Trail 192 — Can He, or Can’t He?
Markets Update by Aashish Singh
Business Update by Sylvia Lo
Financial markets are fascinating. They are constantly evolving, they follow no predetermined path and much like humans, their behaviour at times is completely irrational. Every day their movements are thoroughly analysed, yet their next steps are a complete mystery. They follow a random walk and therein lies their beauty. Each week I briefly recap a few stories that captured my interest.
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The headline event this week centred around a U.S. trade court’s pause on a portion of Trump 2.0 tariffs — briefly challenged but ultimately reinstated (temporarily) by a higher appeals court. While the status quo was swiftly restored, the legal back-and-forth has cast renewed doubt on the long-term enforceability of these tariffs.
Elsewhere, trepid demand for Japanese long-term bonds (a corner of the bond market that has not seen volatility for decades) served as a reminder that bond vigilantes are leaving no market untouched in their quest to demand credit and term premiums without exception.
Markets ended May on a strong note. The S&P 500 rose 2% for the week, notching its best monthly performance since November 2023 and closing within 4% of its all-time high. Volatility continued to ease, with both the VIX and MOVE indices moving lower. Gold prices dipped slightly as safe-haven demand waned. Longer-dated U.S. Treasury yields declined, with both 10 and 30-year yields falling around 10 basis points. The dollar index edged slightly higher but remained below the 100 level. Oil prices softened as OPEC+ increased supply for a third consecutive month.
Trump’s tariffs have always functioned more as a negotiating tool than policy anchors. By his own admission, the strategy is to demand the impossible and then settle for less — a pattern the markets have recognized. Even prior to the recent court ruling, global markets, in particular the bond market, was acting as a check on the tariff ambitions. With renewed legal scrutiny, trade partners are likely to ramp up their pushback.
A tariff-based revenue growth strategy with no real teeth, combined with a deficit-expanding tax agenda, sets the U.S. dollar up for further weakness. Continued capital outflows to G10 and emerging markets alike will reinforce the “Sell America” narrative. This isn’t likely to become a full risk-off environment, outside of a major geopolitical shock, but it’s increasingly likely that risk assets have already peaked. Going forward, any gains may come less from growth fundamentals and more from continued dollar depreciation.
Sell America
For decades, Asia’s export powerhouses had a simple financial strategy: Sell goods to the US, then invest the proceeds in American assets. That model is now facing its biggest threat since the 2008 global financial crisis as Donald Trump tries to remake global trade and the US economy — upending the logic behind $7.5 trillion of investments from Asia. Some of the world’s biggest money managers say an unwind is just getting started.
No Playbook on Trump
For anyone on Wall Street still clinging to a time-honored macro-investing playbook, Trump 2.0 has been a source of endless punishment. Market narratives are shifting faster than traders can adjust positions. Tariffs are on, tariffs are off — now they’re on again. One minute it’s “Sell America,” the next “buy the dip.” Old-school fiscal anxieties land, just as Nvidia Corp. sells a vision of AI-driven productivity nirvana. To cap it off, President Donald Trump’s unpredictability — trade, foreign relations, taxes and so on — is making life brutal for institutional pros paid to predict the market cycle. And the numbers show it: macro hedge funds are off to their worst start to a year in at least two decades.
Bond Jitters
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Global bond jitters are spilling into Japan, a corner of the market that for decades experienced barely any volatility — and it’s worrying investors already spooked by frictions in US Treasuries. Japan’s central bank — the Bank of Japan — seen as a “whale” of the domestic bond market because it owns more than half the nation’s sovereign notes, has been gradually trimming its balance sheet and scaling back its bond purchases. But the question is: Who else is interested in buying? On May 20, a sale for 20-year notes fizzled out with demand at its weakest in more than a decade. The auction of 40-year bonds on May 28 was met with the weakest demand in 10 months. The rout in Japan’s $7.8 trillion government bond market has been building since US President Donald Trump unveiled his “Liberation Day” tariffs in April.
In The World of Business
This week, E.l.f. is acquiring Hailey Bieber’s Rhode brand in a $1 billion deal to cement its status as the go-to beauty brand for Gen Z and Gen Alpha, blending skincare and wellness with cosmetics.
Nvidia beat revenue expectations despite trade restrictions and margin pressures, reaffirming its position as the backbone of the global AI revolution.
U.S. tourism is bracing for a potential 10% drop in foreign visitors in 2025, which could cost the economy billions and thousands of jobs as trade tensions, visa issues, and a strong dollar deter international travellers.
E.l.f. Bets Big on Bieber
Budget beauty powerhouse e.l.f. announced its $1 billion acquisition of Hailey Bieber’s skincare brand Rhode, a direct-to-consumer company that has quickly won over Gen Z and Gen Alpha with its minimalist and viral approach to skincare and cosmetics. Rhode generated $212 million in sales over the past year, driven by Bieber’s massive social media following and her “glazed donut skin” technique that went viral. With this deal, e.l.f. gains a brand whose products are seen as both skincare and beauty essentials, bridging the gap that young consumers increasingly value. Rhode will soon expand into brick-and-mortar stores like Sephora.
E.l.f. sees the acquisition as a long-term bet on Bieber’s aesthetic and vision, believing it offers something more enduring than typical influencer tie-ups, which have often fizzled. CEO Tarang Amin cited Gen Z and Alpha’s willingness to spend on skincare and beauty despite economic uncertainty. “We have the consumers everyone wants,” Amin said, emphasizing that Bieber’s brand represents not just a product line, but a lifestyle that e.l.f. believes will have staying power.
Nvidia Still Powers AI’s Future
Nvidia surpassed Wall Street’s revenue expectations with a 69% year-over-year increase to $44.1 billion, despite new export controls and an inventory charge. The company’s quarterly earnings fell short of forecasts at $18.8 billion, leading to diluted earnings per share of $0.76, lower than both the prior quarter and analysts’ estimates. Nevertheless, strong demand for Nvidia’s AI infrastructure fuelled investor confidence, with CEO Jensen Huang emphasizing that AI is becoming as essential as electricity or the internet. The market responded positively, pushing Nvidia’s shares up more than 4% in after-hours trading.
Despite the top-line win, Nvidia’s gross margins dipped to 60% from last quarter’s 66%, impacted by supply chain challenges and the ramping up of their new Blackwell chips. Export restrictions, particularly to China, remain a risk, as evidenced by a $4.5 billion inventory charge and guidance that fell slightly below expectations. Still, the company’s strategic positioning at the centre of the AI boom — alongside positive signals about new products — reinforces its status as a bellwether for the sector.
America’s Tourism Decline
America’s tourism industry faces a looming downturn as political tensions, tariffs, and a stronger dollar discourage international travellers from visiting the U.S. A potential 10% drop in foreign visitors this year — extrapolated from March’s air travel data — could slash $23 billion from the country’s GDP, which is the equivalent to roughly 230,000 jobs across hospitality, entertainment, and retail. The service sector, particularly dining and lodging, would bear the brunt, as that sector’s labor-intensive nature makes it especially vulnerable to spending slowdowns.
While some of the March decline was attributed to an unusually late Easter holiday, data shows a broader trend of weakened demand, particularly from Canadian and Western European travellers, who are put off by trade disputes and border restrictions. Despite earlier optimistic projections, flight bookings are down. This reinforces how interconnected the U.S. economy is: every lost tourism dollar ripples out, affecting household incomes, local communities, and the broader economic landscape.
Until next week.
