Happy world tariff day

The much-expected US tariffs will be announced in a few hours and they will take immediate effect, according to the latest news.

Yesterday’s ISM data confirmed that the US manufacturing activity slowed, new orders tanked, employment softened while the prices-paid showed a steep jump – steeper than expected by analysts. The unideal data didn’t trigger a further selloff in US equities, however. On the contrary, the S&P500 ended a jiggly session 0.38% higher, as the yields retreated – meaning that investors put more weight on the rising recession bets than they did on the rising price pressures. And the latter improved the chances of seeing the Federal Reserve (Fed) give support more thoroughly than otherwise. The Fed is still expected to deliver its next rate cut in June – and not before – but things could change rapidly depending on how much Trump policies will hit the US economy. For now, the Atlanta Fed’s GDP Now index keeps plunging: the forecast tanked to -3.7% at the latest update.

Good news for investors is that an economic slowdown is not necessarily synonym of market selloff, as the Fed would step in by lowering rates and buying bonds to ensure financial stability. Inflation – on the other hand – is expected to be one-off and hopefully heal itself with economic slowdown. The problem is that the supply-side shocks tend to be inflationary – as we saw during the pandemic times. And the tariffs could disrupt the global supply chains and bring inflation back before giving the Fed time to reach its 2% target.

For now, investors show an increased appetite for bonds – and that despite the expectation of a further rise in global debt levels. As such, the US 10-year paper is amassing haven flows – the 10-year yield fell to as low as 4.13% yesterday from around 4.80% peak reached by mid-January. Similarly, the 10-year European government bond yields eased by almost 30bp since their mid-March peak. In equities, the European indices rebounded and the Stoxx 600 recovered by more than 1%. But the futures point at little appetite before the tariff announcement. The Nikkei remains under a decent pressure as the USDJPY consolidates below the 150 mark this morning.

It’s probably not the finale

Today’s tariff announcement could give a fresh direction to global markets, but it would be naive to think that today will mark the end of the tariff shenanigans. More likely, it marks the start of another phase of uncertainty and turmoil. The real risk isn’t just the tariffs themselves but the constant threat of escalation, reversals, and retaliation.

In the FX, the US dollar is slightly better bid, the euro and sterling are pressured on tariff uncertainty. Gold continues to be the safest play in town when it comes to the tariff uncertainty. Retaliation from US trade partners could bring the US dollar under a renewed selling pressure.