Tariff Turmoil Roils Markets And Ruins Risk Appetite

WHERE WE STAND – After ‘Liberation Day’ on Wednesday, came ‘liquidation day’ on Thursday, as participants de-risked their books, and sought shelter away from the ongoing tariff storm.

Of course, it shouldn’t be at all surprising that fallout from Trump’s tariff announcements continued through the day, with countries around the world responding with both rhetoric and retaliatory measures of their own, and as market participants re-assessed their macro assumption as those ‘reciprocal’ levies fell right at the harshest end of what had been expected.

As it’s a Friday, and there’s been plenty of ‘takes’ on the tariff front already, I thought I’d try and summarise my thoughts on all this as succinctly as possible:

• While Thursday was clearly a risk-off day, with stocks slumping, and Treasuries surging. I’d argue that the overall reaction probably wasn’t as bad as feared, or as bad as one might’ve expected, given that Trump’s tariffs were considerably harsher than the base case, and the way in which the global trade order has just been upended
• This reinforces my view from yesterday, that ‘Liberation Day’ is a strategic event which markets will only be able to digest over time, and not a tactical risk – like a central bank decision – where we can discount it, and move on from it, in a matter of minutes. In short, there is probably worse to come for risk, and I remain a rally seller in the equity complex
• For the time being, focus among market participants remains firmly on the downside growth/recession risks that these, and potentially other, tariffs introduce, as opposed to their inflationary implications. This feels a little short-sighted, especially with most of the inflationary impact to be felt in the next quarter or so, which in turn has significantly raised the bar for further Fed cuts any time soon. Nevertheless, this, plus haven demand, explains the upside seen across the Treasury curve, which seems likely to continue for the time being
• In a similar vein, short of being the ‘case closed’ clearing event that many participants had been hoping for, ‘Liberation Day’ has actually only served to significantly increase the degree of uncertainty clouding the outlook, as nations seek to either retaliate against the US, or pacify Trump. Considerable concern also remains over the possibility of the ‘reciprocal’ levies being ratcheted higher over time, as well as unknowns around future lumber, chip, and pharma tariffs being imposed by the Trump Admin. Here, there are about 100x more questions, than there are answers
• In light of that ongoing uncertainty, the USD displays almost no haven characteristics whatsoever, as participants won’t seek to hedge tariff risk by buying the asset most exposed to trade shenanigans. This, coupled with a ramping up of fears that tariffs will tip the US to the edge of recession, has unsurprisingly seen the bull case for the buck evaporate entirely
• The FX market’s overall verdict on the reciprocal tariff plan is that, ultimately, Trump will end up harming his own economy, more than that of others. Hence, the flight out of the buck, and demand seen elsewhere, as cable cleared 1.32, and the EUR rose north of the 1.11 figure to 6-month highs. I remain happy to ride this wave of bearish USD momentum, with the greenback having next-to-nothing going for it right now

LOOK AHEAD – As the tariff fallout continues, we have the small matter of the March US jobs report to deal with today. To save you reading on, though, I’ll tell you straight that the figures probably don’t matter one jot given everything else that’s going on.

Anyway, I’m duty bound to tell you that headline nonfarm payrolls are expected to have increased +140k last month, broadly unchanged from the +151k pace seen a month prior. Meanwhile, average hourly earnings should have increased 0.3% MoM, while unemployment is seen holding steady at 4.1% - though, with the Feb unrounded figure at 4.1395%, a 4.2% print isn’t out of the question.

Risks here, if the market chooses to pay any attention to the data, are asymmetric. Better-than-expected data, on its own, won’t be enough to soothe market participants’ ongoing concerns over slowing US growth, though a softer-than-forecast report would crystallise those very same worries, sparking another chunky bout of risk aversion.

After that, Fed Chair Powell is set to speak late-afternoon here in London. I don’t envy him having to try and navigate all this nonsense, nor would I swap my place at the bar with a cold beer for his in front of a microphone!