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.
