Tim Hext: Markets 'complacent' about tariffs and taxes | Pendal Group
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Tim Hext: Markets ‘complacent’ about tariffs and taxes

January 23, 2025

Trump is off to a flying start with a flurry of executive orders – and there’s more to come on tariffs and taxes. Yet markets seem complacent about the future, writes TIM HEXT 

FEW would have predicted the thunder and awe of Trump’s first week would see a somewhat collective yawn from markets.

My main question after week one, though, is why Canada is the first cab off the tariff rank – with 25 per cent announced to start on February 1.

I mean, I know Trump hated Trudeau – but he’s gone now.

Canada has only a small trade surplus with the US and, from what I can see, the US has no new geopolitical beefs with Canada.

If that’s how they treat a relatively friendly neighbour without a large trade imbalance, then markets seem rather complacent about what  might happen to less-friendly peers with large trade surpluses, like China and Europe.

What is clear after week one is that Trump is paving the way for executive authority to be used to its full capacity around tariffs and taxes.

It has been described as the most expansive US presidential power in modern times.

A never-used, 90-year-old US tax code provision has even been mentioned as a way for Trump to tax foreign citizens and companies doing business in the US – potentially including Australia.

The question is when and where these powers might be used.

Markets are trying to adjust for likely outcomes, but pricing signals such as forward inflation have not changed this week.

We believe markets are still too complacent over tariffs, both on inflation and growth.

US 10-year inflation expectations are now at 2.4%, only slightly above the 2.3% average of the past 12 months.

While tariffs may give an initial impression of boosting the US economy, trade wars are always bad for growth.

Markets seem to be saying that, yes, tariffs will come and push up inflation over the short term – but not enough to cause concern.

It is not pricing in trade wars and de-globalisation on a scale bad for global growth. Trump appears keen to break things, and I would caution against dismissing it all as just about the negotiation and the deal

In the meantime, central banks are left to face the incoming data and do what they always do – talk about uncertainty but not get too caught up in the political game.

For Australia, business as usual is likely to see a lower inflation-led rate cut in February, with another likely to follow in May.

And by May, at least, the full range of Trump’s measures will be on display, and then everyone can react accordingly.


About Tim Hext and Pendal’s Income & Fixed Interest boutique

Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.

Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

The team won Lonsec’s Active Fixed Income Fund of the Year award in 2021 and Zenith’s Australian Fixed Interest award in 2020.

Find out more about Pendal’s fixed interest strategies here


About Pendal

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.

In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.

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