Core Viewpoint - The current global market is experiencing a significant structural misalignment, indicating investors' indifference towards tariff policy threats, as evidenced by the stable performance of inflation swaps and strong asset performance in countries most affected by tariffs [1][6]. Group 1: Market Reactions to Tariff Threats - Despite ongoing tariff threats, the U.S. inflation swap prices have remained largely unchanged since April 2, with the 1-year inflation swap slightly adjusting from 3.40% to 3.36% and the 5-year swap increasing from 2.54% to 2.56% [4][3]. - The phenomenon known as "TACO trading" reflects market behavior where declines follow tariff threats, but subsequent reversals occur when the government retracts its stance, highlighting a pattern of market resilience [2][6]. Group 2: Performance of Affected Assets - Surprisingly, assets in developed economies most vulnerable to tariff impacts have shown strong performance, with the S&P/TSX Composite Index in Canada reaching a historical high and increasing by 5.4% year-to-date [8][10]. - The Canadian bond index has also risen by 0.3% year-to-date, and the Canadian dollar has appreciated over 4% against the U.S. dollar, indicating a stronger-than-expected performance despite economic growth forecasts being downgraded [10]. - Germany's DAX index reached a historical high, only down 0.4% from that level, outperforming other major indices like Stoxx 600 and CAC40, which is notable given Germany's reliance on trade [11][10].

Core Viewpoint - The article discusses the concept of "TACO" (Trump Always Chickens Out), which refers to President Trump's tendency to backtrack on previously announced policies, particularly regarding tariffs and trade, leading to significant market fluctuations [4][11][22]. Group 1: TACO Concept and Market Reactions - "TACO" was coined by Robert Armstrong from the Financial Times, highlighting the market's realization that the U.S. government is quick to retreat from economic pressures when tariffs cause pain [4]. - The "TACO trade" has been observed multiple times, notably in early April when Trump announced and then postponed tariffs, causing market volatility [6][11]. - A recent instance occurred when Trump suggested imposing a 50% tariff on the EU, leading to a sharp decline in U.S. markets, with the S&P 500 dropping 2.6% [9][12]. Group 2: Policy Changes and Economic Implications - Following the initial announcement of tariffs, Trump delayed their implementation, resulting in a market rebound, with the Dow rising 1.78% and the Nasdaq increasing by 2.47% [12]. - Economic experts, including Justin Wolfer, noted the confusion caused by Trump's inconsistent policy statements, which differ significantly from past presidential behaviors [16][17]. - Goldman Sachs has repeatedly changed its stance on the impact of tariffs, initially predicting sustained inflation but later suggesting that the inflationary impact would be temporary, with a projected core PCE inflation rate of 3.6% later this year [19][20][22]. Group 3: Economic Outlook and Future Predictions - Goldman Sachs' revised outlook indicates a less concerning economic situation, with expectations of GDP growth at only 1% and a mild increase in unemployment to 4.5% [22]. - The firm believes that the current inflation threat is lower than in 2021-2022 due to a relaxed labor market and declining wage indicators [23]. - As tariff effects diminish and inflation slows, Goldman Sachs anticipates that the Federal Reserve will lower interest rates, with the first cut expected in December [24].