Weekly economic commentary: A user's guide to reciprocal tariffs

Wells Fargo Research Team Wells Fargo

Summary

United States: Liberation Day

The echoes of reciprocal tariffs are reverberating through markets, raising expectations for Fed cuts and driving down yields. Tariff anticipation also drove an expansive U.S. trade deficit in February and increased price pressures in the manufacturing and services sector. Although risks to the outlook are elevated, the labor market remains solid at present, adding 228K jobs on net in March.
Next week: NFIB (Tue.), CPI (Thu.), Consumer Sentiment (Fri.)

International: Meanwhile everywhere else...

While new U.S. tariffs were the primary talk of the town in recent days, we also got a read on economic sentiment and monetary policy in several foreign economies. Sentiment data from China and Japan were somewhat encouraging, while the Reserve Bank of Australia and Colombia's central bank, BanRep, both opted to hold rates steady. Eurozone inflation data were generally favorable.
Next week: Mexico CPI (Wed.), Reserve Bank of India Policy Rate (Thu.), Norway CPI (Thu.)

Credit market insights: The widening gyre

Corporate bond spreads widened substantially Thursday in a repricing of recession risk following President Trump's tariff announcements. Spreads on investment grade corporate bonds widened by 8 bps to 102 bps and spreads for riskier high yield bonds increased more than 50 bps to 387 bps. The widening in the spreads was the worst one-day move for investment grade bonds since the bank failures in March 2023, and the worst one-day move for high yield bonds since the onset of the pandemic in the spring of 2020.

Topic of the week: A user's guide to reciprocal tariffs

The Trump administration announced sweeping new tariffs on many U.S. trading partners this week. The administration utilized a formula primarily based on each nation's trade balance to derive the new tariff rates. By our estimates, the overall U.S. effective tariff rate now stands at 23%, the highest in many decades.

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Wells Fargo Research Team

Wells Fargo

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.