From Marc to Market:
Overview: Little would one know from looking at the US economic outperformance and the record-high household net worth, but the US President said that global trade has “looted, pillaged, raped, and plundered” the US economy. Rather than some sophisticated analysis to measure trade and non-trade barriers as the President Trump suggested, the so-called "kind reciprocity," appears to be a simple function of US imports as a percentage of the overall bilateral trade deficit. The 10% minimum is effective April 5 and the reciprocity levy on April 9. Many are still holding out the possibility that concessions by other countries will bring some relief. Yet, look at Israel, which removed all tariffs on US goods earlier this week and was still slapped with a 17% reciprocal tariff.
The dollar has been sold aggressively, equities has dropped sharply, and interest rates have fallen. All the G10 currencies are higher against the greenback. The least is the roughly 0.60% gain by the Australian dollar. The Swedish krona, Swiss franc and Japanese yen are the leaders, up around 1.9%-2.2%. Most emerging market currencies are stronger, and the Chinese yuan is a notable exception. The offshore yuan was under pressure even before the PBOC validated the weakness with a sharply high dollar fix. The Thai baht is also weaker. Thailand was hit was a 36% reciprocal tariff, a little more than China and India. Equity markets are a sea of red. In the Asia Pacific region, New Zealand was a rare exception with its market eking out a 0.15% gain. Europe's Stoxx 600 is off around 1.6%, and US index futures are off 2.5% to 3.5%. Japan and Antipodean 10-year yields dropped 10-15 bp, and European benchmark 10-year rates are 5-7 bp lower. The 10-year US 10-year US Treasury yield is off eight basis points to 4.05%. It has not traded below 4% since last October. Gold reached a record near $3168 before profit-taking kicked-in. May WTI gapped lower after reaching almost $72.30 yesterday. It has approached Monday's low near $68.80.
USD: The Dollar Index has been crushed. It gapped lower and has been sold to nearly 102.10, with the lows set in the European morning. It is off nearly 1.6% today. The 2023 low was near 99.60 and the 2024 low was a little above 100.00. The February goods trade balance was reported last week at almost $149 bln. It was wider than expected even if slightly narrower than the $155.6 bln recorded in January. The overall trade balance will be released today. The median forecast in Bloomberg's survey is for a $123.5 bln deficit after $131.4 bln in January. That would put the two-month shortfall at about $255 bln compared with ~$136 bln in the first two months of last year. Some of this reflects the effort by businesses and households to beat the tariffs. Some of the goods will sit in inventories, which later will be drawn down, but probably not before price increases. The distortion will underscore the importance of the final sales to private domestic purchasers as an underlying measure of growth, which excludes government, inventory, and trade when assessing Q1 25 growth. The market may be more sensitive to ISM services (small tick down is expected, while prices paid by increase slightly). Weekly initial jobless claims are also on tap. So far, the government layoffs and reports of private sector layoffs has not yet been picked up by the weekly jobless claims. Confidence is high that they are coming, even if the timing is a bit elusive. We suspect it will be seen later in this quarter....
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