by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the latest on President Trump’s new tariffs, where it now appears that he will announce 20% duties tomorrow on virtually all US trading partners. We next review several other international and US developments with the potential to affect the financial markets today, including signs that the European Union may be stepping back from its stringent environmental regulations and a new Trump administration review of funding for a major research university.

US Tariff Policy: Bloomberg is reporting today that President Trump has decided to impose 20% tariffs against virtually all US trading partners at his “liberation day” announcement tomorrow. If true, it would mean that the president has decided to adopt a much more aggressive tariff approach than he had indicated last week. It would, of course, be no surprise if Trump quickly reverses course or modifies the tariffs, but the news has driven US stock futures sharply lower so far this morning.

• Separately, European Commission President von der Leyen today said EU executives have prepared a plan to retaliate against the US by imposing their own tariffs or other trade barriers on US services, including financial services and digital services provided by big US technology firms. The measures against US services are separate from the tariffs on almost $30 billion of US goods exports that the EU is also considering.
• Any EU strike against services would hit the US in the one area where it consistently runs modest trade surpluses, as shown in the chart below. The EU’s action would therefore probably prompt President Trump to impose more trade barriers against the EU, worsening the trade war and likely undermining stock prices.

China-Japan-South Korea-United States: Citing Chinese state media, a report by Reuters yesterday asserted that China, Japan, and South Korea have agreed to “jointly respond” to any new US tariffs on their exports. However, such an agreement is not mentioned in Beijing’s official readout of the three countries’ recent trilateral summit.

• In other words, there is a possibility that the reporters misinterpreted the three countries’ simple commitment to seek closer economic cooperation.
• All the same, the trilateral summit and the positive language about economic cooperation show that Tokyo and Seoul seem to be hedging their bets with China as they face pressure from President Trump on trade and other issues.

European Union: According to a Politico report yesterday, Climate Commissioner Hoekstra is mulling ways to protect industry and agriculture from the burdens of the EU’s 2040 greenhouse emissions goals. For example, Hoekstra is considering provisions that would let EU countries defer steeper cuts to the future or count the impact of reforestation and technology investments that remove emissions from the air.

• Hoekstra’s effort reflects the rising pushback against green policies across Europe and beyond.
• For investors, a broad softening of the EU’s stringent environmental regulations could potentially support stronger economic growth and better investment returns across the region. However, softer green rules could hurt the prospects of green technology firms.

Eurozone: In an initial estimate, the March consumer price index was up just 2.2% from the same month one year earlier, matching expectations and marking a modest deceleration from the 2.3% increase in the year to February. Excluding the volatile food and energy components, the March core CPI was up 2.4% on the year, versus 2.6% in the year to February. While the data show that eurozone inflation is falling closer to the European Central Bank’s target of 2.0%, it also reflects weak economic growth in the region.

United Kingdom: The government today launched an independent review of the leadership, culture, and operations of the Office for National Statistics, which has come under criticism for errors in data sets and publication delays. As in the US, one problem has been declining response rates on the surveys that underpin important statistics. That problem has rendered US and UK data more volatile and subject to bigger revisions, undermining the ability of officials and investors to gauge what is really going on in the economy.

Canada-United States: According to data provider OAG, advance bookings for Canada-US flights from April through September are down some 70% from this time one year ago, forcing airlines to scale back Canada-US capacity. OAG’s analysis suggests that many Canadians are boycotting travel to the US because of President Trump’s tariff policies, his demand that Canada become the 51^st state, and/or concerns about being detained by US customs officers.

• Along with signs of reduced tourism from other countries, the figures suggest US firms dependent on foreign visitors will soon see reduced demand.
• According to analysis by airline analyst The Points Guy, just a 10% drop in Canadian visitors could cost US businesses as much as $2.1 billion in revenue.

US Fiscal Policy: The Trump administration yesterday said it has launched a review of almost $9 billion in contracts and grants awarded to Harvard University to punish the institution for antisemitism. The probe is the latest in the administration’s effort to curb diversity, equity, inclusion, and other policies at top universities. Since the targeted institutions play a key role in basic research and innovation, the risk is that any resulting cuts to funding could slow developments in US information technology, medicine, and other areas.

US Investing: According to new data from the National Association of College and University Business Officers, the average endowment at US colleges and universities produced a total return of 11.2% in 2024, slightly trailing a passively invested 70%/30% portfolio of global stocks and bonds. The endowments also slightly trailed a global 70%/30% passive portfolio over the last decade.

• The lackluster endowment returns come despite their reputation for sophisticated investment strategies and heavy reliance on alternative investments such as private equity.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the latest U-turn in President Trump’s tariff policies, based on reports that he is now mulling applying his “reciprocal” tariffs to virtually all US trade partners, and at very high rates. We next review several other international and US developments with the potential to affect the financial markets today, including an important new article showing the US has been much more involved in the Russia-Ukraine war than previously known and a report that Trump is considering allowing tax rates on upper-income people to rise so he can fund other initiatives.

US Tariff Policy: In a weekend interview, President Trump said he “couldn’t care less” if his steep 25% tariffs on foreign-made autos and auto parts raise car prices for US buyers. The statement provides further evidence that Trump intends to stick by his tariffs not only if they drive stock prices down, but even if they push prices up for US consumers.

• Separately, the Wall Street Journal yesterday reported that President Trump is now leaning toward imposing bigger “reciprocal” tariffs than he indicated last week.
• Instead, Trump has reportedly tasked his advisors to be more aggressive. In turn, they are reportedly exploring 20% tariffs to be imposed on all US trading partners, at least in part to generate more revenues to offset the administration’s planned tax cuts.
• In response to the continuing uncertainty, stock prices across the globe have fallen so far today, with futures on the S&P 500 index currently pointing to losses of more than 1%. Fearing an economic retrenchment, investors have bid up US Treasury obligations, driving the benchmark yield on the 10-year note down to 4.255%.

United States-Russia: In an interview over the weekend, President Trump admitted he is angry about Russian President Putin’s stalling over a peace agreement to end his invasion of Ukraine. He also said that if Putin continues to drag his feet, the US will impose tariffs on any country that buys Russian oil. Although it still isn’t clear whether Trump would actually impose such tariffs, given his interest in establishing warm relations with Russia, the threat raises the possibility of reduced Russian oil supplies and higher world energy prices in the future.

United States-Ukraine-Russia: The New York Times yesterday carried a long article exposing how the US has been much more intimately involved in Ukraine’s defense against Russia’s invasion than previously known. The article asserts that US military officers and CIA personnel have worked literally shoulder-to-shoulder with the Ukrainians throughout the war to help them with strategic and tactical military planning, targeting, training, and intelligence operations, offering assistance that goes far beyond the $65 billion or so in weapons provided to Kyiv.

• The article casts the US aid to Ukraine as another US-Russia proxy conflict, cut from the same cloth as the Vietnam War in the 1960s, Afghanistan in the 1980s, and Syria in the 2010s. The common thread running through each conflict is US leaders’ fear that Russia could expand its power and influence beyond its own borders.
• The article asserts that joint military planning and intelligence sharing have underpinned some of Kyiv’s key successes in the war, such as the sinking of the Moskva, the flagship of Russia’s Black Sea fleet. The relationship has now come under strain because of US caution versus Ukrainian leaders’ aggressiveness, but it continues. In fact, US help has been instrumental in Ukraine’s recent drone strikes against targets deep in Russia.
• According to the report, the US’s assistance to Ukraine has been run by generals headquartered at Wiesbaden, Germany. However, those generals have been assisted by a range of officers from other North Atlantic Treaty Organization countries, including the UK, Canada, and Poland.
• The involvement of the US and NATO in the war was almost certainly known or surmised by the Russians. The more important implication may be on politics in the US and other NATO countries. Importantly, the previously secret Western involvement in the war could validate the isolationism and distrust of government elites that is so prevalent among right-wing populists, such as those in the “America First” movement.

United States-European Union: US Embassies around the EU have reportedly sent a letter to some large European firms warning them to comply with a US executive order banning diversity, equity, and inclusion programs. The letter asserts that President Trump’s order banning US government suppliers and service providers from running DEI programs applies even outside the US. Coupled with Trump’s tariff program and other economic policies, the letter is likely to further exacerbate US-EU relations and potentially lead to retaliation.

United States-Japan: Visiting Tokyo yesterday, US Defense Secretary Hegseth described Japan as an “indispensable partner” in confronting Chinese geopolitical aggressiveness and reiterated the US’s treaty commitment to defend the Japanese. The remarks came shortly after Hegseth provided similar assurances to the Philippines late last week. Nevertheless, reports indicate that allies throughout the Asia-Pacific region remain unsettled by the US’s pullback from its defense commitments to NATO.

• One question for the Trump administration is whether it can keep the US’s Asia-Pacific allies on-board in blocking China’s expansionist policies. The challenge is that allied leaders can’t “unsee” Trump’s cooling commitment to NATO, even as they prepare for him to impose new trade barriers and other economic costs on them.
• Reflecting the Asia-Pacific allies’ concerns and their desire to hedge against Trump’s policies, Japanese and South Korean officials yesterday met with Chinese Commerce Minister Wang to explore deeper economic ties, including a potential trilateral free-trade agreement.

China: The government’s official purchasing managers’ index for manufacturing rose to a seasonally adjusted 50.5 in March, beating expectations and increasing from 50.2 in February. As with most major PMIs, the official China gauge is designed so that readings over 50 indicate expanding activity. The March reading therefore adds to the evidence that China’s modest economic stimulus programs are boosting activity, but it’s not clear that the factory sector’s growth can continue to strengthen in the face of structural headwinds and US tariff policies.

France: A court in Paris today convicted Marine Le Pen, leader of the far-right National Rally party, of embezzling European Union funds. The court also sentenced to her to prison and banned her from running in any election for the next five years. If sustained, the court’s ruling will bar Le Pen from running in France’s 2027 presidential election, where she was expected to be the frontrunner.

Portugal: Despite Europe’s new, Germany-led rush to boost defense spending in the face of potential Russian aggression, Portuguese Finance Minister Joaquim Miranda Sarmento said his government is committed to keeping its budget in surplus, even as it modestly boosts military outlays. As we’ve noted before, Europe’s plan to hike defense spending creates opportunities for investors. However, the finance minister’s statement highlights that European nations more distant from Russia will likely be less enthusiastic about defense rebuilding.

US National Security: Citing White House officials, Politico reports that Vice President Vance, Chief of Staff Wiles, and top personnel officer Sergio Gor told President Trump last week that he should fire National Security Advisor Waltz for his role in the “Signalgate” scandal rocking the administration. However, Trump rebuffed the suggestion to avoid “giving a win” to the media and his political opponents. The report suggests Trump will keep trying to ride out the scandal, even at the risk of potentially losing the support of voters concerned about national security.

• Within the administration, Waltz has become the main target for blame in the scandal, given that he or one of his aides invited a reporter, apparently inadvertently, into the controversial group chat discussing sensitive US military operations against the Houthi rebels in Yemen. That has raised concerns about Waltz’s security discipline and why he had the reporter in his phone’s contact list (which raises the question of whether Waltz has leaked information to the reporter in the past).
• However, including the reporter in the group chat isn’t the most serious aspect of the scandal. One more important problem is that the participants were discussing such sensitive information on their cell phones, all of which have probably been compromised by the Chinese, Russian, and potentially other intelligence services. Another important problem is that they were relying on the commercial Signal messaging app instead of the government’s advanced encryption systems.
• Over the weekend, reports said Republican defense hawks are also getting uncomfortable with Defense Secretary Hegseth, given what they see as a series of mistakes, from discussing military operations details on the Signal chat to bringing his wife to a meeting that discussed sensitive military issues related to Ukraine (his wife apparently has no security clearances). That raises the risk that Hegseth could also be skating on thin ice.
• Coupled with other issues in Trump’s foreign policy program — such as his deferential approach to Russian President Putin, his aim to cut US defense spending, and his administration’s public exposure of new CIA hires — the Signalgate scandal and Hegseth’s missteps threaten to make the Trump administration look weak on national security, endangering his support among traditional, pro-defense Republicans even as the Times article mentioned above potentially energizes isolationist Republicans.

US Tax Policy: Citing a senior White House official, Axios on Saturday said President Trump has mulled letting his 2017 income tax cuts for top earners expire to make room in the federal budget for other priorities, such as his proposal to eliminate taxes on tips. If implemented, that would allow the top marginal tax rate to snap back to 39.6% from 37.0% now, and it would lower the income threshold above which the top rate applies.

US Consumer Demand: Airline Virgin Atlantic today reported its first annual profit since the coronavirus pandemic, but it warned that it has recently noticed softer demand for transatlantic flights among US consumers. Coupled with similar reports from US carriers and soft readings on consumer optimism over the last several weeks, the Virgin Atlantic report adds to the evidence that economic uncertainty is starting to weigh on consumption plans and could soon lead to weaker economic activity.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are closely processing the latest inflation and spending data. In sports, Duke secured a spot in the Elite 8 — congratulations to the Blue Devils! In today’s Comment, we’ll break down the rising tensions between the US and EU over Ukraine, analyze global reactions to new US auto tariffs, and cover other key market-moving developments. As always, we’ll wrap up with a roundup of today’s domestic and international data releases.

America First, Europe Out: The Trump administration is reportedly preparing to pursue an exclusive resource partnership with Ukraine, a move that would deliberately sideline Europe.

• The US is pushing for a “right of first offer” on all infrastructure and critical mineral projects in Ukraine, a demand that reflects Washington’s effort to secure priority access to development projects once the war concludes. Although the arrangement has yet to be finalized, the Trump administration appears determined to include it. Ukrainian President Volodymyr Zelensky has expressed openness to the idea but remains hesitant to commit due to the potential economic implications.
• America’s insistence on securing final approval over foreign investment in Ukrainian mineral resources comes as European nations have shown growing interest in similar arrangements. Since October, France has been negotiating with Ukraine to secure access to its critical minerals that could be used to bolster’s Europe’s military ambitions. As part of the potential agreement, France is working with the rest of Europe on deploying “reassurance troops” to Ukraine to help enforce any future peace deal.
• The competition for access to Ukrainian resources underscores the widening rift between the US and Europe. Although America has been the largest financial supporter of Ukraine’s defense against Russia, it has declined to provide the long-term security guarantees Ukraine would need to deter any future aggression from Russia. Meanwhile, some European nations have shown a willingness to offer limited security assurances post-war but consensus on this approach remains elusive.

• The approaching end of the war in Ukraine may signal the first signs of fraying in US-European relations. While both sides will likely seek to maintain their alliance, growing mutual distrust has become undeniable. This emerging divide could accelerate Europe’s push for strategic autonomy, particularly in defense capabilities independent of US support. Such a shift may prove transformative for European defense industries, fueling their long-term growth and technological development.

Auto Tariff Fallout: President Trump’s decision to impose auto tariffs has triggered retaliatory measures from foreign governments, as nations seek both to shield domestic industries and avoid escalating tensions with Washington.

• Canada and the European Union were among the first to respond to the tariffs. Canadian Prime Minister Mark Carney warned that the US action would permanently alter bilateral relations, affecting both trade and security cooperation. Across the Atlantic, France and Germany have advocated for a coordinated EU-wide response to the auto tariffs, potentially targeting the US services sector as it vows not to yield to the Trump administration.
• Despite their combative public posturing, signs are emerging that key Western allies may be pursuing backchannel compromises. The European Union is actively considering reduced penalties for Meta and Apple — a conciliatory signal aimed at de-escalating tensions. Simultaneously, Canadian PM Carney has indicated a willingness to negotiate a new trade agreement with the Trump administration, one that would diversify Canada’s export markets beyond its current heavy reliance on the US.
• Asian economies are bearing the brunt of the auto tariffs, given the centrality of vehicle manufacturing to their economic ecosystems. Japan, while reserving the right to impose retaliatory measures, is currently focused on mitigating the anticipated economic fallout. Taiwan, meanwhile, has proactively sought to appease the US through unilateral concessions, including lowering its own import tariffs and significantly boosting American energy purchases.

• While the outcome of the highly anticipated “Liberation Day” on April 2 remains uncertain, the potential fallout could be significant given possible retaliatory measures from key trading partners. That said, we maintain cautious optimism that reality may fall short of expectations, as behind-the-scenes concessions could prevent uncontrolled escalation in global trade tensions. Should this scenario materialize, equity markets may see a meaningful rally next week.

US Federal Debt: A government watchdog warned that the US national debt burden could exceed World War II levels, signaling that federal spending remains on an unsustainable trajectory.

• The Congressional Budget Office (CBO) projects that the US debt-to-GDP ratio will rise to 107% by 2029 and could soar to 156% by 2055. Although these figures remain alarmingly high, they are below previous projections due to the assumed reductions in Medicaid, lower interest rates, and higher tax revenues. However, the estimate excludes potential extensions of current tax cuts — a policy that, if enacted, could add another 47 percentage points to the debt ratio by 2054.
• The estimate follows Moody’s recent warning that the Trump administration’s tariffs could undermine the government’s ability to manage mounting debt and higher interest rates. While the ratings agency acknowledged America’s economic growth and resilience should support debt financing, it cautioned that trade tensions might weaken demand for US Treasurys. Moody’s also highlighted unfunded tax cuts and economic tail risks as potential threats to long-term fiscal sustainability.
• Despite ongoing concerns about the national debt, the Trump administration has initiated efforts to reduce spending. Elon Musk, leading a task force focused on this issue, has identified $130 billion in potential savings to date, with a target of $1 trillion in total cuts by May. The group is prioritizing workforce streamlining within the government as a key strategy.
• Debates over whether the US can sustainably manage its debt burden are likely to intensify following the passage of the long-anticipated tax bill. While proponents argue that lower taxes will spur faster economic growth and, in turn, increase government revenue, this dynamic could be complicated by ongoing tariffs on imports. Moreover, as long as uncertainty persists regarding the trajectory of fiscal policy, Treasury yields are likely to remain elevated, all else being equal.

German Coalition: Europe’s largest economy is nearing the formation of a new government after February’s election brought the Conservative party to power.

• The new government will likely form from a coalition between the Conservative Party and the Social Democrats (SPD), though the two sides remain divided on key fiscal policies. The primary disagreement centers on the country’s financial direction. The Conservatives propose cutting corporate taxes from 15% to 10% while implementing stricter unemployment benefit requirements. Conversely, the SPD advocates raising capital gains taxes from 25% to 30% and maintaining current welfare spending levels.
• Although the coalition parties will likely finalize an agreement, the prolonged budget negotiations reveal fundamental tensions in reconciling the country’s competing priorities. The government faces a difficult balancing act between significantly boosting military expenditures and maintaining robust social safety nets — a combination that appears increasingly unsustainable given the nation’s growing debt burden.
• We believe markets will remain skeptical about debt sustainability until policymakers demonstrate a credible path for addressing these contradictory fiscal objectives, suggesting bond yields may face persistent upward pressure.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is currently digesting the latest news regarding tariffs. In sports, the St. Louis Cardinals begin their season today, embarking on what promises to be a historic run for the World Series title this year. Today’s Comment will delve into the latest developments on auto tariffs, an update on the TikTok deal, and other pertinent market news. As usual, this report will also include a summary of key international and domestic data releases.

More Tariffs, More Problems: Wednesday’s tariff announcement marks the administration’s latest move to reshape trade policy, even as Federal Reserve officials and business leaders voice growing apprehension about its potential economic impacts.

• President Trump will impose sweeping new 25% tariffs on automotive imports, set to take effect next week, as part of his administration’s efforts to reshore vehicle manufacturing. The tariffs will comprehensively cover finished vehicles and critical components, including engines, powertrains, transmissions, and electrical systems. Notably, these tariffs will be implemented as permanent measures without exemptions.
• The president has consistently maintained that these protectionist measures are essential to safeguard America’s industrial base and national security. This justification originates from his administration’s 2019 Section 232 investigation into automotive imports under the Trade Expansion Act, which authorizes executive action when imports are deemed to threaten national security interests.
• New tariffs will disproportionately affect foreign automakers by reducing the price competitiveness of their vehicles in the US market. Mexico and South Korea appear particularly vulnerable, having significantly expanded their automotive exports to the United States in 2024. With imports accounting for nearly half of all vehicles sold domestically last year, American consumers may also face higher prices and reduced choice in the marketplace.
• Fed officials have warned that new tariffs may constrain their ability to implement further rate cuts this year. Atlanta Fed President Raphael Bostic recently challenged Chair Powell’s assessment of tariffs as transitory, revising his projected rate cuts for 2025 from two down to one. Meanwhile, St. Louis Fed President Alberto Musalem warned that hawkish trade policy could generate secondary inflationary effects, potentially prolonging the economic impact of tariffs beyond just a one-time effect.

• Furthermore, business leaders are increasingly concerned about a potential economic recession. A recent survey of CFOs revealed that almost 60% anticipate an economic downturn within the next six months, with an additional 15% expecting it in 2026. These fears are seemingly supported by the highly anticipated update in the Atlanta GDPNow forecast, which projects a severe economic slowdown in the US economy during the first quarter, when adjusted for gold imports.
• A key focus for us has been observing the market’s reaction to the latest trade developments. Although the market closed lower yesterday, it’s noteworthy that the VIX remained below the critical level of 20. This suggests that the immediate impact of the tariff actions on equities may be diminishing. Looking ahead, the market’s primary focus will shift to economic indicators. Continued GDP growth could provide some upside for the market; conversely, a contraction could lead to an increase in market pessimism.

Hardball Tactics: While often discussed as a tool for reindustrialization, the administration has highlighted tariffs’ broader strategic uses, including pressuring foreign regulatory reforms and securing critical acquisitions.

• President Trump has signaled a potential reduction of certain Chinese tariffs as leverage in negotiations to transfer TikTok to US ownership. This conciliatory gesture follows his administration’s recent imposition of 20% tariffs on targeted Chinese imports, while broader product-specific duties remain in effect. Although Beijing would welcome tariff relief, the Chinese government — whose approval is required for any sale — remains adamant that ByteDance retains control of TikTok’s core algorithm.

• China may not be the only target of such measures. The Trump administration has repeatedly stated its willingness to impose tariffs on European allies unless they amend legislation perceived as discriminatory toward US technology firms. Furthermore, officials have pushed for the elimination of the EU’s value-added tax system, despite its non-discriminatory application across all companies.
• The administration’s tariff strategy appears to be driven by a wider geopolitical vision, and a desire to position the United States as the central hub of global commerce. This approach is not solely focused on domestic re-industrialization but also involves actively supporting US corporations in acquiring strategic foreign competitors and in influencing international regulations deemed detrimental to American business interests.

• A crucial metric to monitor is the US net international investment position (NIIP), which measures the difference between US-owned assets abroad and foreign-owned assets within the US. This gap has recently widened to its largest recorded level, indicating a growing foreign ownership of US assets. The administration may be considering policies to reduce this imbalance as part of its broader objective to reshape the global economic landscape. If successful, large-cap US corporations would likely be primary beneficiaries.

Enough about Tariffs, Now NATO: Amid growing European doubts about America’s NATO commitments, the transatlantic military alliance has reaffirmed its readiness to defend itself and its allies should the need arise.

• The NATO Secretary General has unequivocally declared the alliance’s readiness to deploy its full military capabilities in response to any Russian aggression against Poland or other member states. These remarks come as Moscow nears a potential agreement with the US to end its invasion of Ukraine — a development that has heightened concerns about possible Russian expansion of hostilities to other European targets.
• The escalating Russian threat has prompted European nations to significantly boost defense expenditures, aiming to ensure self-sufficiency amid concerns about potential US disengagement from NATO. Poland has emerged as the vanguard of this strategic realignment, committing to spend 4% of GDP on defense — the highest percentage among NATO members — while actively pursuing nuclear-sharing arrangements to enhance its deterrent capabilities.
• Europe’s drive for greater military autonomy is expected to benefit defense sector equities across the bloc. However, the substantial borrowing required to fund this expansion may exert upward pressure on interest rates. One potential mitigation strategy would be the introduction of EU-backed guarantees for joint defense bonds. While discussions about such mechanisms are ongoing, concrete progress toward implementation remains limited.

BOJ Pause: The Bank of Japan’s hawkish stance faces headwinds from trade uncertainty, pushing back the timeline for any potential rate policy normalization.

• BOJ Governor Kazuo Ueda has emphasized maintaining policy flexibility ahead of the central bank’s May 1 meeting. His cautious approach to rate hikes stems from concerns that tightening monetary policy amid escalating trade tensions could potentially harm Japan’s economic recovery.
• Japan has seen an increase in its inflation over the last few months, with the inflation reading hitting 3% in February. The lack of action to ensure that inflation falls to target is likely to put further pressure on the Japanese yen (JPY) which recently surpassed 150 per dollar.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Investors are closely tracking the latest tariff developments. Meanwhile, in a historic NHL moment, Alex Ovechkin netted his 889^th career goal, placing him just six away from eclipsing Wayne Gretzky’s all-time record. Today’s Comment will analyze the latest consumer confidence data, explore the implications of new semiconductor restrictions, and break down other key financial stories driving the markets. As always, we’ll also provide a roundup of domestic and international economic releases.

Soft vs. Hard Data: Recent tariffs and government workforce reductions have significantly dampened consumer confidence, as reported by The Conference Board. However, the economy continues to show signs of growth.

• US consumer confidence plummeted to a three-year low in March, with The Conference Board’s index dropping sharply to 92.9 from February’s revised 100.1. The decline was driven primarily by collapsing future expectations, as the six-month outlook plunged to 65.2 (down from 74.8), marking its weakest reading in over a decade. Even surveys on present situation conditions have deteriorated, falling from 138.1 to 134.5, suggesting broadening economic concerns among households.
• Tariff-related uncertainty and macroeconomic concerns drove the sentiment shift. Key indicators flashed warning signs, such as inflation expectations breaching 6% (first since 2023) and employment outlooks hitting 12-year lows. The confidence gap between demographics was striking — respondents 55+ showed the most pronounced pessimism, contrasting with modest optimism in the under-35 cohort, which saw a slight uptick.
• While depressed consumer confidence suggests growing economic anxiety, key indicators confirm the underlying economy remains robust. The unemployment rate continues to hold below 5%, with initial jobless claims staying at historically manageable levels. Recent inflation data has also provided encouraging signs of moderation. In essence, despite public pessimism, fundamental economic conditions still point to sustained expansion.

• The recent dip in consumer confidence warrants close monitoring, as it signals growing household concerns about economic conditions. However, the labor market’s resilience and robust consumer spending during the significant Conference Board confidence drop in 2022 suggest that confidence surveys may not provide a complete picture of economic performance. In summary, while current trade tensions could create modest headwinds for growth, we find no definitive evidence that the economy has entered a recession.

 Chipmaker Ultimatum: Foreign governments and tech firms are pushing for relaxed US semiconductor export controls ahead of the May 15 sanctions deadline, reflecting the mounting challenges of operating in today’s geopolitically divided marketplace.

• The “AI Diffusion Rule,” a late-term Biden administration regulation restricting the sale of high-performance computing technology to specific nations, has sent shockwaves through the semiconductor industry. This framework aims to safeguard advanced US technology and maintain America’s competitive edge by compelling other countries to adhere to US standards. This move appears to be a strategic effort by the US to ensure its continued leadership in the AI space.
• The restrictions have drawn frustration from both corporations and foreign governments, as they cap potential sales for tech firms while pushing nations to align more closely with US interests. Semiconductor companies fear losing access to lucrative markets like China, which is pouring billions into AI infrastructure. Meanwhile, US allies — including Saudi Arabia, Israel, and Mexico — face new hurdles in developing their own domestic tech industries under the tightened export regime.
• The Trump administration has shown no willingness to relax these restrictions. In fact, it escalated the measures on Tuesday by adding 80 companies and organizations —predominantly Chinese, but also including firms from Iran, South Africa, and Taiwan — to a blacklist barring them access to US semiconductor technology on national security grounds.

• Geopolitical tensions are anticipated to strain chipmakers’ profitability due to the growing bifurcation of supply chains between US-aligned and China-aligned entities. Coupled with the semiconductor industry’s cyclical nature, these factors could generate significant headwinds. Considering these challenges, we believe diversifying investments beyond traditional big tech firms may offer value in optimizing portfolio returns in the current environment.

Growing Trade Volatility: President Trump has signaled an unwavering stance on tariffs, seeking to condition markets to expect — or at least react less sharply to — new trade restrictions.

• On Tuesday, President Trump announced limited tariff exemptions effective April 2, while tempering expectations for widespread relief. He maintained his commitment to the tariffs but hinted at a more nuanced strategy, favoring calibrated adjustments over rigid reciprocal actions. These remarks coincided with reports that his administration is exploring a more targeted implementation of the tariffs due next Wednesday, possibly encouraging last minute deal making with countries before the deadline.
• At the same time, the president has accelerated efforts to impose tariffs on copper, moving ahead of schedule. This follows President Trump’s earlier directive to the US Commerce Department to complete a 270-day investigation into the metal’s trade patterns. However, the review appears to be concluding significantly earlier than planned, with expectations that Trump will soon announce 25% tariffs on copper imports. The announcement has already led to a surge in copper prices.

• A key focus is the market’s reaction to evolving trade dynamics. In recent months, equities have shown significant swings and increased volatility. As these fluctuations become more commonplace, we anticipate investor attention shifting towards economic fundamentals — specifically, tangible evidence of tariff impacts — rather than solely policy announcements. Assuming continued economic resilience, the period of heightened volatility may be receding.

Truce Coming Soon? Ukraine and Russia have agreed to a temporary ceasefire on sea and energy targets. However, significant challenges remain in reaching a comprehensive peace agreement to resolve the broader conflict.

• While the full terms of the agreement remain unclear, the deal represents the first formal accord between the warring parties. US mediators secured Russian participation by offering targeted sanctions relief in exchange for reduced military operations. For its part, Ukraine has demonstrated willingness to follow America’s diplomatic lead in these negotiations.
• However, no clear timeline for resolving the conflict has emerged, particularly from the Russian side. President Trump recently criticized Putin for deliberately stalling peace negotiations, but remains optimistic that a deal can be done. Analysts speculate that Putin, facing mounting war costs, continues to seek tangible justification for the invasion’s “success,” most likely through complete control of the Donbas region.
• A resolution to the Ukraine-Russia conflict would significantly impact global markets, with particularly pronounced effects on European economies and commodity markets, especially oil. While we maintain our base-case expectation for a negotiated settlement before year-end, the bargaining process will likely prove more protracted than Western powers, including the US administration, would prefer.

View PDF