The Trump tariffs are now being referred to as the “Trump Two-Step,” since both Canada and Mexico got 30-day extensions to prove to Trump that they could secure their borders and stop the flow of fentanyl and migrants. China has been hit with a 10% tariff since it makes fentanyl ingredients and has imposed retaliatory tariffs on U.S. goods (effective February 10th), plus opened up an investigation into Google.
President Trump said that tariffs on the European Union (EU) “will definitely happen,” citing a large trade deficit with the EU. Responding to this threat, EU Commission President Ursula von der Leyen said, “When targeted, unfairly and arbitrarily, the European Union will respond firmly.” But in a more practical response, the EU is seeking to boost its U.S. LNG imports as a possible way to reduce tariff tensions.
Given these global tensions and renewed inflation fears, gold rose to another all-time high, surpassing $2,900 on Friday, but I expect that these tariff threats won’t be inflationary in the end.
Here are the most important market news items and what this news means:
- The European Union (EU) vowed to respond to 25% tariffs on steel and aluminum imports. I think it is fair to say that the EU does not realize that it is in a recession and wants to dig a bigger hole for itself. The Trump Administration will welcome European companies moving their manufacturing and workers to America, so the EU can only lose this tariff “tit for tat.”
- The trade war between China and the U.S. is heating up. Specifically, China imposed retaliatory tariffs of 10% to 15% on $14 billion of U.S. goods. China said this was a response to the 19% tariffs the Trump Administration imposed on China. This week, President Trump announced on Air Force One that he will impose 25% tariffs on all imports of aluminum and steel, including Canada and Mexico. Since making aluminum and steel is energy-intensive, countries with cheap electricity, like Canada with abundant hydroelectric power, naturally have an edge. These new 25% tariffs are expected to help U.S. steel companies the most since aluminum production will most likely remain in Canada.
- China’s BYD in January outsold Tesla in Britain, Portugal and Spain. So not only is BYD beating Tesla in China, it is also about to beat them in Europe. The BYD Seagull (Dolphin in Mexico) has strong sales in Latin America and many emerging markets as well. Increasingly, South Korea is being viewed as BYD’s biggest competitor for cheap EVs. Tesla desperately needs a $25,000 EV, otherwise its overall sales may continue to decline.
- The narrative that DeepSeek would revolutionize AI and would curtail the demand for Nvidia’s Blackwell chip as well as data centers is false. DeepSeek is now crashing up to 99% of the time and has had a cybersecurity problem as well. The fact that the DeepSeek founder used to run a hedge fund has raised suspicions that the DeepSeek announcement was just orchestrated as a big short-selling opportunity.
- A theme has emerged that the AI enablers are breaking out as new market leaders. New market leaders have emerged this earnings announcement season like Netflix (NFLX), Palantir Technologies (PLNT), and Spotify Technologies (SPOT), which are all companies that utilize AI to boost efficiency. Meanwhile, some of the Magnificent 7 stocks are sputtering. I only recommend and own Nvidia in the Magnificent 7, which should reassert its market leadership.
- Germany’s election on February 23rd is expected to be monumental. The rise of the AfD Party that wants to (1) restart nuclear plants, (2) curtail immigration and (3) cut taxes, is alarming the other political parties in Germany. The Christian Democratic Party (CDP) has made an alliance with the Bavarian Cristian Social Union (CDU) and combined, is still expected to eke out a small victory over the AfD Party. However, since the AfD Party continues to rise in the polls, it is possible that they could receive a higher percentage of the votes. Since the CDP/CDU alliance and the other political parties have vowed to not form a coalition government with the AfD Party, Germany could become like France and be totally dysfunctional with a weak Chancellor who does not have the full support of a substantial voting bloc in the Bundestag.
- Food costs are expected to be higher in both the Consumer Price Index (CPI) and Producer Price Index (PPI) due to the fact that egg prices remain high due to bird flu and that cattle herds are now at their lowest level in 73 years. Since chicken was supposedly a healthy substitute for beef, the prices for boiler chickens are expected to steadily rise.
- Fed Chairman Jerome Powell will be testifying before Congress on Tuesday and Wednesday. I expect that the Fed Chairman will dodge most hard questions, like why the Fed removed its 2% inflation target in its latest Federal Open Market Committee (FOMC) statement. Chairman Powell is now effectively a lame duck and lost control of the FOMC due to recent split votes on key interest rate changes. Trump will appoint a new Fed Chairman when Jerome Powell’s term expires on May 15, 2026. I believe Minneapolis President Neel Kashkari has the inside line on being the next Fed Chairman. Neel said after the January payroll report that “I would expect the federal funds rate to be modestly lower at the end of this year.” Naturally, this last comment is exactly what President Trump wants to hear from Fed officials.
- The truth of the matter is we are still in the early innings of a global interest rate collapse. First, China’s long-term bond yields fell below Japan’s a while ago, and it appears that due to its (1) demographic problems causing its population to shrink, (2) domestic real estate crisis, and (3) lackluster economic growth as well as deflationary forces, China is the “new Japan,” and its key interest rates are expected to at or near zero in the upcoming months and stay there for possibly two decades or more. Second, the largest economies in Europe, namely Britain, France, and Germany, are in the midst of a growing political crisis that has resulted in each country slipping into a recession. As a result, I expect that the Bank of England and the European Central Bank will continue to cut key interest rates at least 3 to 4 more times this year, which should cause government debt yields to steadily decline, including U.S. Treasury yields.
In summary, I think it is important to remind investors that this earnings season is still working on our behalf, as market leaders like Palantir Technologies (PLTR) and Spotify Technology (SPOT) are now demonstrating. Since both these market leaders rely on AI to become more efficient, I expect that many of our other AI-related stocks will continue to firm up fast.
