Another Day, Another Tariff, As De-Risking Persists

WHERE WE STAND – Short & sweet this morning, as another busy week draws to a close.

Anyway, yesterday proved to be a case of ‘another day, another tariff’, with President Trump this time turning his ire to the EU. In response to the EU having imposed a 50% levy on American whiskey imports, Trump responded with a plan to levy tariffs of 200% (!!!) on “all” wines, champagnes and alcoholic products from the European Union which, in his words, would be “great for the wine and champagne businesses in the US”.

Before getting to bigger issues – who wants to tell him that there is no such thing as ‘American champagne’? In fact, on that note, outside of some select Napa Valley reds, I think you’d actually have to pay me to drink any American wine over that of the Old World.

Anyway, I digress. The specifics of these latest tariffs frankly don’t matter especially much; instead, the measures serve to reinforce the idea that policy uncertainty remains at incredibly elevated levels, with trade policies themselves frankly bordering on incoherence. In that environment, as I keep harping on about, it’s incredibly difficult for any consumer or business to plan more than about 12 hours into the future, as well as being next-to-impossible for market participants to properly price risk.

With that in mind, it’s no surprise that de-risking remains the main priority for market participants, with rally selling continuing to trump (pardon the pun) dip buying in the equity complex, as the S&P 500 fell 10% from its all-time high, and into a correction. I still have a pretty dim view of the stock market’s near-term prospects, as uncertainty shows no sign of dissipating soon, and with both economic and earnings growth expectations still having plenty of room to be revised lower.

Elsewhere, in the FX space, Thursday was by and large a day of consolidation, as the dollar rebounded modestly against most peers, in what felt like a classic case of a move that has come ‘too far, too fast’. Predictably, the EUR was the main laggard here, slipping back towards the 1.08 mark, on the aforementioned tariff news. I still, though, find little reason to be bullish on the buck as growth worries remain at such a lofty level, and as the to-and-fro over tariffs continues.

I’d be content to fade most of this recent weakness in the buck for the time being, while also being happy to ‘buy the dip’ in bonds here, with softness again seen across the Treasury curve yesterday. Mounting downside US growth risks, and a subsequent potentially more dovish Fed policy path, should support both of those views.

LOOK AHEAD – It’s finally Friday, and almost time for a beverage or three to kick off the weekend; thankfully, the UK hasn’t decided to tariff imported Italian lager yet!

There’s work to be done before that, though, albeit with today’s data docket a bit on the light side.

February’s preliminary UMich consumer sentiment figures are probably of most interest, with this being the very data that kickstarted all the growth jitters a month ago. A further deterioration in sentiment is expected, to 63.0 from 64.7 prior, with any downside surprise likely to be severely punished by market participants.

Elsewhere, this morning’s UK GDP figures are the only other notable release, with the economy set to have grown by just 0.1% MoM as 2025 got underway. Clearly, still a very anaemic pace of expansion, and yet more pessimistic news for Chancellor Reeves ahead of the Spring Statement on 26^th March.