by Louis Navellier
May 28, 2025
It seems like the negative media criticism of the Trump tariff strategy has largely ended. As the year has progressed, the financial media’s initial hissy-fit over the President’s initial tariff threats has fizzled. The baseline 10% tariffs will remain for now. They are meant to lower our trade deficit and reduce income taxes for Americans, and the reciprocal tariffs are just “tit for tat” retaliation for countries that insist on maintaining their own high trade barriers. In addition, China has diverted many of its goods to be sub-assembled in Mexico, Vietnam and in other countries to circumvent U.S. tariffs, so the highest tariffs are expected to be assessed on those countries that help China to “dump” their goods into America.
Bloomberg reported that the European Union (EU) revised its trade proposal in its latest attempt to get some momentum to get a deal done, and Ursula Von Der Leyen, President of the European Commission, apparently called President Trump over the weekend requesting a tariff deadline extension, which he said “it was my privilege to do,” so the EU is clearly striving to cooperate with the U.S. and is seeking a mutually beneficial trade deal. Since the EU represents 27-nations and has a $108-billion annual trade surplus with the U.S., negotiating on behalf of 27-nations is turning into a big challenge. Furthermore, the U.S. has been annoyed at the EU’s digital rules and value-added taxes, which erect an added barrier to trade, according to the Trump Administration. The EU agreed earlier this month to delay implementing retaliatory tariffs for 90 days, so I suspect the EU will get a deal done by the new July 9th deadline.
The Trump Administration will also be sending letters out to most other countries, essentially telling them what reciprocal tariffs they’ll be paying “to do business in the United States.” The reciprocal (“tit for tat”) tariffs are expected to cause many countries to reduce their tariffs, with freer trade being the desired goal.
Due to the dumping of goods after the 41.3% import surge in the first quarter, weak commodity prices (except for gold), and major global economies sputtering and/or in recession, deflation is spreading, and so central banks continue to cut key interest rates. Rates remain very low in both China and Japan so they can’t really cut their key interest rates further, making a Chinese currency devaluation possible, while Japan is expected to postpone some of its quantitative easing. I still stand by my prediction that the Fed should cut key interest rates four times this year, since I expect a global interest rate collapse that will cause Treasury yields to plunge. Naturally, lower interest rates will add a turbo boost to the stock market.
Instead of admitting this global deflationary reality, multiple Fed officials are out and about hinting that they may not cut rates until September – and even signaling that this cut may be their only interest rate cut this year. The problem with that view, other than their denial that deflation is spreading, is that many other central banks continue to cut their key interest rates, like the Bank of England and the Reserve Bank of Australia. The European Central Bank (ECB) is anticipated to cut key interest rates in June, in what would be its eighth rate cut. With interest rates remaining ultra-low in China and Japan, a global interest rate collapse is clearly underway, as deflationary forces spread. Why Fed officials have stopped looking at the data and continue fearing non-existent inflation, when consumer prices are at the lowest level in over four years, and wholesale inflation is running at the slowest pace in five years, is very frustrating.
The latest Fed excuse to avoid cutting rates – according to Fed Chairman Jerome Powell – is potential “supply-side shocks” caused by the tariffs. At a Fed research conference, Powell said, “We may be entering a period of more frequent and potentially persistent supply shocks, a difficult challenge for the economy and for central banks.” Interestingly, the Fed Chair said policymakers are considering “discrete but important updates to its framework that guides decisions.” Translated from Fedspeak, Powell is inventing strange new excuses to ignore President Trump, Treasury Secretary Bessent and market rates.
The European Central Bank (ECB) is also warning about economic shocks – but not inflation. The ECB said last Wednesday that sharp increases in uncertainty about government have put the financial system at risk. In its twice-yearly report on the euro-zone’s financial system, the central bank also warned that investors may be too complacent about the threats posed by recent rises in tariffs. Furthermore, the ECB said that greater uncertainty about U.S. policy extends to a wide range of areas beyond trade, and includes international cooperation, defense, and regulation. Finally, ECB Vice President Luis de Guindos, said, “In this environment, the likelihood of increasingly frequent and impactful adverse tail events has increased.”
In other words, the ECB is blaming Donald Trump for all real or imagined problems in the euro-zone.
In other ECB news, Germany has formally dropped its opposition to nuclear power, which it imports from France. Under new Chancellor Friedrich Merz, Germany will no longer block French efforts within the EU to ensure that nuclear power is treated the same as renewable energy in EU legislation. Currently, Germany receives more than 60% of its electricity from renewable energy, while nuclear power provides about 70% of France’s electricity. Chancellor Merz has made no effort to restart Germany’s nuclear plants, which the AfD Party has been pushing for to restore Germany’s industrial competitiveness.
I should add that German Chancellor Merz will be meeting President Trump in Washington DC in the upcoming weeks. It will be interesting to see if President Trump’s calls for the Germany automakers to expand their U.S. operations will be openly discussed when Merz and Trump appear before the media. In the past, President Trump has offered work VISAs for any Germans that move to America to work in the BMW, Mercedes, and VW Group’s auto plants, if Germany will move those plants to American soil.
First-Quarter Earnings Reporting Season Ends with Nvidia’s “Grand Finale” Today
With the first-quarter earnings announcement season almost over, and earnings remaining positive, the analyst community has resumed revising their earnings estimates higher. Deflation continues to spread, due to low crude oil prices, falling commodity prices (except for gold) and an inventory glut after imports surged 41.3% in the first quarter, with the revived strong dollar so far offsetting some tariff increases.
On his recent Middle Eastern trip, President Trump was a cheerleader for America and came back with over $1 trillion in new business deals. As a result, the U.S. is in the early innings of an economic boom, led by AI, as our AI and data center stocks exploded from new contracts during the President’s trips.
Nvidia CEO Jensen Huang accompanied the President on his recent trip, and Nvidia will post its much-awaited quarterly earnings report tonight after the market closes, at 5pm Eastern time. I’m sure we will hear more about their revelation last week about DGX Cloud Lepton, a one-stop AI platform with a marketplace of GPU cloud vendors that AI developers can use for their own AI models. Alexis Bjorlin, Nvidia’s vice president in the DGX Cloud unit, said, “We saw that there was a lot of friction in the system for AI developers, whether they’re researchers or in an enterprise, to find and access computing resources.” Obviously, Nvidia is expanding its AI dominance with its DGX Cloud Lepton AI platform,
The only glitch in the recent recovery comes from the “bond vigilantes,” since 30-year Treasury yields rose above 5% in the wake of the Moody’s credit downgrade on May 16th. Treasury Secretary Scott Bessent said that the Moody’s rating change is a lagging indicator, and the problem existed well before the Trump Administration took over. Last Wednesday, the 20-year Treasury bond auction was weaker than expected, so Treasury bond yields rose due to a poor bid-to-cover ratio of 2.46 with what’s called a “long tail” of outlying bids at higher yields, and then the 10-year yields rose above 4.5% late last week.
Despite Wednesday’s poorly received 20-year bond auction, we should trust Scott Bessent to adjust the Treasury auctions to better meet institutional demand during future auctions. Until Wednesday, Secretary Bessent has been much more skillful in managing the Treasury auctions than his predecessor, Janet Yellen, who had an inverted yield curve because she could not manage these Treasury auctions very well.
Due in part to the higher 30-year bond (and mortgage) rates in recent months, the National Association of Realtors on Thursday announced that existing home sales declined by 0.5% in April, which is the slowest April selling season since 2009. Usually, home sales rise in the Spring, but these high mortgage rates tend to squelch home sales. This means that the recent rise in Treasury bond yields will cause mortgage rates to continue to rise and hinder home sales during the May selling season, too. As a result, homes sales are expected to remain lackluster until Treasury bond yields fall and the Fed start to cut key interest rates.
Despite these challenges in high rates and slow home sales, I hope you realize that the U.S. is an oasis amidst global chaos. The poor demographics in many other nations – mostly from aging populations, plus a reluctance to assimilate immigrants – is hindering Britain, France and Germany, so household formation is shrinking and killing economic growth. Believe it or not, Japan has the highest birthrate in Asia, but its population is also shrinking, long-term, as they are not creating enough to boost household formation. The only way a shrinking country can grow is through productivity growth, and AI is a key factor there.
Navellier & Associates; own Nvidia Corp (NVDA), in managed accounts. Navellier does not own Volkswagen (VWAGY), in managed accounts. Louis Navellier and his family own Nvidia Corp (NVDA), via a Navellier managed account, and Nvidia Corp (NVDA), in a personal account. He does not personally own Volkswagen (VWAGY).
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
The Press (and Investors) No Longer Fear Tariffs, But the Fed Still Does
Income Mail by Bryan Perry
The Aerospace Defense Sector is Looking Bullet Proof
Growth Mail by Gary Alexander
Saluting Some Great Heroes of Economic Freedom…on Flag Day
Global Mail by Ivan Martchev
A Trillion Dollar Tweet – or Two
Sector Spotlight by Jason Bodner
Ignore the News Feed, For Your Psychological (and Financial) Health
View Full Archive
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