🔍 The focus this week: The tariff effect

💵 Tariffs, tariffs, tariffs. Nearly every major firm is talking about them – 93% of S&P 500 companies have mentioned tariffs on their latest quarterly calls, and 87% have talked about the uncertainty they’ve created for the outlook. And when Walmart throws open its books this week and gets into the details, it’s what folks will be listening for. With import taxes threatening to jack up the costs of almost everything Americans buy, all the big questions are about the duties, margins, and what it means for consumer prices.

🧩 For a minute, it looked like the US had its consumer price puzzle solved. The core inflation measure – the one that excludes more volatile stuff like food and energy – eased to 2.8% in March, a four-year low. And just about everyone expected those cooler price pressures to allow the Federal Reserve (Fed) to trim interest rates substantially this year. But the US president’s tariffs have thrown a wrench into the works. With prices expected to jump higher again, the Fed’s been stuck on pause, waiting to see how things play out.

🧑‍🏫 Here’s a bit of the math involved. Goldman Sachs estimates that for every one percentage point hike in tariffs, core inflation rises by a tenth of a percentage point. So, with the effective tariff rate expected to be roughly 15%, that means we’re looking at a 1.5 percentage point boost to those prices. That’s assuming that roughly 70% of the higher import costs are passed along to customers. And, look, not everything will rise by the same amount: as a rule of thumb, you can expect the sharpest pricing gut punches in clothes, electronics, and cars.

📈 That’s why the Fed’s been sounding exceptionally cautious lately. Just last week, it warned that both inflation and job market risks are ticking higher. And investors will get a clearer sense of that on Tuesday, when the consumer price index for April comes out. Now, economists expect inflation to hold steady at March's level – figuring that the impact of those new levies may take a while to show up, especially with so many companies still selling through their pre-tariff inventory. And with uncertainty as high as it is, anything that softens the blow – trade deals, import tax delays, or exemptions – will be seen as very welcome news for traders.

📅 On the calendar

• Monday: Nothing major.
• Tuesday: UK employment (April), US consumer price index (April), US small business optimism index (April). Earnings: JD.com.
• Wednesday: Japan producer price index (April). Earnings: Cisco.
• Thursday: UK economic growth (March), UK industrial production (March), eurozone economic growth (first quarter), eurozone industrial production (March), US retail sales (April), US industrial production (April). Earnings: Alibaba, Deere, Walmart, Applied Materials.
• Friday: Japan economic growth (first quarter), US housing starts (April), US consumer sentiment (May).

👀 What you might’ve missed last week

🇺🇸 The US

The US unveiled a brand new trade deal with the UK – its first agreement since announcing a string of sweeping new tariffs last month. The arrangement left in place the recently imposed 10% tax on goods imported from Britain but lowered some steep US duties on British auto imports.

The Fed left its key interest rate unchanged for a third time, exactly as investors had expected. The chair of the central bank said policymakers would take a go-slow approach to its next interest rate moves as they wait to see how things evolve with tariffs, inflation, and the job market. “There’s just so much uncertainty,” he said.

Investors began to ponder a post-Warren Buffett era for Berkshire Hathaway. Buffett – one of the most successful investors of all time – announced about a week ago that he’ll step down as Berkshire’s president and CEO at the end of the year, but will stay on as chair. The so-called Oracle of Omaha transformed Berkshire over a six-decade run, from a flailing textile company to a $1 trillion conglomerate – the eighth biggest company in the world.

🇬🇧 The UK

The Bank of England trimmed its key interest rate on Thursday to 4.25% from 4.5%. But the central bank’s decision wasn’t unanimous: two members voted for a bigger cut, while two voted for no cuts at all. Still, traders are betting there will be at least two more trims this year.

🇨🇳 China

China’s central bank unveiled a hefty $138 billion stimulus package aimed at revving the engine of the world’s second-biggest economy. The plan – announced just as top Chinese officials prepared to talk trade with the US – includes lower rates on mortgages and car loans, and credits for small businesses, as policymakers looked to stoke spending among businesses and consumers.