Wall Street bets on Trump "backing down"! TACO trading shows the probability of European tariffs taking effect is only 17%
On January 20, Polymarket data showed that the market is betting that Trump's threat of European tariffs is likely to be "much ado about nothing" — only 17% of users believe that all tariffs threatened by Trump will take effect on February 1. This sentiment has given rise to the "TACO" (Trump Always Chickens Out) trading strategy, where investors bet that Trump will ultimately back down from his tariff threats.
Wall Street reacted swiftly, with Deutsche Bank strategist Jim Reid noting that the market believes there is still "more room for volatility" and that it had previously overreacted to tariff threats and suffered losses. UBS Chief Economist Paul Donovan also stated that the bond sell-off behavior displayed by the market reflects that investors do not seem to take these threats too seriously.
Behind this phenomenon is the market's familiarity with Trump's "maximum pressure" negotiating style. Historically, Trump has often made tough statements on trade issues only to ultimately end in negotiation and compromise. Therefore, Wall Street chose to express skepticism towards tariff threats using the "TACO" trade.
However, this kind of betting also carries risks. If Trump ultimately insists on implementing the tariffs, the market could face a new round of severe volatility. @阿二说趋势