by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is currently digesting the latest news regarding tariffs. In sports, the St. Louis Cardinals begin their season today, embarking on what promises to be a historic run for the World Series title this year. Today’s Comment will delve into the latest developments on auto tariffs, an update on the TikTok deal, and other pertinent market news. As usual, this report will also include a summary of key international and domestic data releases.

More Tariffs, More Problems: Wednesday’s tariff announcement marks the administration’s latest move to reshape trade policy, even as Federal Reserve officials and business leaders voice growing apprehension about its potential economic impacts.

• President Trump will impose sweeping new 25% tariffs on automotive imports, set to take effect next week, as part of his administration’s efforts to reshore vehicle manufacturing. The tariffs will comprehensively cover finished vehicles and critical components, including engines, powertrains, transmissions, and electrical systems. Notably, these tariffs will be implemented as permanent measures without exemptions.
• The president has consistently maintained that these protectionist measures are essential to safeguard America’s industrial base and national security. This justification originates from his administration’s 2019 Section 232 investigation into automotive imports under the Trade Expansion Act, which authorizes executive action when imports are deemed to threaten national security interests.
• New tariffs will disproportionately affect foreign automakers by reducing the price competitiveness of their vehicles in the US market. Mexico and South Korea appear particularly vulnerable, having significantly expanded their automotive exports to the United States in 2024. With imports accounting for nearly half of all vehicles sold domestically last year, American consumers may also face higher prices and reduced choice in the marketplace.
• Fed officials have warned that new tariffs may constrain their ability to implement further rate cuts this year. Atlanta Fed President Raphael Bostic recently challenged Chair Powell’s assessment of tariffs as transitory, revising his projected rate cuts for 2025 from two down to one. Meanwhile, St. Louis Fed President Alberto Musalem warned that hawkish trade policy could generate secondary inflationary effects, potentially prolonging the economic impact of tariffs beyond just a one-time effect.

• Furthermore, business leaders are increasingly concerned about a potential economic recession. A recent survey of CFOs revealed that almost 60% anticipate an economic downturn within the next six months, with an additional 15% expecting it in 2026. These fears are seemingly supported by the highly anticipated update in the Atlanta GDPNow forecast, which projects a severe economic slowdown in the US economy during the first quarter, when adjusted for gold imports.
• A key focus for us has been observing the market’s reaction to the latest trade developments. Although the market closed lower yesterday, it’s noteworthy that the VIX remained below the critical level of 20. This suggests that the immediate impact of the tariff actions on equities may be diminishing. Looking ahead, the market’s primary focus will shift to economic indicators. Continued GDP growth could provide some upside for the market; conversely, a contraction could lead to an increase in market pessimism.

Hardball Tactics: While often discussed as a tool for reindustrialization, the administration has highlighted tariffs’ broader strategic uses, including pressuring foreign regulatory reforms and securing critical acquisitions.

• President Trump has signaled a potential reduction of certain Chinese tariffs as leverage in negotiations to transfer TikTok to US ownership. This conciliatory gesture follows his administration’s recent imposition of 20% tariffs on targeted Chinese imports, while broader product-specific duties remain in effect. Although Beijing would welcome tariff relief, the Chinese government — whose approval is required for any sale — remains adamant that ByteDance retains control of TikTok’s core algorithm.

• China may not be the only target of such measures. The Trump administration has repeatedly stated its willingness to impose tariffs on European allies unless they amend legislation perceived as discriminatory toward US technology firms. Furthermore, officials have pushed for the elimination of the EU’s value-added tax system, despite its non-discriminatory application across all companies.
• The administration’s tariff strategy appears to be driven by a wider geopolitical vision, and a desire to position the United States as the central hub of global commerce. This approach is not solely focused on domestic re-industrialization but also involves actively supporting US corporations in acquiring strategic foreign competitors and in influencing international regulations deemed detrimental to American business interests.

• A crucial metric to monitor is the US net international investment position (NIIP), which measures the difference between US-owned assets abroad and foreign-owned assets within the US. This gap has recently widened to its largest recorded level, indicating a growing foreign ownership of US assets. The administration may be considering policies to reduce this imbalance as part of its broader objective to reshape the global economic landscape. If successful, large-cap US corporations would likely be primary beneficiaries.

Enough about Tariffs, Now NATO: Amid growing European doubts about America’s NATO commitments, the transatlantic military alliance has reaffirmed its readiness to defend itself and its allies should the need arise.

• The NATO Secretary General has unequivocally declared the alliance’s readiness to deploy its full military capabilities in response to any Russian aggression against Poland or other member states. These remarks come as Moscow nears a potential agreement with the US to end its invasion of Ukraine — a development that has heightened concerns about possible Russian expansion of hostilities to other European targets.
• The escalating Russian threat has prompted European nations to significantly boost defense expenditures, aiming to ensure self-sufficiency amid concerns about potential US disengagement from NATO. Poland has emerged as the vanguard of this strategic realignment, committing to spend 4% of GDP on defense — the highest percentage among NATO members — while actively pursuing nuclear-sharing arrangements to enhance its deterrent capabilities.
• Europe’s drive for greater military autonomy is expected to benefit defense sector equities across the bloc. However, the substantial borrowing required to fund this expansion may exert upward pressure on interest rates. One potential mitigation strategy would be the introduction of EU-backed guarantees for joint defense bonds. While discussions about such mechanisms are ongoing, concrete progress toward implementation remains limited.

BOJ Pause: The Bank of Japan’s hawkish stance faces headwinds from trade uncertainty, pushing back the timeline for any potential rate policy normalization.

• BOJ Governor Kazuo Ueda has emphasized maintaining policy flexibility ahead of the central bank’s May 1 meeting. His cautious approach to rate hikes stems from concerns that tightening monetary policy amid escalating trade tensions could potentially harm Japan’s economic recovery.
• Japan has seen an increase in its inflation over the last few months, with the inflation reading hitting 3% in February. The lack of action to ensure that inflation falls to target is likely to put further pressure on the Japanese yen (JPY) which recently surpassed 150 per dollar.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Investors are closely tracking the latest tariff developments. Meanwhile, in a historic NHL moment, Alex Ovechkin netted his 889^th career goal, placing him just six away from eclipsing Wayne Gretzky’s all-time record. Today’s Comment will analyze the latest consumer confidence data, explore the implications of new semiconductor restrictions, and break down other key financial stories driving the markets. As always, we’ll also provide a roundup of domestic and international economic releases.

Soft vs. Hard Data: Recent tariffs and government workforce reductions have significantly dampened consumer confidence, as reported by The Conference Board. However, the economy continues to show signs of growth.

• US consumer confidence plummeted to a three-year low in March, with The Conference Board’s index dropping sharply to 92.9 from February’s revised 100.1. The decline was driven primarily by collapsing future expectations, as the six-month outlook plunged to 65.2 (down from 74.8), marking its weakest reading in over a decade. Even surveys on present situation conditions have deteriorated, falling from 138.1 to 134.5, suggesting broadening economic concerns among households.
• Tariff-related uncertainty and macroeconomic concerns drove the sentiment shift. Key indicators flashed warning signs, such as inflation expectations breaching 6% (first since 2023) and employment outlooks hitting 12-year lows. The confidence gap between demographics was striking — respondents 55+ showed the most pronounced pessimism, contrasting with modest optimism in the under-35 cohort, which saw a slight uptick.
• While depressed consumer confidence suggests growing economic anxiety, key indicators confirm the underlying economy remains robust. The unemployment rate continues to hold below 5%, with initial jobless claims staying at historically manageable levels. Recent inflation data has also provided encouraging signs of moderation. In essence, despite public pessimism, fundamental economic conditions still point to sustained expansion.

• The recent dip in consumer confidence warrants close monitoring, as it signals growing household concerns about economic conditions. However, the labor market’s resilience and robust consumer spending during the significant Conference Board confidence drop in 2022 suggest that confidence surveys may not provide a complete picture of economic performance. In summary, while current trade tensions could create modest headwinds for growth, we find no definitive evidence that the economy has entered a recession.

 Chipmaker Ultimatum: Foreign governments and tech firms are pushing for relaxed US semiconductor export controls ahead of the May 15 sanctions deadline, reflecting the mounting challenges of operating in today’s geopolitically divided marketplace.

• The “AI Diffusion Rule,” a late-term Biden administration regulation restricting the sale of high-performance computing technology to specific nations, has sent shockwaves through the semiconductor industry. This framework aims to safeguard advanced US technology and maintain America’s competitive edge by compelling other countries to adhere to US standards. This move appears to be a strategic effort by the US to ensure its continued leadership in the AI space.
• The restrictions have drawn frustration from both corporations and foreign governments, as they cap potential sales for tech firms while pushing nations to align more closely with US interests. Semiconductor companies fear losing access to lucrative markets like China, which is pouring billions into AI infrastructure. Meanwhile, US allies — including Saudi Arabia, Israel, and Mexico — face new hurdles in developing their own domestic tech industries under the tightened export regime.
• The Trump administration has shown no willingness to relax these restrictions. In fact, it escalated the measures on Tuesday by adding 80 companies and organizations —predominantly Chinese, but also including firms from Iran, South Africa, and Taiwan — to a blacklist barring them access to US semiconductor technology on national security grounds.

• Geopolitical tensions are anticipated to strain chipmakers’ profitability due to the growing bifurcation of supply chains between US-aligned and China-aligned entities. Coupled with the semiconductor industry’s cyclical nature, these factors could generate significant headwinds. Considering these challenges, we believe diversifying investments beyond traditional big tech firms may offer value in optimizing portfolio returns in the current environment.

Growing Trade Volatility: President Trump has signaled an unwavering stance on tariffs, seeking to condition markets to expect — or at least react less sharply to — new trade restrictions.

• On Tuesday, President Trump announced limited tariff exemptions effective April 2, while tempering expectations for widespread relief. He maintained his commitment to the tariffs but hinted at a more nuanced strategy, favoring calibrated adjustments over rigid reciprocal actions. These remarks coincided with reports that his administration is exploring a more targeted implementation of the tariffs due next Wednesday, possibly encouraging last minute deal making with countries before the deadline.
• At the same time, the president has accelerated efforts to impose tariffs on copper, moving ahead of schedule. This follows President Trump’s earlier directive to the US Commerce Department to complete a 270-day investigation into the metal’s trade patterns. However, the review appears to be concluding significantly earlier than planned, with expectations that Trump will soon announce 25% tariffs on copper imports. The announcement has already led to a surge in copper prices.

• A key focus is the market’s reaction to evolving trade dynamics. In recent months, equities have shown significant swings and increased volatility. As these fluctuations become more commonplace, we anticipate investor attention shifting towards economic fundamentals — specifically, tangible evidence of tariff impacts — rather than solely policy announcements. Assuming continued economic resilience, the period of heightened volatility may be receding.

Truce Coming Soon? Ukraine and Russia have agreed to a temporary ceasefire on sea and energy targets. However, significant challenges remain in reaching a comprehensive peace agreement to resolve the broader conflict.

• While the full terms of the agreement remain unclear, the deal represents the first formal accord between the warring parties. US mediators secured Russian participation by offering targeted sanctions relief in exchange for reduced military operations. For its part, Ukraine has demonstrated willingness to follow America’s diplomatic lead in these negotiations.
• However, no clear timeline for resolving the conflict has emerged, particularly from the Russian side. President Trump recently criticized Putin for deliberately stalling peace negotiations, but remains optimistic that a deal can be done. Analysts speculate that Putin, facing mounting war costs, continues to seek tangible justification for the invasion’s “success,” most likely through complete control of the Donbas region.
• A resolution to the Ukraine-Russia conflict would significantly impact global markets, with particularly pronounced effects on European economies and commodity markets, especially oil. While we maintain our base-case expectation for a negotiated settlement before year-end, the bargaining process will likely prove more protracted than Western powers, including the US administration, would prefer.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with news of a potential new economic stimulus program that could potentially boost growth and stock prices in China. We next review several other international and US developments with the potential to affect the financial markets today, including signs that Germany’s new fiscal policies are boosting business optimism in that country and the latest developments on US tariff policies.

China: To spur stronger consumer demand and faster economic growth, Chinese officials are reportedly considering a multi-billion dollar program to subsidize purchases of services such as travel, tourism, and sports. The program would apparently supplement the government’s existing consumer subsidy program, which aims to spur purchases of merchandise such as autos and appliances. Even if implemented, however, the temporary program may do little to reverse the big structural headwinds holding back China’s economy and financial markets.

Australia: Ahead of elections that must be held by May, the ruling Labor Party government has proposed a budget for the upcoming fiscal year that would cut taxes for the working class and hike spending on energy subsidies, healthcare, education, and defense. The measures are expected to produce a budget deficit equivalent to about $17.4 billion after two straight years of surpluses due to high commodity prices. In response, Australian stock prices and the Australian dollar have both appreciated modestly so far today.

Germany: The IFO Institute today said its March Business Climate Index rose to a seasonally adjusted 86.7, modestly beating the expected reading but up comfortably from the February index of 85.3. The index remains historically weak, reflecting Germany’s recent economic headwinds and slow growth, but the upturn may suggest that the government’s new fiscal stimulus policies are being well received by companies.

Israel-Hamas: The Israeli Defense Forces’ new chief of staff has reportedly developed a plan to reconquer the Gaza Strip and establish a long-term occupation to finally root out the Hamas militants that currently govern the territory. If approved by the government’s cabinet, the plan would likely be supported by the Trump administration, but it would also likely generate further criticism of Israel by many countries and weigh on the Israeli economy and financial markets.

United States-Denmark-Greenland: Second Lady Usha Vance, National Security Advisor Waltz, and other top officials from the Trump administration have announced that they will be in Greenland later this week, in part on an ostensibly private visit to attend a dogsledding competition and see the sights. Given President Trump’s threats to take over Greenland, Danish Prime Minister Fredericksen and the Greenland government have rejected any characterization of the trip as “private” and instead called it out as a provocation.

• Besides signaling Trump’s continued interest in acquiring Greenland, the trip may be designed to generate a positive response among the island’s residents.
• However, all Greenland political parties have rejected Trump’s call to acquire Greenland, and public opinion polls suggest about 85% of the island’s residents don’t want to become a part of the US. Press reports say residents are planning a protest at the dogsledding event to be attended by Vance and the US officials.

US National Security: President Trump today is facing a scandal after his national security officials included an editor from The Atlantic in a group chat planning last week’s airstrikes against Houthi rebels in Yemen. The most serious concern is that the officials were using the Signal commercial communication platform to discuss such sensitive planning, rather than the Defense Department’s secure encrypted systems.

• Although Signal is known for its strong encryption and has been endorsed by Elon Musk, it has also been subject to security bugs. The advanced encryption used by US national security and intelligence organizations is significantly stronger than Signal’s.
• It is not uncommon for new administrations to make such errors. After all, new administrators often come from the private sector where strict protocols are not necessary. Nevertheless, the use of Signal and the apparently inadvertent inclusion of the reporter in the group chat will add to concerns that administration officials may have a relatively casual approach to national security, especially if similar mistakes happen in the future.
• More broadly, poor communication security practices by the administration may add to concerns that allies may stop sharing sensitive intelligence information with the US out of fear that it could be exposed. Although the US intelligence agencies generate the bulk of the information vital to national security, foreign partners provide intelligence that can be critical to “filling in the gaps” of US knowledge.

US Tariff Policy: One day after reports indicated that President Trump may limit his April 2 “reciprocal” tariffs to only about 15 countries, he yesterday suggested that his sectoral tariffs on products such as automobiles and lumber may not come until sometime in the future. At the same time, he unexpectedly said he would impose an additional 25% tariff on any country that buys oil or gas from Venezuela.

• The Financial Times this morning also reports that officials in the administration are considering a two-step process where tariffs would be initially imposed using one legal authorization but later rely on a different law. The move would aim to make the tariffs more legally durable.
• Importantly, officials cited in the article said they were more focused on using the tariffs to generate revenues rather than to punish other countries for their US trade imbalances.
• In any case, as we’ve noted before, we think the administration’s erratic tariff announcements could keep asset prices volatile for the time being.

US Labor Market: The Office of Federal Contract Compliance Programs, which oversees the activity of firms doing business with the government, has said it will review the civil-rights plans submitted by those contractors prior to President Trump’s current term to determine whether they should be penalized for discriminatory employment practices. Given that the government has some 40,000 contractors, the move suggests the administration’s fight against diversity and equity programs in the private sector could now broaden dramatically.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with new indications that the Trump administration’s “reciprocal” tariffs to be announced on April 2 could be narrower than expected. The news is giving a significant boost to US stocks so far this morning. We next review several other international and US developments with the potential to affect the financial markets today, including a snap election called in Canada for April 28 and growing pushback against a US plan to impose big, new fees on Chinese ships calling at US ports.

US Tariff Policy: Administration officials over the weekend said the new “reciprocal” tariffs that President Trump plans to announce on April 2 will likely be narrower than expected. It appears that officials are coalescing around a plan to impose big tariffs against just 15 nations that have especially large trade imbalances with the US, although other countries could also be hit with more modest levies. The officials also suggest Trump will hold off on some of the broad sectoral tariffs that he has threatened, such as those on autos and pharmaceuticals.

• News of the narrower tariffs has given a strong boost to US stock futures so far this morning, suggesting that stock prices will jump after the open.
• Nevertheless, we would caution that President Trump could still change his mind and impose broader tariffs than what today’s reports indicate. In addition, whatever tariffs are announced on April 2 could subsequently be modified, and other tariff announcements could come later. In other words, the situation remains fluid, which will probably prompt continued stock market volatility in the coming weeks.

European Stock Market: Now that European stocks have performed so well in the first quarter of 2025, it’s notable that German software firm SAP today has overtaken Danish pharmaceutical giant Novo-Nordisk as the continent’s most valuable company in terms of market cap. SAP’s stock price has surged some 40% over the last year as it successfully migrated its business to the cloud. In contrast, Novo-Nordisk’s stock value has been roughly halved as investors question how it will follow up its recent success with weight-loss drugs.

Eurozone: In a preliminary report, S&P Global and Hamburg Commercial Bank said their March composite purchasing managers’ index rose to 50.4 from 50.2 in February. Like most major PMIs, the one for the eurozone is designed so that readings over 50 indicate expanding activity. At its current level, the data suggests that the eurozone economy is growing, but just barely. The region’s slow growth and susceptibility to new US tariffs will likely be a test for European stocks going forward.

Japan: In an interview with the Financial Times today, Finance Minister Katō warned that Japan hasn’t truly exited its long period of deflation, even though the headline consumer price index has shown annual inflation as high as 4.0% in recent months. According to Katō, inflation in Japan today is largely the “wrong kind,” reflecting the weak yen (JPY) and high commodity prices, rather than strong underlying economic growth. The statement suggests the government will continue looking for ways to boost consumer demand and overall economic growth.

China: Researchers have unveiled a device that can cut through armored subsea communication cables at a depth of up to 4,000 meters — twice the maximum operational depth of today’s subsea telecom infrastructure. The revelation apparently marks the first time any country has officially disclosed that it has such an asset.

• Although ostensibly for civilian salvage and deep-sea mining, the device could be deployed by submarines to cut critical communication lines between Chinese adversaries in time of geopolitical tension or war. For example, the device could be used to cut the telecom cables linking the US to Japan or Taiwan.
• China and Russia have already been linked to multiple cable-cutting incidents in relatively shallow waters around Taiwan and in the Baltic Sea, but the damage in those cases has been from ships dragging their anchors. The new Chinese device, if it’s real, could threaten a much bigger swath of the world’s telecom infrastructure.

Turkey: Mass protests against the detention of Istanbul mayor Ekrem İmamoğlu  continued over the weekend, resulting in the arrests of hundreds of demonstrators. President Erdoǧan apparently had the popular İmamoğlu arrested last week to keep him from potentially winning the country’s upcoming elections. The arrest of İmamoğlu has raised concerns about Erdoǧan’s government becoming even more authoritarian, raising the risk of continued political unrest, economic disruptions, and weaker stock prices.

Canada: Yesterday, Prime Minister Carney, who assumed the office from Justin Trudeau just nine days earlier, called snap elections for April 28. The quick election comes as Carney’s Liberal Party has seen a resurgence in support in response to US President Trump’s threat to take control of Canada. If Carney can take advantage of the Liberals’ rebound in the polls, Ottawa’s economic policy would likely see only a limited moderation versus the progressive policies followed by Trudeau.

US Port Fees: The Wall Street Journal today says that hundreds of trade associations, farmers, and other individuals have filed protests or asked to speak at a hearing this week on the Trump administration’s proposal to impose big fees on Chinese ships calling at US ports. The proposed fees have bipartisan support among policymakers, having stemmed from a probe ordered last year by President Biden. However, the groundswell of criticism by shippers concerned about higher costs raises the chance that the fees will be reduced or eliminated.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are looking for clues on consumer sentiment, as tariff uncertainty impacts demand projections. In sports, the NCAA tournament’s low rate of perfect brackets (1.65%) highlights its unpredictable nature. Today’s Comment will cover Europe’s NATO contingency plans, US critical minerals production efforts, and other market-relevant developments. As always, the report will include a summary of key domestic and international data releases.

Amerexit? European leaders are formulating transition plans for a potential US withdrawal from NATO, aiming to bolster their own security capabilities while enabling the US to redirect more of its strategic focus toward China.

• The UK, France, Germany, and Nordic countries are spearheading a plan to substantially boost defense spending across the alliance, positioning Europe to assume the bulk of the financial and operational responsibilities for continental defense in the event of a unilateral US withdrawal from NATO. The agreement outlines a 5- to 10-year timeline for Europe to strengthen its military capabilities, ensuring a smooth transition and the ability to independently safeguard its security interests.
• This initiative emerges as the Trump administration intensifies its pressure on Western allies to significantly increase their defense spending. On Thursday, reports revealed that NATO will call for Europe and Canada to boost their expenditure on military equipment and weapons by 30%. Simultaneously, the US is urging member countries to raise their defense spending to 5% of GDP — a figure that surpasses the current 2% benchmark and even exceeds the percentage of GDP that the US allocates to its own defense.

• The move coincides with widespread expectations that the US is poised to scale back its military presence in Europe. Last month, a Pentagon official confirmed that the US is considering relocating up to 100,000 troops from the region, signaling a potential shift in its strategic priorities.
• Growing doubts about the US commitment to Europe have intensified pressure on European nations to develop contingency plans to support Ukraine. The UK has signaled its willingness to assist Ukraine in enforcing a ceasefire by potentially deploying ground troops, as well as air and naval forces. Simultaneously, the EU is advancing efforts to allocate 5 billion EUR ($5.4 billion) to secure ammunition for Ukraine, though France and Italy are pushing for adjustments to the proposal before finalizing the agreement.
• The increase in military spending across EU countries is expected to elevate their debt levels, as governments may need to borrow additional funds to fulfill their defense obligations. This could lead to a rise in bond issuance by individual nations. We are closely monitoring the potential for implicit backing of defense-related bonds by EU institutions, which could enhance the attractiveness of these securities and help lower borrowing costs across the EU bloc.

More Mining Please! President Trump has invoked war powers to facilitate the mining of critical minerals, a strategic move aimed at bolstering the United States’ competitive edge in military technology amid an intensifying rivalry with China.

• On Thursday, the president signed an executive order invoking the Defense Production Act to expedite and streamline the production of critical minerals, underscoring the importance of national security. The order empowers the government to fast-track project permitting and provide financial support, including loans, to bolster the domestic mining industry. This action aligns with the president’s broader mission to secure the resources necessary for developing advanced technologies.
• The Trump administration’s efforts to secure critical resources extend beyond its borders. The US is currently exploring a deal to gain access to Ukraine’s mineral reserves as part of the proposed peace negotiations with Russia. Additionally, the administration’s interest in acquiring Greenland may, in part, be driven by its rich deposits of rare earth elements. Meanwhile, the Democratic Republic of the Congo has sought to leverage its mineral wealth to gain US support in its fight against rebel groups.

• The US is accelerating efforts to diversify its critical mineral supply chains due to growing vulnerabilities, particularly concerning its reliance on China. China’s dominance, notably its 70% control of global rare earth production (as shown in the chart below), has become a strategic concern. Recent export restrictions on chip-related minerals, imposed in response to US semiconductor technology limitations, underscore the escalating strategic rivalry.

• The Trump administration’s push to increase production of critical resources is likely to benefit chipmakers in the long term, as it could lead to lower input costs. However, this move also signals a deepening rivalry between the US and China. While we remain cautiously optimistic that this competition will not escalate into direct conflict, the ongoing AI arms race offers little reassurance and underscores the growing tensions between the two global powers.

US Earnings Concern: Just weeks before the president is set to implement new tariffs, there are growing concerns that businesses are already experiencing significant margin pressures.

• FedEx Corporation has lowered its profit outlook for the third consecutive quarter, citing ongoing weakness and “uncertainty in the US industrial economy” as primary concerns. The company’s freight business has been particularly impacted, with fewer shipments and lower weights continuing to drag down earnings. FedEx’s CEO highlighted that the unpredictable demand in the current economic environment has further exacerbated these challenges, intensifying concerns about the company’s near-term performance.

• Retail giant Nike has also expressed unease by warning that its sales are likely to suffer in the current quarter. The company attributed the anticipated downturn to the impact of new tariffs and a significant decline in consumer confidence. This gloomy outlook appears to align with the findings of the University of Michigan’s consumer survey, which revealed that 66% of consumers expect unemployment to rise over the next 12 months.
• Amid widespread concerns about the economy, it’s worth noting that hard data still does not provide strong evidence of a recession. In the upcoming quarter, earnings reports will be a critical focus. If companies manage to deliver positive surprises, equities could potentially overcome the current negative sentiment and weather the concerns about tariffs. However, if earnings disappoint, the markets may face significant turbulence.

UK Trouble Builds: The Starmer government faced a double blow of bad news within the last 24 hours. Borrowing in February significantly overshot expectations, while the country’s largest airport was forced to shut down due to a fire.

• The government ran a budget deficit of 10.7 billion GBP ($13.8 billion) last month, significantly surpassing the Office for Budget Responsibility’s forecast of 6.5 billion GBP ($8.4 billion). This shortfall was driven by lower-than-expected tax revenues and higher public expenditures, casting doubt on its ability to meet self-imposed fiscal targets. The overshoot is likely to heighten pressure on the government to curb spending as it strives to balance the current budget — excluding investment — by the 2029-30 fiscal year.
• At the same time, Heathrow Airport was forced to shut down for the remainder of the day after a nearby fire disrupted power to the hub. While the cause remains unclear, authorities have launched an investigation, including the possibility of terrorism. The airport closure is likely to heighten concerns about the resilience of the country’s critical infrastructure, particularly at a time when security has become an increasingly pressing issue throughout Europe.
• While UK Prime Minister Keir Starmer has seen a recent surge in popularity due to his handling of the Trump administration, his net approval rating remains deeply negative at -23. This could worsen if he is compelled to implement unpopular decisions, such as budget cuts, or if he faces additional security threats. The uncertainty surrounding his administration is likely to weigh on government bonds, as it raises doubts about his ability to restore the country’s fiscal stability.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is currently processing the latest decision from the Federal Reserve. In sports news, Duke University is bound to let college basketball fans down again in the NCAA Men’s Basketball Tournament this year — whether they win or lose. In today’s Comment, we’ll delve into the Fed’s latest rate decision, explore the growing pressures on chipmakers to establish operations in the US, and cover other key market developments. As always, we’ll also provide a comprehensive roundup of the latest international and domestic data releases.

Team Transitory Is Back! While Federal Reserve officials have revised their inflation forecasts upward, they have kept the possibility of rate cuts on the table, maintaining their view that tariffs will only have a limited impact on inflation.

• The FOMC unanimously voted to maintain the federal funds rate target range at 4.00%-4.25%. However, Christopher Waller dissented regarding the Quantitative Tightening (QT) policy (specifically the reduction of the Fed’s balance sheet runoff from $25 billion to $5 billion monthly), preferring to continue with the original pace.
• Fed officials cited increased uncertainty in the economic outlook, which led them to revise their year-end projections. Core PCE inflation was revised upward to 2.8% from 2.5%, the unemployment rate forecast was raised to 4.4% from 4.3%, and the GDP growth projection was lowered to 1.7% from 2.1%.
• During the press conference, Fed Chair Jerome Powell acknowledged that the central bank viewed tariffs as a potential driver of higher inflation throughout the year, which could hinder the Fed’s progress toward its inflation target. When questioned about whether the Fed would raise interest rates in response to tariff-induced inflation, Powell emphasized that if the inflationary pressure is temporary and expected to dissipate on its own, tightening monetary policy would not be an appropriate response.

• Regarding quantitative tightening, Powell stated that the Fed intends to slow the pace of its balance sheet runoff to prolong the reduction process. However, he emphasized that this adjustment in pace does not signal any broader implications for future monetary policy decisions. He reiterated that the central bank would continue to shrink the balance sheet until reserves decline from their current abundant levels to what the Fed considers an ample level.
• The latest Federal Reserve meeting suggests that the central bank is poised to take a cautious, wait-and-see approach to monetary policy. While we still anticipate no more than two rate cuts this year, the likelihood of no cuts at all has risen as the economic impact of tariffs begins to materialize in key data. In response, the Fed may explore alternative measures, such as an earlier-than-expected halt to its balance sheet reduction program, in order to alleviate long-term rates.

Nvidia Invests: The chipmaker announced a multi-billion-dollar plan to build US manufacturing facilities for chips and electronics over the next four years, reflecting a broader shift among tech firms to relocate production domestically amid efforts to strengthen US supply chains.

• The AI semiconductor leader plans to manufacture a significant portion of its systems in the US, partnering with key suppliers such as Taiwan Semiconductor Manufacturing Company (TSMC) and Foxconn. This strategic shift reflects the company’s response to escalating geopolitical risks, particularly growing threats from China. During the announcement, CEO Jensen Huang emphasized that the move would strengthen US supply chain resilience and reduce dependency on foreign manufacturing.
• The shift toward US manufacturing comes amid growing concerns about tech companies’ reliance on production facilities in Taiwan. Rising tensions between China and Taiwan, including Beijing’s increasingly assertive stance toward the self-governing island, have sparked fears of a potential invasion. Such a move could severely disrupt global supply chains, leaving companies dependent on Taiwanese factories exposed to significant risks.

• To mitigate these concerns, construction spending in the US for computer, electronic, and electrical manufacturing has surged since 2022, fueled primarily by the CHIPS Act. The legislation has offered companies tax incentives and subsidies to accelerate the relocation of manufacturing facilities to the US. A significant portion of these investments has been directed toward states like Arizona, New York, and Ohio, where new factories are being built.
• While the current administration has aimed to build on this trend, it seeks to do so more cost-effectively by leveraging tariffs. President Trump argues that the government should not rely on financial incentives to encourage domestic manufacturing. Instead, companies should be motivated to build domestically to avoid tariffs.
• Despite President Trump’s opposition to the CHIPS Act, there has been no significant policy reversal, indicating that the law is likely to remain in place. As a result, tariffs are expected to serve as the “stick” to complement the CHIPS Act’s “carrot,” as the US aims to expand its domestic chipmaking capabilities, reduce reliance on Taiwan, and better compete with China.

Election Date Set? Canadian Prime Minister Mark Carney is expected to announce this week that elections will be held on April 28. The campaign is likely to center on how best to address an increasingly assertive US without jeopardizing the economy or triggering a recession.

• Carney’s decision to call for an election appears to be strategically motivated, as his Liberal Party has surged ahead of the opposition Conservative Party in recent polls. According to the latest data from Mainstreet Research Canada, the Liberals have a 61.4% chance of securing an outright majority in the upcoming election. They are projected to win approximately 179 out of 338 seats, while the Conservative Party is expected to trail behind with 127 seats, placing them in the minority.
• The reason for this shift has been driven by Canadians’ dislike of President Trump following comments that Canada should become a US state. Current polls show that the number of Canadians with very/somewhat positive views of the US has dipped from 52% in June 2024 to 33% as of March of this year. In comparison, people with positive views of China improved from 29% to 30%, within the same time frame.
• A recent poll indicates Mark Carney is seen by many Canadians as best equipped to handle the nation’s challenges, edging out Pierre Poilievre 36% to 34%. Carney’s strong name recognition, despite limited public understanding of his detailed policies, appears to be a key asset. Conversely, Poilievre’s populist rhetoric has led to comparisons with Trump, potentially hindering his appeal.
• Ironically, it is Poilievre who has emerged as the most vocal critic of Trump, pledging to lessen Canada’s economic dependence on trade with the US. In stark contrast, Carney has taken a more pragmatic approach, openly conceding that Canada cannot sustainably engage in or escalate a tit-for-tat trade war with its powerful neighbor. This nuanced stance has seemingly resonated with Trump, who has publicly expressed a preference for working with Carney over Poilievre.
• The upcoming election is likely to intensify ongoing trade tensions between the US and Canada. While recent momentum has favored Carney, we anticipate that his support will begin to wane as the vote approaches. Consequently, we would not be surprised if Poilievre pulls off an upset or if neither party secures an outright victory. That said, a majority government in Canada would be viewed favorably by financial markets, as it would likely streamline the legislative process.

BOE Cautious: The Bank of England voted to keep its benchmark policy rates unchanged and signaled a greater willingness to pause future rate cuts.

• While the decision was widely anticipated by the market, investors observed a more hawkish shift in tone. The Monetary Policy Committee voted 8-1 in favor of holding rates, indicating that one of the two rate-setters who had previously supported lower borrowing costs in the last three meetings switched their vote. The shift has led traders to pare back bets of a rate cut in May.

• The shift in policy may be linked to a pickup in inflation, as well as concerns over escalating trade tensions with the US. In January, core inflation surged from 3.2% the previous month to 3.8%. This rise has sparked concerns that US tariffs could further worsen the inflation outlook in the coming months.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is currently awaiting the Fed’s rate decision later today. In sports news, Putin and Trump have expressed an openness to organizing hockey games between teams from their respective countries. Today’s Comment will cover our expectations for the latest Fed meeting, recent developments in the Ukraine-Russia ceasefire talks, and other market-related news. As usual, the report will include a summary of international and domestic data releases. 

Fed Speaks: The Federal Open Market Committee (FOMC) is expected to conclude its two-day meeting by keeping interest rates unchanged. However, the market will closely monitor the press conference for insights into the Fed’s outlook on inflation and its expectation for the economy.

• Despite the January core CPI report signaling accelerating price pressures, Fed officials are likely to welcome the progress that has been made on inflation. In January, the year-over-year change in core PCE increased by 2.6%, marking its slowest pace in over six months. Meanwhile, core CPI has seen its slowest two-month start to the year since 2020.
• Meanwhile, recent economic data has sparked concerns about the health of the economy. The Atlanta Fed’s GDPNow forecast suggests the possibility of economic contraction, though this reading has been heavily influenced by a surge in imports, particularly gold. The inclusion of gold, classified as an investment rather than a consumable good, has drawn scrutiny for potentially skewing the data. The Atlanta Fed plans to adjust for this issue with its update on March 26.
• Tariffs are expected to be a key topic of discussion among Fed officials as they explore ways to mitigate the potential negative economic impact of trade restrictions. So far, most Fed officials have signaled a “wait-and-see” approach to the administration’s trade policies. However, recent data suggests that tariffs may already be influencing import prices.

• The prices that US importers are paying for Chinese goods have risen at their fastest pace since 2021, signaling that Chinese firms are unwilling to absorb the cost of tariffs. The sharp increase in import prices appears to reinforce the view that Beijing has pressured its firms to resist easing the tariff burden for their US buyers, underscoring its stance that it will not bear the cost of these tariffs.
• We expect the Fed to lean dovish, in line with its current policy stance. While officials may not signal a willingness to cut rates in May, they could be prepared to do so in June, assuming inflation data continues to show progress toward the 2% target. Additionally, we believe the central bank is likely to address and downplay concerns about the economy entering a recession.

Ceasefire on Ice: Talks between Vladimir Putin and Donald Trump ended without securing a deal for a comprehensive ceasefire. Despite this setback, cautious optimism remains that both leaders will eventually reach a mutually acceptable agreement.

• The failure to reach a ceasefire agreement appears to stem from Putin’s insistence that military aid to Ukraine, particularly from the US, be halted during the pause in hostilities. This demand has been deemed unacceptable by the US, as it would effectively allow Russian forces to regroup and rearm during the lull, while leaving Ukraine severely constrained and vulnerable.
• However, Putin did offer one concession by agreeing to halt attacks on Ukraine’s energy infrastructure. Despite this gesture, other critical areas remain vulnerable to assault. Shortly after the agreement, Russia launched a drone strike targeting other forms of Ukrainian infrastructure, a move that drew sharp criticism and condemnation from EU officials.
• Additionally, the US has been actively seeking support from the EU and the UK, as their involvement is crucial for any peace deal. This is largely due to the need for their approval to lift sanctions as Russia desires — a process that is likely to face significant hurdles. Complicating matters further, both the EU and the UK are currently considering plans to sell seized Russian assets, a move aimed at supporting Ukraine’s recovery but one that could exacerbate tensions with Moscow.
• We remain cautiously optimistic that a peace deal can eventually be reached between the two sides. However, Russia’s lack of urgency in ongoing negotiations suggests a perceived strategic advantage over Ukraine. A potential agreement will likely prioritize European equity interests, reflecting regional stability concerns. Despite this, the path to peace remains challenging, with both sides navigating complex demands. Entrenched positions continue to complicate the negotiation process.

Erdoğan Crackdown: The Turkish president has been accused of targeting political rivals in an effort to stifle any serious challenge ahead of elections scheduled to take place by 2028. This move has unsettled markets, with investors raising concerns about the erosion of the country’s rule of law.

• Turkish police have detained Istanbul’s mayor, Ekrem İmamoğlu, widely regarded as a formidable political rival to President Erdoğan. The arrest, which was linked to alleged terrorism-related charges, coincided with reports that the opposition Republican People’s Party (CHP) was preparing to name him as its presidential candidate. İmamoğlu, who gained significant popularity after securing major victories in Istanbul’s mayoral elections, has become a symbol of opposition strength.
• His detention has ignited widespread criticism, with many condemning the move as politically motivated and warning of its implications for democracy and judicial independence in Turkey. The news triggered a sharp sell-off in Turkish assets, sending the lira (TRY) plunging by 10% to new record lows, while equities dropped 6%, prompting a temporary trading halt. Additionally, the country’s bond yields surged as investor confidence eroded following the report.

• Erdoğan’s intensifying crackdown on political rivals aligns with his party’s refusal to consider early elections, despite mounting public discontent. A recent poll highlights the deepening frustration among Turks, with 61% predicting a further deterioration in the country’s economic situation over the next six months and 58% calling for new elections. Turkey’s economy has been plagued by soaring inflation and rising unemployment, placing significant strain on households and exacerbating widespread dissatisfaction.
• While political instability in Turkey is a growing concern, there is currently little indication that widespread outrage, either domestically or from the West, will escalate into a larger movement. For now, we view these developments as relatively contained, though the situation could intensify if the government’s crackdown on opposition parties sparks violent protests or further unrest. As such, Turkey remains a country to monitor closely, but for the time being, there is no immediate cause for significant alarm.

Meloni in the Middle: Italian PM Giorgia Meloni urged Brussels to avoid escalating a trade war with the US, emphasizing that such conflict benefits no one. This aligns with her cautious approach to transatlantic relations amid existing tensions.

• Her warning comes as the EU prepares to impose 50% tariffs on US goods, including whiskey, motorcycles, and jeans, set to take effect on April 1. In response, President Trump has threatened to levy 200% tariffs on European wines, escalating tensions in an already fraught trade dispute.
• Additionally, Meloni has cautioned the EU against attempting to ramp up defense spending as a means of reducing reliance on the US. She argued that it would be unrealistic for the EU to fully shoulder its defense responsibilities without American support, emphasizing the continued importance of transatlantic cooperation in maintaining global security.
• Meloni is set to meet with EU leaders in Brussels on Thursday, where they will discuss strategies to address US tariffs and calls for increased defense spending. Her remarks highlight a growing reluctance among some EU leaders to engage in a prolonged tit-for-tat with the US, underscoring a preference for diplomatic solutions over escalating tensions.

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