Tit-for-tat

CAUSE: U.S. President Donald Trump's decision to temporarily suspend tariffs on electronics and mobile phones eased investor fears regarding the trade war, boosting global risk appetite. As a result, the dollar fell against most currencies, stock markets rose in Brazil and abroad, and interest rates—both for U.S. Treasuries and Brazilian DIs—retreated, influenced by the prospect of lower inflationary pressure and the stabilization of expectations in the Focus report released yesterday. By the end of the day, it seemed to us that the American president had begun to back down, perhaps due to a decline already observed in his popularity, or perhaps not. In truth, we will never know, as any opinion on this subject can change by the minute due to a lack of predictability.

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CONSEQUENCE: Donald Trump's temporary retreat on tariffs for electronics and mobile phones had immediate, positive effects on the markets, easing trade war tensions and stimulating global risk appetite. The rise in stock markets, the decline of the dollar against most currencies, and the drop in interest rates indicate an optimistic investor reaction, reflecting the perception of lower inflationary risk and greater short-term economic predictability. However, the instability and unpredictability of the American administration at the time, marked by sudden reversals and contradictory statements, create uncertainty regarding the durability of these effects, leaving markets on constant alert for potential shifts in U.S. trade policy. In other words, as long as this tit-for-tat continues, volatility is likely to remain as well.

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