Global markets welcomed Trump’s move to turn a threat into reality and then roll it back—arguably a better outcome than imposing and sticking to 25% tariffs. However, the uncertainty and lack of seriousness in these decisions will undoubtedly have a sizeable impact on US growth.

In the markets, the car stocks rebounded yesterday on delayed tariffs. The Mexican and Canadian investors were relieved, mood in Europe was significantly better, as well. The Stoxx 600 recovered 0.91% while the DAX jumped 3.38%. Even though the tariffs haven’t reached the European coast of the Atlantic Ocean, the European investors are extremely sensitive to the trade news, and that leads to big sized moves – rising volatility. The market conditions are getting appetizing for traders that are looking for interesting short-term opportunities, but it’s important to have a clear playbook and determine what factors influence the market moves? Is it the data, is the central bank expectations, is it politics, geopolitics?

Major market movers change

Over the past two years for example, the main trading themes in the West were AI and the central bank decisions. Market prices were very sensitive to these factors. The incoming data was digested in the context of the impact that it would have for the central bank decisions. As such, weak economic data – especially weak inflation data - was perceived as good news by investors as weakness would lead to lower rates and lower rates would boost economic growth and company valuations.

Today, growth expectations prime, while the importance of the inflation outlook is no longer the same for all markets. For the Federal Reserve (Fed), the inflation outlook is crucial because the tariffs are expected to have a direct impact in boosting US inflation and limiting the Fed’s ability to cut the interest rates to boost growth. In this scenario, the weak economic data is bad news.

In Europe, however, the inflation outlook is important but growth outlook has become more important: the European countries are obliged to boost their military budgets today no matter how fast inflation is growing. This no choice situation is reflected in the way Germany is acting today. The country is literally throwing the spending speedbumps out of the window to allow boosting spending in defense and security. They now want to create a EUR 500 billion infrastructure fund to get the continent back to its feet.

In short, US growth expectations remain closely linked to inflation and Fed policy, while European growth forecasts are getting a lift from higher spending prospects and become less dependent on the European Central Bank (ECB) monetary decisions. Weakening US growth expectations and strengthening European growth prospects continue to favour European assets.

This is why, the 30bps jump in German 10-year yield and the higher-than-expected PPI data in the Eurozone didn’t prevent the German DAX index from gaining more than 3% yesterday. The Stoxx 600 index is set for its biggest quarterly outperformance against the S&P500 in a decade and the EURUSD recorded its best three-day session in a decade. The ECB is widely expected to cut its rates by 25bp at today’s meeting. The press conference will be particularly interesting as it marks Lagarde’s first remarks since the US decided to withdraw military support for Europe.

Across the Atlantic, the major indices were better bid yesterday, but the tariff talks, actions, decision reversals and uncertainty make the US markets a riskier place to be. The ADP report showed that the US economy added around 77K new nonfarm jobs last month, almost half of the number expected by analysts.

The growing number of job cuts at companies including federal contractors, policy uncertainty and slowdown in consumer spending explained the weakness. Happily, the ISM data came in better-than-expected to prevent a further selloff of the S&P500 below the 200-DMA, but it’s probably just a matter of time before we see the index return below that level.