2/11/25 - Financial Waves of Early 2025: Riding the Net Fiscal Flow Rollercoaster Amid a Trade War
As the calendar flipped into February 2025, a $3.748 billion net fiscal flow streamed into the private sector. This fresh influx followed the hefty $124.667 billion in January '25 net fiscal flows. While the market seemed flush with cash, the current landscape signals the need for cautious optimism, particularly around the risky practice of naked shorting.
Navigating February's Financial Currents
Early indicators for February suggest the net fiscal flows might see more outflows than inflows. This trend appears likely to extend into March, creating a potentially tumultuous April. The fiscal scene could take a turn if DOGE makes significant spending cuts, so staying alert is essential.
Understanding the Fiscal Deficit
The discussion around DOGE's influence on the economy remains contentious. Post-election, we've witnessed the rolling deficit spike to multi-year highs. However, the narrative took a sharp turn post-inauguration, with the rolling deficit seeing a notable contraction. Our daily tracking of net fiscal flows keeps us informed about these shifts, helping us anticipate future trends. It's a stark reminder of how interconnected and dynamic fiscal policies are within our economic ecosystem.
Tariff War: An Added Layer of Complexity
The financial landscape of early 2025 isn't just about fiscal flows; it’s also being shaped by a new tariff war. The statement comes after U.S. President Donald Trump signed an executive order to impose 25% tariffs on steel and aluminum. Shares of American steelmakers rallied sharply on Monday following the order.
Tariffs are effectively a tax paid to import a good into a country. The latest tariffs could raise the price of foreign steel, and thereby help to support U.S. steel producers at the expense of international competitors. Von der Leyen called tariffs “bad for business, worse for consumers.”
Trump has taken an aggressive approach with tariffs early in his second tenure in the White House. He has already ordered tariffs on China, Canada, and Mexico. The Canada and Mexico tariffs have since been delayed one month. Europe is not alone in pushing back against the U.S. tariffs. Last week, China announced new levies against select U.S. imports.
In Conclusion
As always, the financial world requires a balanced approach between opportunity and risk. While cash and hedging strategies are generally safer, naked shorting remains precarious. With the added layer of tariff-induced complexity, staying vigilant and informed is more crucial than ever. The evolving fiscal terrain, marked by net fiscal flows and trade disputes, calls for a cautious yet proactive approach to navigate these uncertain waters.
