This past week saw markets whipsawed by swirling uncertainty around U.S. trade policy under the second Trump administration. Well, that’s what the headlines suggested. In reality, markets zigged and zagged but ultimately moved higher on perception that Trump’s ‘revealed preference’ was to use the threat of tariffs to rough up his supposed opponents before backing down when he felt he had made his point.

The week began with Mexico earning a reprieve from threatened 25% tariffs after a "friendly" phone call between Presidents Trump and Lopez Obrador. Then Canada’s Trudeau managed to get away with saying he would do something that he had already done – put troops on the border to stop fentanyl trafficking. Perhaps because of this the weaker U.S. dollar was one of the main stories, defying expectations that President Trump's aggressive tariff announcements would bolster the greenback. This boosted the Mexican peso and raised hopes that the administration's bark on tariffs may be worse than its bite. However, a 10% tariff on $200 billion of Chinese imports did go into effect, drawing a muted response from Beijing.

A key focus for the week was Friday's U.S. employment report, which revealed a lower-than-expected 143,000 new jobs in January but a tick down in the unemployment rate to 4.1%. Average hourly earnings growth of 4.1% topped estimates. While not a major surprise, the data affirmed the strength and inflationary risks of the labour market, likely delaying Fed rate cuts.

Bond yields saw significant moves, with U.S. 10-year Treasury yields dropping by 20 basis points early in the week on tariff-driven growth concerns, before rebounding after Friday's jobs report. Most equity markets actually ended the week up while the U.S. market ended flat. The NASDAQ bore the brunt of volatility, having been up by 2% during the week before giving it all back on Friday and rebounding again this week. European stocks continued their march higher and are up 10% so far this year along with gold with UK equities shortly behind. The U.S. has been the laggard this year with only Japan faring worse.

The week's other data points painted a mixed picture. U.S. service sector surveys showed activity cooling but still expanding. Inflation expectations crept higher in the University of Michigan consumer sentiment survey. China's inflation remained subdued although deflationary forces may have abated.

In corporate news, Amazon's Q4 revenues beat forecasts but its Q1 outlook disappointed, weighing on the stock. Alphabet's earnings were also very strong by any standard (sales were up by 12% and operating income by some 31%), but being weaker than expected the stock fell 10%. Closer to home CBA just reported profits that were up by some 2% year on year (so less than inflation) but were better than expected and the stock headed higher.

Central bank rhetoric remained cautious given the uncertainty. Fed Chair Powell said the Federal Open Market Committee is in "no hurry" to cut rates further, walking a fine line in his Congressional testimony. The Bank of England delivered a dovish 25 basis points rate cut and two policymakers unsuccessfully pushed for 50 basis points.

The focus may now turn to potential U.S. tariff retaliation from the EU and China, the next Fed meeting, U.S. CPI and the global industrial economy’s reaction to a potentially protectionist (or just transactional) environment. The Trump trade news onslaught is unlikely to relent but markets seem to be getting somewhat used to it. The danger is if it turns out that is more than just dealmaking.