In fact, equity markets are near all-time highs and bond markets haven\u2019t flinched either, despite both renewed tariff threats and the prospect of rising U.S. debt following the passage of its budget bill.<\/p>\n
The lack of response suggests the market doesn\u2019t see these latest threats as credible \u2014 reinforcing the TACO (Trump always chickens out) trade thesis.<\/p>\n
\u201cThis raises a key question: are markets placing too much confidence in the TACO trade \u2014 the assumption that Trump will ultimately tone down the rhetoric before it inflicts real damage?\u201d Desjardins analysts wonder.<\/p>\n
\u201cThe irony is hard to ignore: stable financial markets may be encouraging Trump to up the ante. Investor complacency may have created a potentially precarious moment,\u201d they warn in the report.<\/p>\n
Desjardins said its \u201cbest guess\u201d is that the U.S. will ultimately settle on tariffs on key trading partners that are in the 10% to 20% range, \u201callowing global trade to adjust without major disruption\u2026\u201d<\/p>\n
In the meantime, the world\u2019s major central banks are in \u201cwait-and-see mode\u201d too, it said.<\/p>\n
\u201cShould tariffs exceed market expectations or uncertainty persist beyond Aug. 1, pressure will mount\u201d on the central banks in Canada, Europe, the U.K. and Australia to ease policy, it suggested.<\/p>\n
In the U.S., Federal Reserve Board head Jerome Powell has signalled that rates are holding steady for now, \u201cpending clarity on the inflationary impact of tariffs.\u201d<\/p>\n