President Trump got his random number generator out again yesterday.
Not, this time, to come up with some random amount of bp that the Fed should lower rates by, but instead to set fresh tariff rates, in the long-awaited letters sent to nations, extending the pause on ‘Liberation Day’ tariffs until 1st August:
Curiously, the EU was missing from this list, perhaps a deal there might be relatively close.
I won’t even waste time in trying to find the logic behind those levels because, frankly, I’m not sure there is any. Some sit higher than the 2nd April original levy, and some are marginally lower. What’s most important is that none of them come into effect for another three-and-a-half weeks, giving the Trump Administration plenty of wriggle room to set this all up as another ‘escalate to de-escalate’ manoeuvre. Or, as we more commonly know it in these parts – TACO!!
To recap, though, the 2nd April deadline became a 9th July deadline, which has now morphed into a 1st August deadline, and which could still transform into a 1st September (Labor Day) deadline, if Treasury Sec. Bessent is to be believed. Bluntly, this is the next three-and-a-half years of our lives, tariffs on/off, tariffs higher/lower, depending on the relationship that the US, or more accurately President Trump, has with the country at a given time.
Somewhat predictably, those rather punchy tariff levels saw stocks take a leg lower, with the S&P and Nasdaq both falling over 1% intraday. I’d still be a dip buyer here though, with this all looking like a negotiating ploy from the White House, plus with both economic and earnings growth remaining solid despite the significant degree of prevailing economic uncertainty. That former leg of the bull case, though, could well become much more fragile, the longer the present degree of policy volatility persists.
Weirdly, that policy vol put a bid into the dollar yesterday, with the greenback reclaiming the 97 mark, and advancing against all major peers, most notably the JPY. While this does buck the recent trend of USD softness in reaction to rather ‘maverick’ Trump policy announcements, I still stand as a rally seller over the medium-term, with not only this degree of uncertainty, but also the continued erosion of Fed policy independence posing headwinds.
Speaking of the Fed, higher tariffs (IF they come to pass) are yet another reason for the FOMC to maintain their ‘wait and see’ approach, and the huge trade uncertainty is enough reason to do so anyway in the meantime. Nevertheless, Treasuries were softer across the curve, most notably at the long-end, where the benchmark 30-year yield is getting teasingly close to the 5% handle once more. Though this sell-off came largely as a result of higher inflation expectations, I struggle to see us breaking north of that figure just yet, though such a move could well prompt another policy U-turn from the folks in the Oval Office.
Higher yields were, perhaps, an intraday headwind for gold, which traded flat despite the risk-off vibe, failing to find significant haven demand. A little strange, though the bull case remains intact as allocators seek to diversify reserves, and as we remain north of $3,300/oz and the 50-day moving average.
Overall, then, Monday was a day long on noise, super-long on hawkish trade rhetoric, but short on signal. TACO Tuesday, anyone?
An almost entirely empty docket lies ahead today, with trade- and tariff-related headlines likely to dominate once more.
As for scheduled events, only remarks from the ECB’s Nagel, and a 3-year Treasury sale feature, with the latter being infinitely more interesting. That said, the sale should be taken down relatively well, at least being digested in considerably easier fashion than tomorrow’s 10-, and Thursday’s 30-year auctions.
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