Uncertainty in the economy creates certainty for high mortgage rates

Mortgage rates dropped slightly over this week by 0.06%, but still remain at a high 6.89%. The rate usually follows the 10-year Treasury yield. When President Trump made executive orders on tariffs, treasury yields became expected to drop causing mortgage rates to follow suit. However, rates did not drop to the same degree as yields due to the volatile nature of current policy developments and economic conditions. This unpredictable future is why mortgage rates are forecasted to remain high, and even increase throughout the year. As a result, applications to purchase a new home have fallen. This decrease in applications is likely to become a trend this year.

Source:

https://finance.yahoo.com/news/mortgage-rates-drop-slightly-but-remain-near-7-172458838.html

China Hits Back with Tariffs of their Own

China has announced their own additional tariffs of 15% on U.S. coal and liquefied natural gas along with 10% higher duties on American crude oil, agricultural machinery, and certain cars starting on February 10th. China plans to do this as a way to retaliate against the recently proposed tariffs by President Trump. As seen recently with the fear in the markets surrounding Trump's tariffs on Mexico and Canada, the tariff war with China could lead to an escalation in trade tensions pushing both sides deeper into a tariff war and ultimately having a negative impact for both parties.

With these tariffs looming, I have some concern for businesses on both sides. China's move poses a clear message to the U.S. that they want to protect their own business and economic interests. On the other hand though, there is a risk of a broader trade war that could slow economic growth for both sides and ultimately end up affecting the consumers with higher prices. It will be interesting to see if these tensions will be settled like President Trump was able to do so with Mexico and Canada. I believe that Trump will face more resistance from the Chinese government as there is constant looming tensions between the two countries. It may be important to be prepared for the possible economic repercussions of higher consumer prices should President Trump be unable to negotiate with the Chinese government.

Link: https://www.cnbc.com/2025/02/04/china-levies-tariffs-on-select-us-imports-starting-feb-10.html

In a switch, Trump approves of the Fed’s decision to hold interest rates steady

 President Trump recently praised the Federal Reserve's decision to keep interest rates steady at 4.25%-4.5%, calling it the right move. This contrasts with his earlier comments at the World Economic Forum in January, where he demanded immediate rate cuts. Although the president doesn’t control the Fed, he does appoint its members, including Chairman Jerome Powell, whom he has criticized in the past. Markets don’t anticipate a rate cut until at least June. However, Trump’s plan to impose tariffs on Canada, Mexico, and China could complicate matters, potentially raising prices and affecting inflation, despite signs of easing.

https://www.cnbc.com/2025/02/03/in-a-switch-trump-approves-feds-decision-to-hold-interest-rates-steady-.html

China factory activity growth slows again as Trump tariffs loom

China’s factory growth slowed down in January with the Caixin PMI dropping slightly to 50.1. It’s still growing, but just barely. A big reason for this slowdown is trade uncertainty, which has led to the biggest drop in factory jobs in almost five years. Some companies are stockpiling products because they’re worried about possible U.S. tariffs, but at the same time export orders are shrinking, and manufacturers are being forced to lower prices to stay competitive. It’s clear China’s manufacturing sector is feeling the pressure, and if they want to stay strong, they’ll need to adapt and this could maybe be done by trading with more countries, investing in new technology, or focusing more on selling within China instead of relying so much on exports.

 https://finance.yahoo.com/news/china-factory-activity-growth-slows-015509187.html

What Is the International Emergency Economic Powers Act?

President Trump he would use the International Emergency Economic Powers Act (IEEPA) to impose tariffs on Mexico, Canada, and China "because of the major threat of illegal aliens and deadly drugs killing our Citizens, including fentanyl,” Mr. Trump wrote in a social media post. On his first day in office President Trump declared a national emergency on the southern border which allows him to use this Act that was created in 1977. It gives the president a wide range of powers to regulate different financial transactions upon declaring a national emergency. Under the law, presidents can take a wide variety of economic actions “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy or economy” of the country.

Past presidents have used the law to impose sanctions, justify export controls, and restrict certain transactions and outbound investment but never has one used it to impose tariffs on a country. Legal experts have already started to questions whether or not Trump can use this power to create tariffs. Some have said that the law gives the president “unchecked executive authority in the economic realm” whiles others see it as a way to quickly create action out of the will of congress. These tariffs could be bad for all Americans with the price of everyday goods rising at high rates. 

In the past President Trump has used this law to threaten Mexico with tariffs in 2019 but eventually backed down after working out a deal. Although he has used this authority to penalize Venezuela’s state-owned oil company and impose sanctions on Iran in response for what the administration said were aggressive acts by Tehran.

Source: https://www.nytimes.com/2025/02/02/us/politics/trump-tariffs-ieepa.html

Global Trade Tensions Escalate: Canada, Mexico, and China Respond to Trump’s Tariffs

In a recent article, CNBC reported on the responses from Canada, Mexico, and China to President Trump's newly imposed tariffs. These tariffs, which include a 25% levy on imports from Canada and Mexico (with a 10% tariff on Canadian energy) and a 10% tariff on Chinese goods, have elicited strong reactions from the affected nations.

Canada's Response

Canadian Prime Minister Justin Trudeau announced retaliatory measures, stating that Canada would impose 25% tariffs on $155 billion worth of US goods. He emphasized the deep economic ties between the two countries and urged Canadians to reconsider travel plans to the US. Trudeau also highlighted that only about 1% of fentanyl imports and illegal border crossings into the US. come from Canada, challenging the justification for the tariffs.

Mexico's Response

Mexican President Claudia Sheinbaum condemned the tariffs and announced that Mexico would implement both tariff and non-tariff retaliatory measures against the United States. He refuted claims linking the Mexican government to drug cartels and proposed establishing a task force with the US to address concerns, emphasizing that problems are not resolved by imposing tariffs.

China's Response

China plans to file a complaint with the World Trade Organization and has vowed to take corresponding actions in response to the US tariffs. The Chinese government emphasized that trade differences should be resolved through dialogue and consultation. 

These escalating trade tensions could lead to higher inflation and job losses in all involved countries. The tariffs may increase the cost of goods and services, potentially impacting consumer prices, especially for essentials like groceries and cars. There is also concern that these measures could backfire, pushing US allies closer to economic relations with China. In summary, the imposition of these tariffs has strained international relations and introduced significant uncertainty into the global economy. The situation underscores the complex interplay between trade policies and diplomatic relations, with potential long-term implications for all parties involved.

'It doesn't have to be this way': Canada, Mexico, China, and the EU respond to Trump's tariffs. (February 2, 2025). CNBC.

U.S. Economy Slows in Q4 2024, But Consumer Spending Stays Strong

 The U.S. economy showed signs of slowing in the final quarter of 2024, reflecting the impact of high interest rates and shifting market conditions. According to Reuters, while GDP growth moderated, strong consumer spending helped sustain momentum, preventing a sharper downturn.

Key Economic Trends:

• Slower GDP Growth - The economy expanded at a reduced pace as businesses and consumers adjusted to tighter financial conditions.
• Resilient Consumer Spending - Despite inflationary pressures, household consumption remained a strong pillar of economic activity.
• Federal Preserve Policy in Focus - The Fed's high interest rates continue to influence investment, borrowing, and employment trends.
• Uncertain 2025 Outlook - Some economists predict a continued soft landing, while others warn of potential headwinds due to persistent inflation and global uncertainties.

What This Means for the Economy

The slowdown highlights the delicate balance between economic growth and inflation control. While consumer resilience is a positive sign, businesses are navigating a challenging landscape shaped by monetary policy and market volatility. The coming months will be critical in determining whether the U.S. economy can maintain stability or face stronger disruptions.

Source: US economy resilient despite moderation in growth in fourth quarter By Lucia Mutikani (Reuters)

Link: https://www.reuters.com/markets/us/us-economy-slows-fourth-quarter-spending-robust-2025-01-30/

UPS and Amazon On Track to Split—and UPS Stock is Paying the Price

Report

United Parcel Service (UPS) recently announced a significant reduction in its deliveries for Amazon, its largest customer. This decision has led to a sharp decline in UPS shares, which plunged by over 15% following the announcement. The company also issued weak revenue guidance for the year, projecting 2025 revenue of $89 billion, which is below analysts’ expectations of $94.88 billion.

UPS CEO Carol Tome stated that while Amazon is their largest customer, it is not their most profitable one. The company plans to cut Amazon deliveries by more than 50% by the second half of 2026. This move is part of UPS’s strategy to reconfigure its U.S. network and launch multiyear efficiency initiatives aimed at saving approximately $1 billion.

Amazon responded to the announcement by stating that they respect UPS’s decision and will continue to partner with them and other carriers to serve their customers. Despite the reduction in volume, Amazon has been expanding its own logistics operations, which now rival or exceed the size of major carriers.

Additional Insights

This bold move by UPS underscores a pivotal shift in its strategic direction. By reducing its dependency on Amazon, UPS is aiming to diversify its customer base and focus on more profitable segments. The company’s efficiency initiatives and network reconfiguration could help bolster its margins and enhance service quality for other clients.

However, this transition may not be without challenges. The reduction in volume from Amazon, which has been a major contributor to UPS’s revenue, might initially impact the company’s financial performance. UPS will need to effectively manage this transition and demonstrate its ability to generate growth from other customers.

Moreover, as Amazon continues to expand its logistics network, other shipping companies may also feel the pressure to reevaluate their relationships with the e-commerce giant. This trend could lead to a more competitive landscape in the logistics industry, where companies strive to balance volume and profitability.

While the immediate reaction to the announcement has been negative, with a significant drop in UPS shares, the long-term impact will depend on how well UPS executes its strategy and adapts to the evolving market dynamics. Investors and stakeholders will be keenly observing the company’s progress in achieving its efficiency goals and securing new business opportunities.

Potential Effects of Deportation on The Economy

    President Trump's campaign promise to follow through with mass deportations of

undocumented immigrants as of 2025 has officially started. Columbia recently

accepted the president's flights of undocumented immigrants after Trump

threatened Tariffs. According to Michael Gapen (Morgan Stanley’s

chief US Economist), the impact of this could slow down the economy's

future growth. 

  

 Previous studies found that anti-immigration laws set in place in Arizona between

2008 and 2015 showed that each year of deportations GDP decreased by 2%

per year. Predicted results of the future economy from Morgan Stanley GDP will

grow at a rate of 1.9% which is low compared to the 2.5% growth observed in

2023. Deportations could also potentially cause a slowing of employment rates,

as well as a decrease in productivity rates according to JPMorgan’s Michael

Feroli. 

Megan Leonhardt (2025), Trump’s Immigration Crackdown Could Play Havoc with the Economy, Barron’s. https://www.barrons.com/articles/trumps-immigration-crackdown-could-play-havoc-with-the-economy-f4c41411

DeepSeek, What is it and what are it's effects?

 DeepSeek is a revolutionary AI-powered application powered by a Chinese start-up that will shift the axis in data analysis and decision-making. It provides much quicker access to information with immediate adaptation. Thus, DeepSeek might be poised to disrupt the AI space.

Key Capabilities of DeepSeek

• Fast Data Analysis: DeepSeek offers unprecedented accuracy and speed of results in industries such as finance and healthcare.

• Real-Time Learning: Continuous improvement of its output through users' interactions.

• Customized Applications: For several industries, combining relevance with efficiency.

Economic and Market Impacts

DeepSeek's announcement affected the US markets, among technology stocks. Shares in Nvidia, which supplies AI chips, fell by 13%, causing a record $465 billion hit in market capitalization. Shares of Microsoft and Alphabet extended significant losses and showed investor anxieties about emerging global competition.

Implications for the U.S. Economy

• Competitiveness: U.S. firms must innovate rapidly to maintain their market lead.

• Market Volatility: Stock market fluctuations reflect the challenges posed by global AI advancements.

• Focus on R&D: Increased investment in AI innovation is essential to stay ahead.

The rise of DeepSeek underlines how AI is a transformative force with the power to remake markets anew. 

Link to Source