Markets remain in thrall to President Trump’s tariff plans, and how policymakers and most importantly, the Fed will react to the broad, negative economic impact. Fed Chair Powell doesn’t look like he is coming to the rescue with a rate cut any time soon, and that is not pleasing the President one bit. Certainly, the 10% universal tariff and sectoral charges will take their toll on the global economy. Even with the 90-day pause, the current escalation would bring global tariffs back to levels last seen in the early 1930s – the last episode of a global trade war initiated by a US president with the Smoot-Hawley Act. And we know how that ended.
The dollar is down in the dumps after suffering five straight weeks of selling. This morning has seen a break of a crucial level of support from lows last seen in July 2023, as speculation mounts about the Fed’s independence being under threat from the Trump administration. With a quieter data calendar, aside from megacap tech earnings, markets will be watching for any bilateral trade deals with the UK and Japan near the top of the list (though weekend report suggest a deal for the latter has not been occurred just yet). News on specific sectors like tech and pharma could be coming soon. This all likely means the ongoing debate about the end of US exceptionalism will continue. The uncertainty will likely continue to plague the dollar, though it is oversold on several indicators, in what’s being termed the “US revulsion” phase.
April flash PMIs should give us a glimpse of the first hit from Trump’s tariff chaos. Remember that these business surveys tell us whether things are getting better or worse, and not by how much. At big turning points, the tendency is for the data to exaggerate shifts in economic activity. A key focus will be the prices index, which could point to the inflationary impact of tariffs. It has already signalled the fastest rate of input price rises in the nearly two years in the US.