What made Trump "give in" behind the "second 180-degree turnaround"?

Behind Trump's "surrender," he faces multiple pressures such as turmoil in the financial markets, discouragement from business leaders, and frequent warning signals from economic data.

Written by: Zhao Ying

Source: Wall Street Journal

Overnight, U.S. "stocks, bonds, and currencies" rebounded across the board, with risk sentiment clearly improving. The three major U.S. stock indices closed up over 1%, the U.S. dollar index rose to nearly 100, and the yield on the ten-year U.S. Treasury bond decreased during the session.

Behind this sudden market frenzy, two major concerns in the market have seen a turnaround over the past few weeks: Trump's softened stance on tariff policies and a shift in his comments regarding Powell.

According to CCTV news reported on Wednesday, Trump stated on the 22nd local time that he would "significantly reduce" the high tariffs on China. According to The Guardian, Trump's remarks were a response to comments made earlier on the 22nd by U.S. Treasury Secretary Basant, who stated that high tariffs are unsustainable.

And on Tuesday, Trump also "changed his tune," saying he has no plans to fire Powell, and now is an excellent time to cut interest rates.

Behind Trump's "surrender," he faces multiple pressures including turmoil in the financial markets, warnings from business leaders, and frequent signals from economic data.

Business Leaders' Advice Against, Corporate Confidence Collapses

The day after meetings with Walmart, Home Depot and Target executives, Mr. Trump dropped his tough tariff rhetoric, according to media outlets citing people familiar with the matter on Thursday. Import taxes could disrupt supply chains and drive up commodity prices, the executives said. One of the people said Trump seemed to resonate with warnings that store shelves could be empty in a few weeks.

In addition, when asked who the president consults regarding tariff and trade policies, Bassett stated that Trump "constantly seeks the opinions of business leaders," mentioning visits from major retailers, and revealed that "the three major German car companies also visited on Friday."

It is worth mentioning the reaction from the business community; the pessimism among US CEOs is comparable to that during the financial crisis, with almost every company lowering its forecasts. Other data shows that 27% of S&P 500 companies have downgraded their earnings expectations for 2025, while only 9% of companies have upgraded their expectations.

The collective actions of business leaders indicate that the corporate sector is actively lobbying to influence policy directions. However, it is well known that Trump can easily change his mind, and his stance may shift again.

Frequent Data Alerts: Risk of Hard Landing Increases, Inflation Expectations Rise Significantly

The uncertainty brought about by Trump's tariff policies has worsened Americans' outlook on the economy, with survey data showing a surge in future inflation expectations. Many analysts are also pessimistic about the outlook for the U.S. economy.

Data from the Institute for Supply Management (ISM) shows that manufacturing activity in the United States contracted last month. The April manufacturing activity survey from the Richmond Fed indicated that the overall business condition plummeted to -30, while the Philadelphia Fed's non-manufacturing survey index dropped sharply to -42.7 in April. Data from the New York Fed shows that manufacturing activity in New York contracted for the second consecutive month in April.

Survey data shows that future inflation expectations are soaring. Powell previously stated that the announced tariff increases exceed expectations, and these tariffs could lead to a temporary rise in inflation at the very least. He and other Federal Reserve officials have indicated that they are willing to keep interest rates unchanged while waiting for the impact of tariffs on the economy to become clearer.

Wall Street analysts have quickly adjusted their economic forecasts, with major investment banks such as Goldman Sachs, Morgan Stanley, and JPMorgan Chase lowering their GDP growth expectations for the U.S., while raising inflation expectations. The consensus view is that the implementation of aggressive tariff policies will lead to a reduction in U.S. economic growth rates by at least 0.3-0.5 percentage points, while core inflation rates will rise by 0.4-0.6 percentage points.

How the Market Predicts Policy Direction: Focus on These Key Indicators

For investors, the key to predicting policy direction lies in focusing on several core indicators. Goldman Sachs' latest research found that initial unemployment claims, the Philadelphia Fed Manufacturing Index, the ISM Services Index, and the unemployment rate are the best indicators to warn of an economic slowdown. These indicators typically signal a recession only one month after it begins, whereas hard data such as GDP takes four months to clearly show weakness.

The performance of these indicators is better than other data because they are released frequently, have small revisions, and can be published earlier. Initial unemployment claims are announced every Thursday, and the unemployment rate data will also be released next week.

Traders should also closely monitor the meeting arrangements between Trump and business leaders. Past data shows that such meetings often result in subtle changes in policy tone. All of this may provide key clues for the future direction of policy.

A key question that is hotly debated in the market is: Is this a real policy shift, or merely a temporary tactical adjustment? Regardless of the answer, one thing is clear: investors need to prepare for a more volatile 2025 than expected.