“Liberation day” has finally arrived
Donald Trump will announce his highly anticipated reciprocal tariff plan – his objective is to rebalance global trade, boost US manufacturing and increase revenues to finance major tax cuts
- The plan aims to counter all the unfair trade practices that have damaged the US in the past
- At the moment it seems that no country will be exempt from the measure
- The President has preceded today’s announcement by imposing levies on Canada, Mexico and China as well as various sectors (automobiles, steel, aluminum and copper)
- The EU is preparing to retaliate by deploying a new anti-coercion instrument – this could lead to restrictions on trade and services, certain intellectual property rights, FDI and public procurement
Will hard data continue to hold?
March payrolls are due out on Friday – the big question is whether hard data will continue to hold strong or if it will follow recent soft data in triggering fears about growth
- Non-farm payrolls for March expected at +140k (against +151k in February) with unemployment rate at 4.1% (unchanged from previous month)
- Analysts expecting payrolls to be solid even if the strength could be due to temporary factors: recovery from winter storms, resumption of government relief payments and the anticipation of tariffs
- Powell has signaled that the Federal Reserve is in no hurry to cut rates until hard data continues to be strong – markets are currently pricing three cuts for 2025
Investor pessimism at the highest level
While the situation in global financial markets may remain volatile until there is more clarity in the political and geopolitical picture, individual investor pessimism, according to the #AAII survey, has dominated sentiment for five consecutive weeks, the most since 2022
- Since the late 80s, there have been 36 weeks where AAII Bearish readings were equal to or above 55%. Below is a simple study of forward returns of the S&P 500 following these events of elevated bearishness:
ECB’s battle against inflation.. and tariffs
President Christine Lagarde said the European Central Bank must continue to fight inflation, citing uncertainty from the US administration’s trade policy
- Lagarde emphasized the importance of analyzing data and maintaining a “constant battle” to reach the 2% inflation target
- Euro-area inflation eased to 2.2% in March, down from 2.3% in February, matching the median estimate
- Services inflation moderated to 3.4% from 3.7%, and underlying price pressures slowed to 2.4%
- The ECB have cut interest rates in six quarter-point moves since June
- Policymakers must decide whether to reduce borrowing costs for a seventh time with officials diverging over the impact of US President Donald Trump’s tariffs on prices
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