Will April 2, 2025 be remembered in a similar fashion as December 7, September 11, October 19 and 28th? Or will it be just another day, just regarded as noise? The initial reaction was one as a non-event. S & P futures were higher immediately following the announcement as it was first interpreted as though it was smaller than feared. Emerging markets were climbing and there is little reaction in the FOREX market.
However, sentiment changed Dow and NASDAQ futures are now down 2.75% and 4.50%, respectively. The dollar is headed for its steepest drop in two and a half years and the Treasury market is surging.
One pundit commented “I don’t think the equity market has priced in the worst-case scenario for tariffs…there is the big risk here that the market starts to aggressively price in these current tariff rates and significant retaliation.”
Bloomberg remarked that the market is becoming increasingly concerned that the dollar is at risk of a broader confidence crisis.
For what it is worth department, equites yesterday were whipsawed ahead of the tariff rollouts. Most are uncertain about the impact of the tariffs, with perhaps of sell on rumor and buy on fact. Corporate America announced the fewest stock buybacks last month since COVID, a sign of cash hoarding due to worries about economic growth and the impact of a global trade war.
Late yesterday afternoon, bond legend Mohamed El-Erian stated that he is only expecting one 25 bps rate reduction this year. This is a stark difference to market expectations of around 75 bps in easing and the 50-bps penciled in by the FOMC.
El-Erian expects there will be multiple rounds of negotiations, and that the narrative today is only focused upon only one preconceived outcome when in reality no one really knows.
Commenting on yesterday’s economic data, the ADP Private Sector Employment Survey, or a hard data point, was stronger than expected, indicating the economy is holding up despite the souring consumer sentiment and industry surveys [aka soft data points]
Today is the release of the top tier ISM Services Survey and tomorrow being the all-inclusive BLS employment report. Will this “hard data” be a continuation of the trend—robust strength rather than proliferating weakness as been the case with the soft data points?
Last night the foreign markets were down. London was down 1.44%, Paris down 2.66% and Frankfurt down 2.37%. China was down 8.12%, Japan down 2.77% and Hang Seng down 1.52%.
As indicated, Dow and NASDAQ futures are down 2.75% and 4.50%, respectively. Will the opening be the low for the day?
The 10-year is up 12/32 to yield 4.09%. The two-year Treasury or the instrument most sensitive to monetary policy is at the low part of its range at a 3.80% yield suggesting three interest rate cuts by year’s end. The yield curve is steepening moderately.
