LIVE MARKETS-Larger tariffs pose stagflationary risks, Citigroup says

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LARGER TARIFFS POSE STAGFLATIONARY RISKS, CITIGROUP SAYS

Broad and high tariffs will raise prices and decrease growth, nudging markets toward stagflationary regimes, especially if the inflation impulse is significant, says Citigroup.
Global investors are anxiously awaiting clarity on the Trump Administration's tariff plans expected on Wednesday, but with scant details on what to expect, financial markets remain on edge.
Citigroup says a 20% increase in the average tariff rate, combined with retaliatory measures, an economic growth slowdown, and high-end inflation estimates, will significantly heighten the risk of stagflation.
"This transition happens through a tightening of financial conditions which means fixed-income returns also turn negative – oil, gold and the USD are the assets that tend to deliver positive returns in this environment".

The uncertainty around the size and scope of tariffs suggests that larger-than-expected levies will create a risk-off environment, driving bonds up and equities down, it adds.

European Central Bank head Christine Lagarde stated on Wednesday that Trump's planned tariffs will have negative global impacts, with the extent of the damage depending on their scale, duration, and the outcome of subsequent negotiations.

"If trade policy uncertainty lingers, as we think, markets will likely continue to oscillate between the equity positive current environment and tariff policy / growth fears".

The new duties are due to take effect immediately after Trump announces them, with a separate 25% global tariff on auto imports set to take effect on April 3.

(Joel Jose)

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