The Wind of Optimism

"You get the impression that in the USA, you're welcomed with open arms..."

Summary: Optimism in the economy is riding high. Consumers are spending and labor markets are tight. But Trump put large tariffs on China, Canada, and Mexico this week. Will tariffs change the optimistic outlook? The Fed is watching but is in no hurry to make policy less restrictive.

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Macro

Optimism has surged.
"I've just returned from the USA, as you so kindly noted, and I was able to see the wind of optimism prevailing in that country...You get the impression that in the USA, you're welcomed with open arms, taxes are going to drop to 15%, the workshops you can build in the USA are subsidized in a whole series of states, and the American president encourages this." — LVMH (LVMHF) CEO Bernard Arnault

Consumer spending remains resilient.
"In the U.S., consumer holiday spending growth was in the upper mid-single digits on a year-over-year basis. The consumer categories with the strongest growth were discretionary categories such as retail, travel, and entertainment...Now let's move to what we've seen so far in Q2. Through January 28, driver trends have remained strong. U.S. payments volume was up 8%, with debit up 9% and credit up 7% year-over-year." — Visa (V 0.00%↑) CFO Christopher Suh

The macroeconomic environment continues to perform well.
"The macroeconomic environment continues to perform well, and it is underpinned by healthy consumer spending as we've seen in today's news. The labor market is strong with low unemployment and continued wage growth. Inflation has moderated but to varying degrees across categories and countries. Consumers remain engaged. Affluent consumers have benefited from the wealth effect, while the mass segment remains supported by the labor market." — Mastercard (MA 0.00%↑) CEO Michael Miebach

Labor markets are strong.
"Within the U.S., the labor market remains strong. Since April '24, the number of open jobs has remained relatively steady and at a level that is still well above the number of unemployed people looking for work. Employers are looking for ways to grow their workforce and control their benefit costs. And at the same time, base wage increases and continued medical cost inflation, both are headwinds that our professionals are helping to navigate." — Arthur J Gallagher (AGJ) CEO J. Patrick Gallagher

But will tariffs change the environment?
"Will there be some pain? Yes, maybe, and maybe not! But we will make America great again, and it will all be worth the price that must be paid." — President Trump

"We don't want to be here. We didn't ask for this. But we will not back down in standing up both for Canadians and for the incredible, successful relationship and partnership between Canada and the United States...I think Canadians are a little perplexed as to why our closest friends and neighbors are choosing to target us instead of so many other challenging parts of the world." — Canadian Prime Minister Justin Trudeau

The Fed is paying attention.
"We just don’t know—and I don’t want to start speculating, as tempting as it is, because we really don’t know. And we didn’t know, by the way, in I guess 2018. We didn’t really know. And again, the range of possibility is very, very wide. We don’t know what’s going to be tariffed; we don’t know for how long or how much, what countries; we don’t know about retaliation; we don’t know how it’s going to transmit through the economy to consumers." — Federal Reserve Chair Jerome Powell

And is in no hurry to adjust its policy stance.
"The economy’s strong, the labor market is solid, downside risks to the labor market appear to have abated, and we think disinflation continues on a slow and sometimes bumpy path. That tells me, and the other members of the committee—the broad sense of the committee, actually, is that we don’t need to be in a hurry to adjust our policy stance." — Federal Reserve Chair Jerome Powell

International