Global Macro Monitor

Our earlier GRM post mistakenly included data tables from the week of March 28th.  Here are the up-to-date April 4th tables. 

The U.S. Administration’s tariff policy represents a critical policy error that has upended financial markets and raised the specter of a severe recession and a prolonged bear market, with no clear bottom in sight. The imposition of sweeping, unilateral tariffs under the guise of reciprocity has rattled global trade systems and injected significant uncertainty into economic forecasting. Unless swiftly reversed, these actions risk anchoring inflation while simultaneously constricting growth—a classic stagflation trap that could force the Federal Reserve into an unenviable position and prevent equity markets from stabilizing in the near term.

At the heart of this miscalculation lies a series of incompatible objectives. The Administration claims the tariffs are designed to ensure fair trade, revive domestic manufacturing, and raise Treasury revenues. However, these aims are mutually exclusive in practice. Fair trade typically implies mutual reductions in barriers, not escalations. Promoting domestic manufacturing by taxing intermediate inputs only raises costs for U.S. producers, undermining competitiveness. Furthermore, the notion that tariffs will substantially boost Treasury receipts is flawed, as reduced trade volumes and retaliatory actions abroad are likely to erode revenue gains.

The strategy’s incoherence is evident in absurd measures such as, for example, a tariff on coffee, an import for which the U.S. lacks viable domestic production except de minimis production in Hawaii and Puerto Rico. These policies reflect a reactive, politically charged agenda rather than a cohesive economic strategy. Ultimately, market forces are likely to compel a reversal. Only sustained capital flight and a prolonged earnings recession may bring the necessary pressure to correct course and restore stability.

Doesn’t the Administration understand the most basic concept of international trade and economics – Comparative Advantage? 

Markets

U.S. Market Analysis

• Sharpest Sell-off in Years: U.S. equities suffered their worst weekly decline since 2020 following unexpectedly aggressive tariffs announced by the Trump administration. The S&P 500 dropped over 9%, Russell 2000 entered bear market territory, and the Nasdaq fell 10%.
• Small-Caps Hit Hard: The Russell 2000 dropped over 10% this week and is down more than 30% from its all-time high.
• Investor Sentiment & Breadth Deteriorated: Market breadth collapsed with fewer stocks trading above their 200-day moving averages; SPX breadth fell to 37.4%.
• Bond Yields Plummet: 10-year Treasury yields fell below 4% (from 4.2%) due to flight-to-safety demand, marking the largest weekly gain for bonds in seven months.
• Bitcoin Resilience: In a break from past behavior, Bitcoin held steady (~$83K) despite the broader market’s sell-off.
• Credit Spreads Widen Sharply: Investment grade spreads widened by 8 bps to 102 bps, and high-yield spreads rose 50+ bps to 387 bps—signaling rising recession fears.

Global Market Analysis

• Europe: STOXX Europe 600 fell 8.4%, led by Italy (–10.6%) and Germany (–8.1%). The ECB faces growing pressure to cut rates amid slowing inflation and trade uncertainty.
• Asia:
  • Japan: The Nikkei 225 dropped 9% and TOPIX lost 10%. A 24% U.S. tariff on Japanese imports spooked markets, delaying expected BoJ rate hikes.
  • China: The Shanghai Composite dipped modestly (–0.3%), while retaliation included 34% tariffs on U.S. goods, rare earth export limits, and trade bans on some U.S. firms.
• Emerging Markets:
  • Emerging Asia: GDP forecasts cut due to tariffs; deeper and earlier monetary easing expected.
  • Latin America: Spared from direct tariffs but vulnerable to falling global demand and commodity prices.
  • EEMEA: Limited direct exposure to U.S. tariffs but still faces slower global trade and capital flow risks.

Economics

U.S. Economic Overview

• Jobs Report Strong, But Overshadowed: March nonfarm payrolls surged by +228K (vs. 130K est.), but the unemployment rate edged up to 4.2%. Strong healthcare and hospitality hiring offset weak federal employment and temporary jobs.
• Inflation Risks from Tariffs: ISM Manufacturing PMI fell back into contraction (49.0), and Services PMI slipped to 50.8. Tariffs have pushed input prices higher.
• CPI Outlook: March CPI is expected to show flat m/m inflation, but looming tariffs will likely reignite inflation over the coming months.
• Rate Cut Expectations Rise Sharply: Markets now price in ~113 bps of Fed rate cuts in 2025, with 4 cuts expected and a December Fed Funds rate of 3.26%. A May cut has a 43% probability; June is fully priced.
• Trade Deficit Stubbornly High: February trade deficit remained elevated at $122.7B as firms rushed to import ahead of tariffs.

Global Economic Overview

• Eurozone: Inflation eased to 2.2% with slower services inflation. ECB likely to cut rates in April. Recession forecast for 2025.
• China: GDP forecast cut to 4.0% due to tariffs and slowing external demand. Stimulus is expected, but headwinds remain.
• Japan: Tankan survey showed mixed but positive business sentiment; BoJ may delay rate hikes due to uncertainty.
• Australia & Colombia: Both central banks held rates; RBA likely to cut in May amid tariff-related global risk.
• India: Expected to cut rates by 25 bps as inflation softens and growth eases.
• Mexico & Norway: Inflation data due next week; monetary easing is expected to begin soon in both nations.

Week Ahead (April 7–11, 2025)

Key U.S. Events:

• Economic Data:
  • Tue (Apr 8): NFIB Small Business Optimism
  • Thu (Apr 10): CPI, Jobless Claims, Treasury Budget
  • Fri (Apr 11): PPI, Consumer Sentiment (UMich)
• Earnings:
  • Fri (Apr 11): JPMorgan, Wells Fargo, Morgan Stanley, BlackRock
  • Others: Levi Strauss, Delta, Constellation Brands, CarMax, WD-40

Key Global Events:

• Mexico CPI: Wednesday (Mar reading)—will shape Banxico’s next move.
• RBI Rate Decision (India): Thursday—25 bps cut expected.
• Norway CPI: Thursday—key to gauging timing of Norges Bank easing.
• Tariff Developments: Any changes or negotiations will dominate headlines and market direction.