- Summary:
- Traders had barely digested Donald Trump's auto tariffs when forecast-beating PCE figures came out, with reciprocal tariffs in the pipeline.
The Dow Jones Index (INDEXDJX: .DJI) declined sharply on Friday as a blend of tariff war fears and soft economic data riled equities. The Index was down by 1.77%, having lost 750 points to read 41,555 points at the time of writing. Traders adopted risk averse positions as US President Donald Trump’s 25% auto tariffs confluenced with higher-than-expected inflation rate.
Core Personal Consumption Expenditure (PCE) Index (excluding food and energy prices) rose to 0.4% in February, exceeding analysts’ median forecast of 0.3%. The annualised figure was 2.8% up from January’s 2.7%, which was the same rate forecast by analysts.
The PCE figures affirmed the view that inflation is on its way up and will likely escalate significantly as trade tariffs gather momentum. Also, that means the Federal Reserve will be inclined to keep interest rates elevated, adding stress to a struggling economy.
The auto tariffs will raise the average price of vehicles imported into the US by between $4,000-$12,000. While there are no automakers in the Dow Jones Index, the impact of the tariffs and counter tariffs will ultimately be felt across the broader economy. In addition, reciprocal tariffs against countries with a trade surplus over the US will come into force next week, adding downward pressure on the economic outlook.
Dow Jones Index Prediction
The momentum on the Dow Jones Index signals a likely continuation of the downside if resistance persists at the 41,823 points pivot mark. The trend will likely see the establishment of the first support at 41,355, but a stronger momentum will break below that mark to take the action lower to test 40,883.
On the other hand, moving above 41,823 points will shift the momentum to the upside. With the bulls in control, the Index will likely encounter initial resistance at 42,224 However, a stronger momentum will clear that barrier and could push it up to encounter the second resistance at 42,740.
