The deadline for signing key trade agreements was pushed from July 9 to August 1. Two weeks have passed, and yet there has been hardly any progress. Still, the markets do not seem too concerned: on Monday, the Nasdaq and the S&P 500 set all-time highs, although they retreated afterwards.
The problem is that this optimism, not to say euphoria, is not driven by confidence that trade deals with key partners, including the EU, are just around the corner. And Trump's threat to impose tariffs on 150 other countries doesn't help the case. Instead, it all comes down to the fear of missing out.
That fear is fueled by “TACO” (Trump always chickens out). Investors believe Trump will backtrack on tariffs again, as he has done before. And not out of the blue — on Sunday, the Commerce Secretary confirmed that August 1 is the deadline for tariffs — but also said that countries can still negotiate with the U.S. after that date.
Now, should that not be the case, markets could turn risk-off, as they did in April, with the S&P 500 and Nasdaq surging into the dark red zone, along with the U.S. dollar index. Perhaps most worryingly, US Treasuries, which had just started to recover thanks to the Genius Act, could come under further pressure.
As for what a cryptocurrency-related bill has to do with U.S. Treasuries — the Genius Act requires stablecoins such as USDT and USDC to be 100% backed by liquid assets such as US dollars or short-term Treasuries. Of course, stablecoin issuers have been buying treasuries before, but now there are precise legal requirements to do so.
Returning to tariffs and the likelihood that they will be imposed on August 1, another strong argument against this move is that it could trigger a sharp pickup in US inflation. That would reduce the chances of the Fed cutting interest rates in September, which would be unwelcome news for markets.
With all this in mind, most investors expect another round of “TACO” from the U.S. president. And it's not just Americans who are optimistic: there is interest in Canada, the Eurozone, offshore jurisdictions in the Caribbean, the UK, Japan, South Korea and Singapore.
But could things go wrong?
Of course, Trump could impose tariffs on a dozen countries on August 1 to show he wasn't bluffing this time. Still, the odds of another postponement to reach trade deals seem higher. However, we could get some positive news on negotiations before the last-last deadline arrives.