by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The markets remain laser-focused on developments in the escalating trade war. In sports news, Arsenal secured a decisive 3-0 victory over Real Madrid in last night’s Champions League showdown. Today’s Comment will examine the growing anxiety in bond markets, the latest updates on tariff implementations, and other key market-moving events. As always, we’ll conclude with our comprehensive roundup of both domestic and international economic data releases.

Bond Market Sell-Off: Investors are growing increasingly apprehensive as the trade war escalates, sparking a sell-off in Treasurys.

• The first day of the increased tariff implementation triggered a sell-off in global bond markets as investors retreated to the sidelines amid escalating uncertainty. Bond prices plummeted while yields surged, reflecting a rush to liquidate holdings as trade war tensions intensified. Despite these liquidity concerns, the US dollar has not strengthened — a potential sign that investors are diversifying their currency exposures.
• A recent Treasury auction has also raised fresh concerns about the growing federal deficit. Tuesday’s three-year note sale drew unexpectedly weak demand, signaling investor reluctance to increase their holdings of government debt. The lackluster performance suggests market participants may be preparing to reduce their Treasury exposure if economic conditions deteriorate in coming weeks.

• Recent bond market activity indicates declining appetite among US debt investors for medium-to-long term duration exposure. As illustrated in the chart above, tail and stop auction levels, which reflect where yields settled relative to market expectations, confirm this trend. The Treasury’s shift toward shorter-term issuance has enhanced liquidity in long-dated securities, though at the cost of reduced demand for intermediate maturities. Meanwhile, Treasury bills continue to demonstrate robust investor interest.
• Growing concerns about bond market liquidity could force the Federal Reserve to stop quantitative tightening earlier than they planned, and possibly even start buying bonds again. While lowering interest rates is still a possibility, the Fed would likely only do that if there were serious solvency risks, such as companies being in danger of not being able to pay their debts. Right now, it doesn’t look like we’re facing that kind of problem.

Dealing With Tariffs: Amid rising economic headwinds, foreign policymakers are implementing targeted relief measures to protect vulnerable sectors and maintain stability — while also seeking a deal with the US.

• While China has raised tariffs on US goods to 84%, it has also signaled its readiness to hold talks with the US. This comes after President Trump imposed tariffs of up to 104% on Chinese goods. Meanwhile, the People’s Bank of China has sought to cushion the impact by devaluing its currency, aiming to preserve competitiveness in the ongoing trade war.
• The European Union, having retaliated with tariffs against the US, now faces growing calls to counter US trade measures by lowering its own duties and pivoting toward China. Two ECB policymakers have already endorsed rate cuts at the upcoming meeting to cushion the economic blow from rising US tariffs. Meanwhile, Spanish Prime Minister Pedro Sánchez is urging the EU to deepen trade relations with China, aiming to reduce dependence on the US market.
• In Southeast Asia, countries are taking steps to mitigate the economic fallout by rolling out stimulus measures. Taiwan has activated its stabilization fund to shore up local equity markets following a sharp sell-off. Meanwhile, South Korea has announced a $2 billion aid package to bolster its auto industry. Elsewhere, Japan has established a task force to address the tariff dispute, with speculation mounting that it may consider an emergency budget.

• As the new tariffs take effect, signs of diplomatic progress are emerging. The US continues negotiations with trade partners to potentially reduce these measures, with several key developments: Vietnam has agreed to reduce its trade balance by purchasing more US arms, South Korea anticipates finalizing a significant trade agreement imminently, and Japan appears to be receiving preferential attention in ongoing trade discussions.

Big, Beautiful, Bill in Jeopardy? Republican lawmakers are increasingly hesitant to back the president’s tax bill, voicing concerns over its fiscal impact and doubting its revenue potential amid ongoing trade tensions.

• Several House Republicans opposed the president’s signature tax bill on Tuesday, raising objections to its hefty price tag. The dissenters are now threatening to block a key procedural vote needed to advance the legislation — a move that could stall the bill indefinitely. The resistance comes just hours after a high stakes meeting between GOP lawmakers, the president, and House Majority Leader Mike Johnson failed to resolve the spending dispute.
• The growing trade conflict has strengthened Republican opposition to the spending bill, as lawmakers express doubts about its ability to generate sufficient revenue to offset its costs. While the White House projects $600 billion in annual tariff revenue, economists caution that elevated rates could decrease trade volumes, thereby jeopardizing revenue targets. In an attempt to alleviate concerns, the president has set a goal of $1 trillion in spending cuts.
• While we expect Republicans will ultimately pass the tax bill, we question their ability to identify spending cuts substantial enough to reassure markets. This fiscal constraint may force lawmakers to consider revenue-raising alternatives, including potential tax increases on high-income households, as they prioritize preserving middle-class tax relief.

Coal on the Rise: President Trump signed an executive order to boost the production of coal with hopes that it can be used to fuel AI.

• The new executive order aims to roll back industry regulations that have contributed to coal’s persistent production decline. Through emergency measures, the president has authorized the Department of Energy to intervene in sustaining coal operations. The administration further underscored coal’s strategic value by classifying it as a “critical mineral,” a designation that directly links its production to national security.
• This move is expected to advance President Trump’s ambition to establish the US as a global AI leader. This comes as the president has sought to make the US the center of innovation for AI with his Stargate Project in which the US plans to invest $100 billion on co-located data centers, which would allow them to be built next to their energy source.
• Surging demand for data centers and semiconductor production has reversed years of stagnant electricity consumption in the US, triggering the first sustained increase in over a decade. This trend could drive up utility bills industry-wide while creating inflationary pressure on housing costs.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with some new observations on the global financial markets as they respond to President Trump’s new US tariff regime. We next review several other international and US developments with the potential to affect the financial markets today, including reports of a new Ukrainian incursion into Russia and another firing of a high-level US military officer as part of what appears to be a broad purge of officials.

Global Financial Markets: By market close yesterday, US stock prices were relatively little changed. However, intraday trading was just about as volatile as yesterday’s action in Asia and Europe. Stocks were whipsawed by a false report that President Trump would pause his reciprocal tariffs for 90 days and by news that he threatened an added 50% tariff on Chinese goods if Beijing doesn’t lift its retaliatory tariff of 34% on US goods by Tuesday. Amid this volatility, we think investors and their advisors should keep in mind the following key points:

• While it is tempting to tag all this volatility on Trump’s tariffs, the problem is broader. As we’ve written for years, the global order is in the process of changing as the US reconsiders its role as the global hegemon. Even if Trump froze or rescinded his tariffs today, that process would likely continue, and the result would likely be further economic disruption and market chaos.
• The administration’s mixed messages and shifting strategies also are likely to prolong the uncertainty. After all, even if Trump decided to pause or rescind some or all of the tariffs, businesses and investors now have probably been trained not to trust him. As with those of us who live in Missouri, their attitude might well be, “Show me” before they let down their guard and start making normal long-term decisions again.
• It’s also important to remember that the epicenter of the trade war is China. In response to Trump’s threat to impose an additional 50% tariff on China, the country’s commerce minister today said, “If the US insists on its own way, China will fight to the end . . . China will resolutely take countermeasures to safeguard its own rights and interests.” We judge that the Chinese leaders should be taken at their word on this, which suggests a prolonged US-China trade war.
• The ebb and flow of statements and potential tariff adjustments will certainly spark some rallies in the markets. Indeed, Japanese and US stocks today are rebounding on signs from the White House that it is open to negotiations. Given the discussion above, we think investors should be skeptical that a long-lasting rebound can be established so easily.
• Investment strategy should therefore make full use of the various tools available to manage risk, from proper diversification to meaningful positions in safe-haven assets such as US Treasury obligations, defensive blue-chip stocks, and gold. Such tools may not protect against all losses, but they are likely to help reduce gut-wrenching volatility.
• At the same time, our geopolitical, economic, and financial market analysis teaches us that today’s global transition and the Trump administration’s specific tariff policies have created big, long-lasting trends that are likely to be investable. For example, we have long championed high quality, dividend paying value stocks. Our Asset Allocation programs have also taken positions in European defense stocks. We continue to look for new opportunities amid the current market volatility.
• While investors may be tempted to sell their risk assets in times like these, it’s important to remember that such a strategy is very hard to pull off as it requires being right about both the time to sell and the time to get back into the market to take advantage of any rebound. Because that’s so difficult, the better approach for many investors is probably to ride out the storm and resist panic selling.
• Finally, while we might quibble with whether Trump really needed to impose his tariffs and other radical economic policies so abruptly and idiosyncratically — rather than telescoped beforehand and implemented step-by-step over time — we can appreciate the effort to address the US’s longstanding trade deficits, budget deficits, and debt. Even if Trump’s approach has created a lot of uncomfortable volatility and raised the risk of recession, the policies may well prove positive in the longer term. Time will tell.

China: State-owned investment fund Central Huijin yesterday afternoon confirmed that it had bought Chinese “A” shares to support the domestic stock market amid a rout sparked by the new US tariffs on China. The market intervention highlights the policy tools that Beijing is likely to roll out to protect the Chinese economy from the new tariffs. Other potential measures include interest rate cuts, a devaluation of the renminbi, and increased fiscal spending.

Turkey: In an interview with the Financial Times, Finance Minister Mehmet Şimşek said the global economic and market turmoil around the new US tariffs could actually be positive for his country. According to Şimşek, falling energy prices would help reduce Turkey’s current account deficit and help the country rebuild its foreign reserves. It would also help bring down consumer price inflation. The statement is a reminder that some well-placed countries could well see their geopolitical or economic positions enhanced in the new environment.

Russia-Ukraine War: Ukrainian President Zelensky today confirmed for the first time that Kyiv’s forces are now fighting in the Belgorod region of Russia, marking a second incursion after Ukrainian troops seized part of the Kursk region last summer. Even though the current US-brokered deal to stop attacking each other’s energy infrastructure is faltering, the new Ukrainian incursion is probably designed at least in part to be leverage in any broader peace negotiations between Moscow and Kyiv.

Canada: In its first-quarter business outlook report yesterday, the Bank of Canada said 32% of surveyed businesses indicated they are now planning for a recession in the coming year, up from an average of just 15% in the last two quarters of 2024. The figures confirm other reports suggesting the Canadian economy is already slipping into a contraction in response to the new US tariffs on Canadian goods.

United States-China-Panama: US financial firm BlackRock’s deal with Hong Kong-based CK Hutchison to acquire dozens of ports around the world, including key ports at either end of the Panama Canal, now appears to be in trouble after a Panamanian official said Hutchison owes $300 million to Panama and violated some Panamanian regulations. If the deal is scuttled, it would likely further fray US-China relations, which had been unexpectedly calm over the first two months of President Trump’s administration.

• The BlackRock-Hutchison deal had been pushed by Trump to reduce Chinese influence over the Panama Canal, but General Secretary Xi was reportedly angry about it when he eventually got wind of it.
• Because of Xi’s opposition, it would not be a surprise if covert Chinese influence was behind the wrench being thrown into the deal. At this point, however, it isn’t entirely clear whether the agreement will be killed definitively.

United States-Iran: Yesterday, the US and Iran said they will begin negotiations over Tehran’s nuclear program. However, the statements were contradictory, with President Trump saying the talks would take place directly between US and Iranian officials and the Iranians saying the talks would only be indirect through intermediaries.

• If the talks take place and are successful, the eventual result could be an end to US sanctions on Iran and more Iranian oil freely trading on global markets.
• If the talks fail, the chance of a US-Israeli attack on Iran would increase. Any such attack would likely be highly disruptive to the global economy and energy supplies.

US Military: Reports yesterday said Vice Admiral Shoshana Chatfield, the US representative to the North Atlantic Treaty Organization’s military committee, has been abruptly fired. That makes Chatfield one of about a dozen top military and national security officials fired after a meeting last week between President Trump and right-wing conspiracy theorist Laura Loomer. The firings have raised questions about who controls or influences top US national security officials and how the administration is managing US national defense.

• Chatfield was previously the first woman to head the US Naval War College in Newport, Rhode Island. While she headed the college, she was accused by conservative groups of being overly concerned with diversity, equity, and inclusion initiatives.
• Other officials recently purged include the head of the National Security Agency and several staff members of the National Security Council who Loomer reportedly accused of being disloyal to Trump.

US Fiscal Policy: The Centers for Medicare and Medicaid Services yesterday said it will provide a 5.06% hike in the rate at which it pays health insurers participating in the Medicare Advantage program. The increase, which takes place in 2026, is more than double the 2.23% hike proposed by the Biden administration in January. Since the new figure signals the Trump administration will be unexpectedly supportive of Medicare Advantage, the news will likely give a boost to health insurers’ stocks today.

US Tax Policy: A Bloomberg report yesterday said the Trump administration is mulling a potential exporter tax credit to help firms damaged by other countries’ retaliatory tariffs on US goods and services. Administration officials remain divided on the idea, which in any case would require Congressional approval.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the very latest on the Trump administration’s new tariff policies. We next review several other international and US developments with the potential to affect the financial markets today, including potential policy responses to the tariffs from countries such Japan and Germany, and news that the administration is considering a massive cut in the US Army’s active-duty troop count.

US Tariff Policy: President Trump’s baseline 10% tariff on most US imports went into effect over the weekend, and Treasury Secretary Bessent and Commerce Secretary Lutnick said in press interviews that the additional “reciprocal” tariffs on dozens of countries will start as planned on Wednesday. They also warned that even if foreign countries offer concessions to reduce their tariff rates, any negotiations will take time, and the maximum tariffs would be in place until then.

• Bessent also downplayed the drop in the value of risk assets because of last week’s tariff announcement, saying, “Americans who want to retire right now, Americans who have put away for years in their savings accounts, I think they don’t look at the day-to-day fluctuations of what’s happening.”
• Bessent’s statement is further evidence that the administration intends to stick by its economic policies even if economic activity weakens or risk assets continue to lose value. That raises a risk that any needed course correction may not come until it’s too late to avoid a recession or an even steeper market downturn.
• In a continuing response to the tariffs, stock prices in Asia and Europe plunged overnight, and US stock futures are signaling another sharp drop at market open. Oil prices also continue their sharp drop, while investors are bidding up bonds, which is driving down yields.
• Just as concerning, we have noted that gold, cryptocurrencies, European defense stocks, and other assets that had recently been appreciating are now turning downward as well. That suggests that at least some investors are now facing margin calls and are selling what they can, not what they want to. That creates a risk of the financial markets entering into a self-reinforcing downward spiral that causes lasting economic damage.
• Of course, US investors have a very high level of cash “on the sidelines” in money market funds, which could theoretically be used to buy stocks once they look like a good value. However, the administration’s promise to stay the course with its aggressive policies and its past backtracking have created so much uncertainty that investors may be unusually wary about buying the market’s current decline.

Eurozone: Greek central bank chief Yannis Stournaras, who sits on the policymaking board of the European Central Bank, warned in an interview today that the Trump administration’s new tariffs would create an unexpected demand shock for the eurozone, potentially pushing down consumer price inflation below the ECB’s target. The statement signals that some of the region’s policymakers may want to keep cutting interest rates at the ECB’s policy meeting next week, despite ECB President Lagarde’s recent hints of a pause in rate cuts.

Germany: Friedrich Merz, who is negotiating to form the country’s next government and is likely to become its chancellor, warned today that the economic and financial market turbulence from the US’s new tariffs mean that Germany must regain economic competitiveness as quickly as possible. Indeed, Merz said that strategies to deal with the US tariffs will now be a key focus for his center-right CDU party and the center-left SPD as they continue talks to form a coalition. That raises the prospect for big economic reforms in Germany once the government is formed.

United Kingdom: According to lender Halifax, the average price of a home in March was up just 2.8% year-over-year, matching the increase in the year to February but coming in short of the expected increase of 3.5%. On a month-over-month basis, UK home prices fell in each of the last two months, adding to the evidence that the rapid home price appreciation of 2024 has come to an end.

Japan: With the Japanese economy facing both brutal import tariffs in the US and fast-rising prices for food and other basics at home, some politicians in the ruling Liberal Democratic Party are pushing for a cut in the country’s consumption tax. Top LDP leaders are still reluctant to go that far, fearing wider budget deficits and increased debt, but rank-and-file party members are pushing to put such a tax cut in the LDP’s platform for this summer’s Upper House elections.

• The rising calls for consumption tax cuts in Japan illustrate how countries around the world will feel pressure for stimulus programs as their exports run up against the Trump administration’s new tariffs.
• As the debate in Japan shows, any such stimulus programs could lead to bigger fiscal problems and exacerbate the economic disruptions from the new US trade policies.
• Separately, press reports say Chinese officials are also mulling significant economic stimulus measures, including a devaluation of the renminbi, to cushion the blow of the tariffs.

European Union-United States: European Commission Vice-President Séjourné today hinted in an interview that the EU won’t put tariffs on US bourbon as it retaliates for the Trump administration’s new imposts. That suggests that the EU executive has caved to demands from the wine and spirits industries of countries such as France, Italy, and Ireland, which feared the US would impose even higher tariffs on their products if the EU retaliated against US whiskey.

US Military: According to a report late last week, the US Army is “quietly” mulling a cut in its active-duty troop count from about 450,000 now to as little as 360,000 in the coming years. It is unknown whether any cuts are being considered for the Army Reserve or the National Guard. The contemplated cuts reflect a number of pressures, including President Trump’s directive to cut the defense budget by 8% and the administration’s plan to shift military resources away from land maneuver forces in Europe to naval and air forces in the Asia-Pacific region.

• If the US downsizes its ground forces and shifts military assets out of Europe before the Europeans can rebuild their own defense capabilities, Russia would likely be emboldened to assert itself in the region, if not by actual territorial aggression, then perhaps by political pressure.
• In any case, the drive to cut defense spending comes even though the US defense burden (military outlays as a share of gross domestic product) is now at a historic low of only about 3.3%, versus an average of 3.6% during the War on Terror and 7.1% during the long Cold War.

US Agriculture Industry: A report on Friday said administration officials and congressional lawmakers are considering new fiscal support for farmers hurt by retaliatory tariffs or other trade barriers imposed by other countries in response to President Trump’s tariffs on US imports. The talks are in the early stages, so it isn’t yet clear how big any such relief program would be. Still, the news suggests that US agribusiness stocks may hold up better than expected amid the evolving global trade war.

• On a related note, new analysis shows that the recent retreat in US egg prices likely stemmed from a massive surge of imports. According to the data, February egg imports from Mexico and Turkey were about four times higher than they were in the same month one year earlier.
• As avian influenza decimated US flocks earlier this year, prompting egg shortages and driving prices higher, Mexican and Turkish producers evidently responded to the price signal by shipping more to the US, exactly as economic theory would suggest. One key question now is whether the administration’s new tariffs will push those egg imports down again, creating another fowl price experience for US egg buyers.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are digesting the latest jobs data while reacting to new tariffs from China. In sports, Chattanooga defeated UC Irvine to win the NIT Championship. Today’s Comment will analyze whether the tariff impact will be temporary or long lasting, examine recession risks, and highlight other market moving news. As always, we’ll close with key domestic and international economic data.

The Day After! With flat tariffs set to take effect on April 5 and even more extreme tariffs to follow four days later, the market continues to assess the potential economic impact.

• President Trump has signaled a willingness to consider reducing tariffs — but only in exchange for the right deal. His remarks suggest a potential shift, marking the first indication that he may reconsider the aggressive tariffs imposed on other countries. His response appears to be a reaction to the backlash following his tariff announcement, which triggered the worst market sell-off since the COVID pandemic.
• The sell-off has intensified this morning after China announced a 34% tariff on all US goods, along with export restrictions on rare earths, a critical resource for semiconductor production and other advanced technologies.
• Despite threats of retaliation from other countries, the responses to US tariffs have been relatively muted so far. Canada imposed tariffs on US auto imports but exempted those covered under the USMCA agreement. Meanwhile, France has encouraged corporations to stop investing in the US but has not put a formal law in place.
• The muted response suggests that negotiations between the US and other nations may still be underway. While existing tariffs could remain in place — and retaliatory measures from trading partners remain possible — the US’s reluctance to escalate tensions after Canada’s retaliatory auto tariffs signals that the White House may at least be willing to tolerate limited pushback. However, China’s tariffs may be a different story.

• The key question facing markets is whether these tariffs will fundamentally reshape global trade dynamics and challenge the dollar’s dominance. Yesterday’s sharp decline in the US greenback suggests investors are pricing in a scenario where the US retreats from its role as global importer of last resort. This could force trading partners to accelerate currency diversification.

The Recession Question: There are growing signs that the economy is losing momentum; however, there is still no conclusive evidence of a downturn.

• In March, the ISM Services PMI dropped from 53.5 to 50.8, signaling a potential slowdown in economic momentum. The decline was primarily driven by weakening employment conditions, as survey respondents cited growing pessimism about hiring. Notably, the prices-paid component also softened, suggesting businesses may be losing confidence in their ability to sustain pricing power.
• Meanwhile, regional central banks are sending mixed signals. The Atlanta Fed’s GDPNow tracker points to a sharp slowdown in recent months, while the New York Fed’s Nowcast maintains its projection of steady growth. Markets appear to be more heavily weighting the Atlanta Fed’s model, as its real-time tracking, though more volatile, has proven more reliable than the New York Fed’s estimates in recent cycles.

• While tariffs remain a concern, markets are primarily focused on economic fundamentals. As long as data continues to show US economic expansion, a market recovery appears likely in the near term. However, should economic indicators deteriorate, the risk of a bear market would increase significantly. At this time, we still think it is a coin toss as to whether we are in midst of a downturn; therefore, we still advise investors to remain calm and patient as things play out.

Tax the Rich? Republicans may drop budget cuts and instead raise taxes on the wealthy, signaling a shift from neoliberal economics to a more populist ideology.

• Conservative lawmakers are proposing to increase the top marginal tax rate to 39.6%, reversing previous Trump-era cuts for high earners. This measure aims to offset costs while maintaining other tax reductions. The proposed revenue would fund the elimination of taxes on tips, overtime pay, and Social Security benefits, as well as the increase in the SALT deduction cap from $10,000 to $25,000.
• The move to raise taxes on top earners signals a deliberate shift by conservatives to shed their “party of the wealthy” image. Conservatives are also targeting two controversial loopholes: eliminating the carried interest tax break — long criticized for favoring private equity — and ending preferential tax treatment for sports team purchases.
• The proposed tax hike on high earners will likely face internal GOP resistance, as many members have historically pledged opposition to all tax increases. Just this year, nearly every Republican voted against measures that would limit tax cuts for the wealthy if paired with Medicaid reductions, highlighting the party’s traditional stance.
• Republican support for taxing the wealthy may be a last-ditch effort to pass their stalled tax bill. With the party divided and deficit-conscious members hesitant, this move could both satisfy fiscal conservatives and potentially draw Democratic backing. As a result, we are highly optimistic that a tax bill will be finalized over the next few weeks.

Shake Up in Defense: The president has fired several members of his National Security Council team as part of the fallout over the Signal leak.

• The decision appears to stem from Laura Loomer, a social media personality and trusted Trump confidant. She reportedly urged the president to target those responsible for leaking information to a journalist during sensitive discussions about the administration’s approach to Houthi conflicts in the Red Sea.
• Loomer’s growing influence in the administration signals the populist wing’s resurgence within a presidency that has traditionally favored tech and financial sector allies. Earlier this year, she had an X account suspended and lost access to certain pay features after she challenged Elon Musk’s stance on visas for skilled workers claiming that they go against the “America First” agenda.
• Loomer’s rise amid Musk’s waning clout underscores the president’s transactional leadership, rotating favor between party factions as political winds shift. Should populists consolidate influence, expect a doubling down on contentious policies, potentially rattling markets with abrupt ideological pivots.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are analyzing the implications of the latest tariff measures, while in sports news, Shohei Ohtani’s powerful home run last night propelled the LA Dodgers to their eighth consecutive victory. Today’s Comment will focus on the economic impact of the newly announced tariffs, the EU’s cautious approach toward including US suppliers in its military procurement strategy, and other market-moving events. As always, we’ll also provide a roundup of today’s international economic data releases and indicators.

Liberation Day: The president’s unveiling of targeted tariff measures triggered a market sell-off. The dollar and equity markets declined sharply, and US Treasurys rose.

• On Wednesday, President Trump announced reciprocal tariffs targeting nations he accused of unfair trade practices. To substantiate his position, he presented a chart comparing existing foreign tariff rates on US imports to his proposed reciprocal rates, demonstrating that current charges were approximately double his recommended levels. The new tariffs would be added on top of previously announced taxes on US imports.
• Under the new tariff structure, China faces the highest rate at 54%, while several Southeast Asian nations — particularly Vietnam — confront steep increases exceeding 45%. The EU received a 20% tariff, while countries maintaining trade deficits with the US were subject to a comparatively lower 10% rate. Key takeaways:
  • The Good: The administration would like these tariffs to be the worst of it. Treasury Secretary Scott Bessent has stated that if other nations refrain from retaliation, the tariffs will be capped at their current rates, with the possibility of future negotiations to reduce them. Additionally, the US spared its largest trading partners, Mexico and Canada, from additional tariffs. Similar exemptions were granted for commodities such as oil, gold, copper, and products affected by Section 232 tariffs, including steel, aluminum, and lumber.
  • The Bad: The tariffs were significantly higher than market expectations. According to Bloomberg, the effective tax rate on imports (projected to be around 23%) now rivals levels seen during the protectionist 1930s. Meanwhile, signs of retaliation are emerging as Canada is set to announce countermeasures on Thursday, and the EU has vowed a unified response to the new tariffs.

• The Ugly: The apparent calculation methodology behind these reciprocal tariffs raises significant concerns about how the administration defines unfair trade practices. The formula divides a country’s trade surplus with the US by the value of its exports to America. While not perfect (for example, the EU’s 37% rate falls slightly below the administration’s 39% benchmark), the calculation aligns with projections for Japan (46%) and produces similarly elevated figures for China (67%) and Indonesia (64%).

• The administration appears to have adopted a de facto stance that any country running a trade surplus with the US is engaging in unfair tariff practices. Given this position, these reciprocal tariffs are likely to remain in effect and may even be adjusted in coming months, particularly if affected nations implement retaliatory measures. We will be paying close attention to the dollar as a persistent drop could have spill-over effects.

Political Fractions Emerging: A rare bipartisan coalition opposed the president’s trade war immediately before he announced new tariffs.

• On Wednesday, Senate Democrats introduced a bill to repeal tariffs on select Canadian imports. The measure passed 51-48, with four Republican senators joining Democrats to advance the legislation. While the bill is unlikely to clear the House, the vote served as both a rebuke of the president’s aggressive tariff policies and a broader test of congressional sentiment on executive trade authority.
• While Democratic support for the bill was expected, the Republican backing represents an unwelcome surprise for a president who prizes loyalty above all. This rare defiance signals growing congressional unease with how the president has used his ability to impose tariffs unilaterally. Should the administration’s trade levies not achieve their intended goals, lawmakers may consider reasserting their constitutional authority over tariff policy, which would address the perceived expansion of executive power.
• Although the US’s economic dominance is often cited as its key advantage in a trade war, public sentiment remains a decisive factor. Recent special elections in Florida, Wisconsin, and Pennsylvania suggest growing opposition to Trump’s agenda, although much of it may have to do with his government spending cuts. Should this trend continue, lawmakers may be forced into a politically difficult reversal.
• We still believe the president’s core base will largely support his trade policy shift — after all, his tough stance on trade helped get him elected. Once the tax bill passes, it should generate enough goodwill to offset some backlash. The key challenge now is minimizing the economic pain from tariffs to avoid a financial crisis. Difficult, but possible.

Europe Defense Build Up: NATO allies continue to prepare to operate independently of the US. However, American officials have requested that Europe still buy American weapons.

• Secretary of State Marco Rubio cautioned Baltic EU leaders that excluding the US from defense procurement initiatives would trigger a strong backlash from Washington. He is set to reiterate this stance later this week at the NATO Foreign Ministers’ meeting. His remarks come amid a broader EU push to bolster its domestic defense industry and reduce reliance on American military supplies.
• The move comes as European countries begin developing a joint plan to fund military purchases. The UK has expressed interest in joining the EU-led initiative, which aims to establish a collective fund for stockpiling weapons amid growing concerns over Russian aggression. There has been notable support — particularly from France — for restricting the fund to purchases of weapons manufactured within the EU.

• Europe would like to change how it buys weapons for two main reasons: trade disputes with the US and a fading trust in American security promises. While Europe can’t yet match US weapons technology in terms of scale or sophistication, it would like to invest heavily in its own arms industry. The goal is to rely less on American suppliers and eventually compete in the global weapons market. These moves could seriously change how Europe and the US work together on defense.

Musk Exit? There are conflicting reports that the Tesla CEO and leader of the DOGE taskforce is rumored to be stepping down from his position within the Trump administration.

• According to Politico, President Trump informed cabinet members that Elon Musk would step down from his advisory role in the administration. While White House spokesperson Karoline Leavitt and other officials later denied the report, it suggests Musk’s temporary position — which by statute lasts only 130 days — will not be extended beyond its original term.
• Elon Musk’s expanding influence has made him an increasingly polarizing figure, raising concerns among observers. Recent reports suggest he may now be marginalized within Trump’s core advisors, signaling a potential decline in his political sway.
• Musk’s departure could mean many of the proposed spending cuts may not be as deep as initially hoped. Without him, the administration will need to either find another leader capable of driving the mission or develop alternative strategies — such as efficiency-based deficit reduction — to avoid politically risky spending cuts while maintaining fiscal discipline.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning. The market is currently focused on tariffs and jobs data. In sports, Real Madrid advanced to the Copa del Rey final after a narrow victory over Real Sociedad. Today’s Comment will analyze the potential impact of Trump’s reciprocal tariffs, provide updates on his legislative agenda, and discuss other key market drivers. We’ll conclude with a summary of international and domestic data releases.

 Tariff Day: The White House is making last-minute adjustments to its reciprocal tariffs in a move that could disrupt the international trading system. Markets are likely to focus closely on the outcome as they assess the potential impact on the global economy.

• President Trump is set to unveil his tariff plan in a Rose Garden announcement after the market closes. While details remain scarce, the plan is expected to feature a tiered system with flat rates for certain countries, though rumors suggest some tariffs could be more customized. Treasury Secretary Scott Bessent has reportedly informed lawmakers that tariffs will begin at their highest levels, with opportunities for countries to take steps to reduce them.
• Countries around the world are waiting with bated breath as they prepare to respond to US trade restrictions, weighing concessions against potential retaliation. Many South Asian nations, including South Korea and Vietnam, have sought to appease Washington by agreeing to purchase more American imports such as natural gas, while also reducing some of their own tariffs.
• Meanwhile, other major players — particularly China and the European Union — have adopted a more measured approach, offering limited concessions. Last month, the EU notably reduced fines against US tech companies for violations of its Digital Services Act. At the same time, China has sought to emphasize the mutual benefits of its economic relationship with the US. Despite these gestures, both powers have it made clear that they stand ready to respond, with the EU and China each vowing strong countermeasures.

• The Trump administration’s “Three R” tariff strategy — revenue generation, retaliation leverage, and reciprocity enforcement — represents a calculated approach that extends beyond conventional protectionism. The emphasis on reciprocal measures reveals a broader ambition to reshape foreign regulatory regimes to benefit US commercial interests. This strategic framework helps explain recent administration actions targeting the EU’s nondiscriminatory VAT policies and restrictions on foreign tech firms.
• Early signs suggest nations are adapting to this strategic shift, with the UK reportedly considering preferential tax rates for US tech giants in exchange for tariff relief. However, this reciprocal dynamic appears set to prolong trade tensions, as trading partners will likely resist unilateral demands. In this evolving landscape, markets face sustained uncertainty as participants attempt to navigate a changing economic environment.

Tax Optimism: Republicans are preparing to push through the highly anticipated “one big, beautiful bill,” which aims to encompass the entirety of the Trump administration’s tax agenda. However, the specifics of the proposal are still being finalized.

• Senate Republicans are developing a strategy to circumvent the parliamentarian in order to permanently extend the Trump-era tax cuts while adding other benefits. This procedural maneuver would allow the legislation to advance without a full assessment of its potential impact on the federal deficit. If successful, they plan to use the budget reconciliation process to pass the bill without the help of Democrats.
• Conservatives are pushing to adopt the “current policy baseline,” a controversial accounting approach that would significantly expand their budgetary flexibility. Essentially, this method would allow them to permanently extend existing tax rates while avoiding recognition of the policies’ $4 trillion fiscal impact (as projected by nonpartisan fiscal watchdogs).
• That said, lawmakers are still negotiating how to fund the bill and secure support from Republican holdouts. The White House is making the case that strong GDP growth — projected at 3% — could generate sufficient revenue to offset the tax cuts. Meanwhile, there are concerted efforts to include cuts to safety-net spending in the package, and some discussions have even floated the possibility of raising tax rates on top earners.

• Although significant hurdles remain, the tax legislation appears to be gaining momentum. The proposed bill, which would eliminate taxes on tipped income, increase the SALT deduction cap from $10,000 to $25,000, and extend the Trump-era tax cuts, could provide sufficient economic stimulus to improve US market sentiment, provided there is no major economic downturn.

Greenland Takeover? The Trump administration is exploring avenues to persuade Greenland to become a US territory, despite growing local resistance to foreign territorial claims.

• US administration officials are conducting a comprehensive cost-benefit analysis of the potential acquisition, evaluating both the upfront expenditures and long-term revenue opportunities from Greenland’s vast natural resources. As part of this assessment, policymakers are weighing an incentive package that would improve upon Greenland’s current $600 million annual subsidy arrangement with Denmark.
• These developments follow strong resistance from both Denmark and Greenland to the US overtures. Greenland’s incoming president has reaffirmed commitments to strengthen ties with Denmark while pursuing eventual sovereignty for the island. Meanwhile, Danish Prime Minister Mette Frederiksen is planning a visit to the island in a move seen as reinforcing Danish interests following the notably cool reception given to US Vice President JD Vance during his recent trip.
• The Greenland dispute underscores a deepening divide between the US and its NATO allies, with tensions escalating as President Trump maintains his pursuit of the territory while leaving military options on the table. While we don’t anticipate armed conflict over the region, this posture signals a marked shift toward a more assertive US foreign policy stance — one that has already begun prompting allies to reassess their dependence on American leadership.

Walmart Takes on Beijing: The retail giant continues demanding that its Chinese suppliers absorb tariff costs despite growing government resistance to this practice.

• Walmart is reportedly demanding price reductions of up to 10% from vendors with each new round of tariffs, according to sources familiar with the matter. The retail giant is taking this aggressive stance to avoid absorbing the full impact of trade war costs, leveraging its massive purchasing power to extract concessions from suppliers.
• Beijing is likely to respond to Walmart’s pricing demands with measured retaliation, though analysts expect any action to be restrained given the retailer’s significant support of Chinese suppliers. These tense negotiations exemplify how US tariffs are reverberating through China’s export economy, forcing difficult compromises between multinational corporations and their manufacturing partners.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the latest on President Trump’s new tariffs, where it now appears that he will announce 20% duties tomorrow on virtually all US trading partners. We next review several other international and US developments with the potential to affect the financial markets today, including signs that the European Union may be stepping back from its stringent environmental regulations and a new Trump administration review of funding for a major research university.

US Tariff Policy: Bloomberg is reporting today that President Trump has decided to impose 20% tariffs against virtually all US trading partners at his “liberation day” announcement tomorrow. If true, it would mean that the president has decided to adopt a much more aggressive tariff approach than he had indicated last week. It would, of course, be no surprise if Trump quickly reverses course or modifies the tariffs, but the news has driven US stock futures sharply lower so far this morning.

• Separately, European Commission President von der Leyen today said EU executives have prepared a plan to retaliate against the US by imposing their own tariffs or other trade barriers on US services, including financial services and digital services provided by big US technology firms. The measures against US services are separate from the tariffs on almost $30 billion of US goods exports that the EU is also considering.
• Any EU strike against services would hit the US in the one area where it consistently runs modest trade surpluses, as shown in the chart below. The EU’s action would therefore probably prompt President Trump to impose more trade barriers against the EU, worsening the trade war and likely undermining stock prices.

China-Japan-South Korea-United States: Citing Chinese state media, a report by Reuters yesterday asserted that China, Japan, and South Korea have agreed to “jointly respond” to any new US tariffs on their exports. However, such an agreement is not mentioned in Beijing’s official readout of the three countries’ recent trilateral summit.

• In other words, there is a possibility that the reporters misinterpreted the three countries’ simple commitment to seek closer economic cooperation.
• All the same, the trilateral summit and the positive language about economic cooperation show that Tokyo and Seoul seem to be hedging their bets with China as they face pressure from President Trump on trade and other issues.

European Union: According to a Politico report yesterday, Climate Commissioner Hoekstra is mulling ways to protect industry and agriculture from the burdens of the EU’s 2040 greenhouse emissions goals. For example, Hoekstra is considering provisions that would let EU countries defer steeper cuts to the future or count the impact of reforestation and technology investments that remove emissions from the air.

• Hoekstra’s effort reflects the rising pushback against green policies across Europe and beyond.
• For investors, a broad softening of the EU’s stringent environmental regulations could potentially support stronger economic growth and better investment returns across the region. However, softer green rules could hurt the prospects of green technology firms.

Eurozone: In an initial estimate, the March consumer price index was up just 2.2% from the same month one year earlier, matching expectations and marking a modest deceleration from the 2.3% increase in the year to February. Excluding the volatile food and energy components, the March core CPI was up 2.4% on the year, versus 2.6% in the year to February. While the data show that eurozone inflation is falling closer to the European Central Bank’s target of 2.0%, it also reflects weak economic growth in the region.

United Kingdom: The government today launched an independent review of the leadership, culture, and operations of the Office for National Statistics, which has come under criticism for errors in data sets and publication delays. As in the US, one problem has been declining response rates on the surveys that underpin important statistics. That problem has rendered US and UK data more volatile and subject to bigger revisions, undermining the ability of officials and investors to gauge what is really going on in the economy.

Canada-United States: According to data provider OAG, advance bookings for Canada-US flights from April through September are down some 70% from this time one year ago, forcing airlines to scale back Canada-US capacity. OAG’s analysis suggests that many Canadians are boycotting travel to the US because of President Trump’s tariff policies, his demand that Canada become the 51^st state, and/or concerns about being detained by US customs officers.

• Along with signs of reduced tourism from other countries, the figures suggest US firms dependent on foreign visitors will soon see reduced demand.
• According to analysis by airline analyst The Points Guy, just a 10% drop in Canadian visitors could cost US businesses as much as $2.1 billion in revenue.

US Fiscal Policy: The Trump administration yesterday said it has launched a review of almost $9 billion in contracts and grants awarded to Harvard University to punish the institution for antisemitism. The probe is the latest in the administration’s effort to curb diversity, equity, inclusion, and other policies at top universities. Since the targeted institutions play a key role in basic research and innovation, the risk is that any resulting cuts to funding could slow developments in US information technology, medicine, and other areas.

US Investing: According to new data from the National Association of College and University Business Officers, the average endowment at US colleges and universities produced a total return of 11.2% in 2024, slightly trailing a passively invested 70%/30% portfolio of global stocks and bonds. The endowments also slightly trailed a global 70%/30% passive portfolio over the last decade.

• The lackluster endowment returns come despite their reputation for sophisticated investment strategies and heavy reliance on alternative investments such as private equity.

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