top-and bottom-line results that exceeded expectations. The company said tight inventory contributed to strong sales during the final quarter of 2024. Homeowners that purchased houses when mortgage rates were near historical lows are reluctant to sell and give up their existing low-cost financing, which is driving demand for new homes. The company has responded to affordability issues resulting from high prices and lofty financing costs by building more homes with smaller footprints. Nevertheless, the number of houses sold in the fourth quarter fell 1% y/y.

During the start of a week with numerous regional banks providing fourth-quarter results, KeyCorp (KEY) posted earnings that surpassed expectations, but its revenue of $865 million fell below Wall Street estimates of $1.74 billion. During the quarter, the banking company occurred a $657 million loss from the previously announced sale of securities conducted to restructure its portfolio. Other areas flourished with fees for investment banking, payment services and wealth management jumping 27% and net interest income growing 10% y/y. 

Trade Tariff Optimism Pumps Up Sentiment

US markets are gaining across the board with stocks, Treasurys and the greenback all benefiting from loftier prices. All major equity benchmarks are gaining with the Trump baskets outperforming. The Russell 2000, Dow Jones Industrial, S&P 500 and Nasdaq 100 indices are up 1.4%, 0.7%, 0.5% and 0.1%. Sectoral breadth is positive with 10 out of 11 segments gaining and led by utilities, industrials and materials, which are up 1.5%, 1.4% and 1.4%. Energy is the only sector that’s red at the moment; it’s down 0.7% as crude oil takes losses of 0.5%; WTI is changing hands at $75.90 per barrel. President Trump signed an executive order yesterday in efforts to boost production further and lower prices at the pump for the benefit of American families. Commodities as a whole are mixed though with gold, silver and copper up 1%, 0.6% and 0.3%, but lumber is lower by 1.5%. Turning to Treasurys, the 2- and 10-year maturities are trading at 4.27% and 4.55%, 1 and 7 basis points (bps) lighter across the curve. Meanwhile, the US dollar is recovering from its recent selloff, a result of softer Trump rhetoric on the trade front. The greenback’s index is up 10 bps and trading at 108.17 while the US currency appreciates against the euro, pound sterling, franc and Aussie and Canadian tenders. It is depreciating versus the yuan and yen, however.

Here Come the Trump Bumps

Corporate executives and market participants alike are bracing for Trump bumps as the administration begins its four-year term. President Trump has already signed over 25 executive orders since his return to the Oval Office and is operating under a get things done quickly framework. Meanwhile, he has stated that the US will post 25% import tariffs on all products from Mexico and Canada on February 1 while giving China time on what was looking like a 60% levy on goods from the second-largest economy. The administration’s path toward non-inflationary economic growth depends heavily on how policies on trade, immigration and oil production are handled and the cabinet has so far maneuvered its attention across the topics with tact. Finally, however, it won’t take much for Beijing, Ottawa or Mexico City to upset the man at the helm, which would then tilt Washington to simultaneously heighten actions on trade and immigration. The combination would threaten an inflationary uptick amidst an already hot services picture and a probable reignition in goods charges, weighing on the White House’s ability to deliver affordability and efficiencies for American families in the short-term.

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