On March 4, local time, U.S. President Trump delivered his first speech of his second term before a joint session of Congress, lasting 1 hour and 40 minutes, breaking the record set by former President Clinton in 1993. In his speech, Trump reiterated his policy proposals, sharply criticized the Biden administration, and announced a series of new economic and trade policies, including reciprocal tariffs set to take effect on April 2. The market reacted strongly, with all three major U.S. stock indices closing higher, while the dollar index fell sharply, raising concerns about the outlook for the U.S. economy.
Core Content of Trump's Speech: Emphasizing Tariffs, Criticizing Biden Administration
In his speech, Trump focused on domestic economy, trade policy, and international affairs. He accused the Biden administration's policies of causing skyrocketing energy and food prices, leading to the worst inflation in decades, and promised "major changes" to free the U.S. from the "misguided policies" of the Biden administration.
Trump specifically mentioned that he will implement reciprocal tariffs starting April 2, including new tariffs on agricultural products. He stated that this measure is intended to "make America wealthy again," though he acknowledged that tariffs could cause some market disruptions, which he deemed "acceptable." However, several U.S. media outlets noted that experts warned Trump's tariff policies might raise consumer costs and increase inflationary pressures, with public surveys showing a growing number of Americans believe inflation is worsening.
Trump also mentioned Ukraine in his speech, saying that Ukraine is ready to sign a mineral agreement and suggested the U.S. should scrap the Biden administration's "chip bill" to realign U.S. industrial policy.
Market Reaction: U.S. Stocks Rise, Dollar Plummets
Trump's speech had a significant impact on the market. By the close of trading on March 5 Eastern Time, the Dow Jones Industrial Average rose 1.14%, the Nasdaq Index rose 1.46%, and the S&P 500 Index rose 1.12%. However, the dollar index fell sharply, dropping more than 1% during the day, now at 104.3, and has been on a downward trajectory after breaking the 110 mark in January of this year, with a cumulative decline of over 3% this month.
Meanwhile, Chinese assets performed strongly, with most popular Chinese concept stocks closing higher. The Nasdaq Golden Dragon China Index rose 6.4%, Alibaba rose more than 8%, and XPeng Motors rose over 7%. The FTSE A50 futures index rose 0.41% in continuous overnight trading, with the RMB exchange rate rising more than 170 points, recovering to 7.24.
In the commodities market, WTI crude futures settled down 2.86%, at $66.31 per barrel, while Brent crude futures fell 2.45%, at $69.30 per barrel. The cryptocurrency market, on the other hand, strengthened overall, with CME Bitcoin futures up 3.81% at $90,660, and Ethereum futures up 3.93% at $2,235.50.
Analysts: U.S. Economy Faces "Stagflation" Risk
The sharp decline in the dollar index reflects market concerns about slowing U.S. economic growth. Data indicates that signs of a slowdown are becoming increasingly apparent. The U.S. Institute for Supply Management (ISM) reported a February manufacturing PMI of 50.3, lower than the previous month's 50.9, nearing the threshold for economic expansion and contraction. Meanwhile, the Atlanta Fed's GDPNow model predicts the first-quarter economic growth will drop by 2.8%, further worsening from the previous forecast of 1.5%. If true, this would mark the first negative growth for the U.S. economy since the first quarter of 2022.
Moreover, U.S. consumer confidence has significantly declined, with the Conference Board reporting a February Consumer Confidence Index of 98.3, well below January's 105.3, indicating rising uncertainty about future economic prospects among consumers.
Expectations for Federal Reserve rate cuts are rising. The CME "FedWatch Tool" shows that the market currently expects the Federal Reserve to cut rates three times this year, significantly higher than at the beginning of the year. Analysts believe that Trump's tariff policies could lead the U.S. economy into a "stagflation" state, with weak economic growth and persistently rising prices. The Federal Reserve faces a dilemma in this situation: raising rates to control inflation could further suppress economic growth; cutting rates to stimulate the economy could lead to runaway inflation.
Federal Reserve Releases "Beige Book": Decline in Consumer Spending, Business Concerns Over Tariff Impact
On March 5, the Federal Reserve released its latest nationwide economic situation survey report, the "Beige Book." The report shows that since mid-January, overall economic activity in the United States has slightly increased, but consumer spending has declined, especially as lower-income groups become more cautious about purchasing non-essential goods. Several industries expressed concerns about Trump's tariff policies, with manufacturing, construction, and agriculture sectors all feeling the potential impact of tariffs.
Federal Reserve officials also expressed concerns about the U.S. economic outlook. Kansas City Fed President Schmid warned that inflation expectations are rising and economic growth uncertainties are increasing, and the Fed needs to find a balance between curbing inflation and supporting economic growth.
At the same time, the U.S. labor market is beginning to show signs of weakening. ADP Research reported that the U.S. added 77,000 jobs in February, far below the market expectation of 140,000, the smallest increase since July 2024. Job reductions were mainly concentrated in the service sector, while the goods-producing industry saw some job growth. Citibank economists expect U.S. job growth to slow in February, with the unemployment rate possibly rising to 5% by mid-year. Citibank predicts the Federal Reserve will cut rates by 125 basis points this year, possibly starting to implement rate cuts in May.
Conclusion
Trump's congressional speech triggered significant market fluctuations, with U.S. stocks rising while the dollar plunged. Economists warn that the U.S. is facing a "stagflation" risk. As the Trump administration pushes for tougher tariff policies, how the Federal Reserve will respond to the challenges between inflation and economic growth has become the focus of market attention. In the coming months, the direction of U.S. economic policy will have profound implications for global markets.
