Markets this morning are looking up — literally — thanks to some good news out of China and another positive session on Wall Street. The ASX is expected to open around 54 points higher, and it’s happening despite a fresh round of headline-grabbing threats from Donald Trump.

This time, he’s taking aim at Europe, warning of a 30% tariff if they don’t fall into line. But what’s remarkable is how little traders seem to care. The market has come to expect a certain theatre from Trump. There’s even a term going around: the “taco theory" That is: Trump always chickens out.

And for now, traders are betting that he’ll do exactly that: back down, and ultimately strike a watered-down deal that’s far less damaging than the initial headlines would suggest. 

They could be right. But if they’re wrong, we’re going to see a lot of red on stock boards around the world.

Think about it. If Trump really does go through with 30% tariffs on EU imports — and continues to escalate tensions with China and other key partners — the hit to global trade would be massive. Supply chains would seize up again. Business costs would rise. And central banks, who are already walking a tightrope, would find it even harder to justify cutting interest rates. 

In fact, Bank of America said the quiet part rather loudly overnight, saying directly that Trump’s own tariffs are making it difficult for the US Federal Reserve to deliver the rate cuts he wants.

That’s the irony. Trump wants cheaper money, but his own actions are raising inflation risk and uncertainty, the exact things that make central banks hesitate.

Now, he’s also picking yet another public fight with Fed Chair Jerome Powell — and reportedly asking around if he can fire him “for cause.” It’s classic Trump chaos. And yet, for now, markets are brushing it off.

Personally, I think the optimism is fair — to a point. Trump has a pattern, and the market has learned it. But every now and again, even the most predictable pattern can break. If this time he doesn’t blink, if he does push tariffs through at their full weight, then we’re in for a market shock.

And no one can say they weren’t warned