Markets await US inflation data as trade war intensifies, Dalio cites 1930s Germany

Equities remain fragile early Wednesday following a second day of sharp declines in the previous session, while investors are keenly awaiting US inflation data due at 8.30am ET.

The S&P 500 was down 450 points Tuesday (0.76%) at the bell having dropped 10% from its record high at one point during the day but recovered to avoid a correction as the market closed.  

It was also briefly positive as President Trump announced a doubling of tariffs on Canadian metal imports in retaliation for Ontario’s price hike for electricity sold to three US states. Both measures were withdrawn later in the day.

The Dow Jones Industrial Average closed more than 1% lower, while the Nasdaq was off by just 0.2% having closed 4% lower Monday.

But tariffs remain key to the volatility in the markets currently, with the European Union responding to levies on steel and aluminum with retaliatory measures Wednesday.

“We deeply regret this measure,” said European Commission president Ursula von der Leyen. “Tariffs are taxes. They are bad for business, and even worse for consumers.”

Some other trading partners, also affected by the metals tariffs, are taking a more pragmatic approach in the hope of agreements being reached. The UK, Japan, and Australia are among them.

INFLATION FOCUS

With inflation stats due, investors are hoping for a signal of what the Fed may do at its next rates decision meeting, especially given the growing talk of recession.

A survey of economists by Bloomberg reveals a median expectation of a 0.3% increase in consumer prices in February, slightly lower than January’s 0.5%, but driven by food prices and raising the concern of stagflation if the economy weakens as inflation rises.

Meanwhile, veteran investor Ray Dalio has been speaking about the current trade war and cited 1930s Germany, the years preceding World War 2, and said there would be fighting between countries, although not necessarily militarily.

“Be nationalistic, be protectionist, be militaristic. That’s the way these things operate,” he said during a CNBC conference in Singapore. “So, I would say lessons from the past of what that looks like, and the issue is really the confrontation of all of this, the fighting of all of this.” 

The Bridgewater Associates founder warned of the consequences of a trade war with Canada, Mexico, and China, but also noted that countries that manage to stay neutral could see great opportunity.

“There will be a world situation that I’m concerned about. But there’s also these other worlds that get through it and are not involved,” Dalio said.