Liberation Day To Bring More Uncertainty And Little Clarity

WHERE WE STAND – A choppy day, yesterday, as participants continue to sit at their desks (myself included) with no conviction whatsoever about what’s going to happen in the next five minutes, let alone about the short- or medium-run macro outlook.

Initially, stocks sold-off on Tuesday amid tariff uncertainty, before reversing course and rallying amid tariff uncertainty. I jest – a bit – here, but all this to-and-fro is getting incredibly tiresome, with narratives being pinned on price action all over the place.

In short, it remains the case that noise vastly outweighs signal right now, whether that be on the tariff front, or in terms of price action more generally. As such, my bias remains to play defence – fading equity upside, sheltering in havens with my long Treasury and long gold view, while also still seeing little to like about the greenback, which remains the most exposed of all assets to the ongoing incoherence from the Oval Office.

As for catalysts, yesterday, there were a few.

The latest ISM manufacturing report was grim, with the headline index slumping to 49.0, back into contractionary territory. Meanwhile, the prices paid metric surged to its highest level since June 2022, employment slumped to its second lowest level since the pandemic, and the new orders gauge to its lowest level in a couple of years. I really am loath to say it, given my disdain for soft data right now, but that does all have a strong whiff of ‘stagflation’ about it.

Meanwhile, February’s JOLTS job openings print was also rather grim, at 7.568mln, well below the 7.66mln consensus, and the 7.76mln figure seen in January. While there is little read-across to Friday’s NFP print from this report, it nonetheless points to a weakening labour market backdrop, particularly with the quits rate falling to 2.0%, as uncertainty on the trade front continues to mount.

On this side of the pond, ‘flash’ eurozone inflation figures highlighted the docket. Headline CPI cooled, as expected, to 2.2% YoY in March, while the core metric fell more than expected to 2.4% YoY. Taking into account this, services CPI falling a chunk to 3.4% YoY, and mounting downside growth risks amid tariffs, everything should be aligned for another 25bp ECB cut later in the month – though, in classic ECB style, the hawks are for some reason going to try and fight against that one.

LOOK AHEAD – Here we are then, ‘Liberation Day’ has arrived. It doesn’t exactly feel like Christmas morning though, and I must admit that the day arrives amid a sense of dread, and perhaps even fear, as to the tariffs that might be announced.

We’ll have to wait a while for some clarity on that front, though, with President Trump hosting a Rose Garden press conference at 4pm ET/9pm BST to announce the various country-specific reciprocal tariffs that have been trailed for some time. After the market closes, clever!!

Clearly, Trump is going to revel in this moment – the specifics of which are nigh-on impossible to predict – as much as possible. In terms of those specifics, particular question marks persist over whether VAT will be included in the reciprocal calculations, as well as whether a blanket tariff on all (or most) imports into the US.

That presser, though, seems much more likely to be the start of the latest trade saga, as opposed to the conclusion which markets, looking at implied vol curves, are hoping  it will prove.

Instead, once reciprocal tariffs are known, attention will rapidly turn to responses from those hit with levies, which will probably fall into three broad camps. Some nations (e.g. Canada, China) will probably hit back with punchy rhetoric and retaliatory tariffs of their own; some (e.g. Europe) may impose some measures, but will probably make some concessions in an effort to seek the removal of reciprocal tariffs; and some others (e.g. the UK) seem set to sit back and do next-to-nothing in response to whatever Trump announces. Perhaps a key focus here should be when the announced tariffs will be implemented – the longer until they are imposed, the more room for negotiation likely exists.

Amid all those responses, there’s also the question of what Trump does next. It would be incredibly out of character for this to be a case of ‘one and done’ once tariffs are imposed. Instead, think of the levies as being akin to a volume dial on a radio – if countries are amenable to the US, they’ll be turned down; if trading partners are seen to get on the ‘wrong side’ of Trump, they’ll be turned up again.

Three-and-a-half years of this on/off/on/off-again tariff to-and-fro lies ahead. As that continues, uncertainty will obviously remain at elevated levels, which for the time being should also keep cross-asset volatility high, and see participants lacking conviction to load up on risk, with discounting a concrete future policy path remaining nigh on impossible.

Besides tariffs, today’s calendar is mercifully quiet, though the latest US ADP employment report, and factory orders figures, are both due.