by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are reacting to the news that a government shutdown was averted. In sports, Steph Curry made history by hitting his 4,000^th 3-pointer in the Warriors’ victory over the Kings. Today’s Comment will explore the market’s recent correction, how a PPI subcomponent could shed light on the trade war’s effects, and other key market-moving developments. As always, we’ll also provide a summary of international and domestic data releases.

S&P 500 Correction: The market plunged 10.1% from its all-time high on Thursday, driven by mounting fears of a government shutdown and escalating trade war tensions. The sharp sell-off underscores just how sensitive investors have become to any signs of uncertainty.

• On Thursday, President Trump escalated trade tensions with the EU by threatening to impose tariffs of up to 200% on European wine, retaliating against proposed EU tariffs on American goods. This move sent a strong signal of escalating trade uncertainty, revealing a further decline in relations and the increasingly erratic nature of the dispute.
• Meanwhile, House Speaker Chuck Schumer (D-NY) fueled further uncertainty by initially declaring that his party would not support the legislation needed to avert a government shutdown. Although he later walked back this threat and expressed support for the bill, his initial reluctance underscored growing concerns that deepening partisanship is making effective governance increasingly difficult.
• Heightened uncertainty has prompted investors to reduce their exposure to risk assets, particularly the mega cap tech stocks. The divergence in year-to-date performance — a 1.6% decline for the S&P 500 excluding the Magnificent 7 versus a 14.4% drop for those stocks — indicates a significant rotation. This shift reflects potential investor fatigue with the persistent tech-led market leadership of the preceding two years.

• Trade tensions are creating a “wait and see” market. A prolonged conflict risks a significant market sell-off due to increased volatility. However, a rapid resolution could fuel a market surge, with mega cap tech leading the way, given their exposure to trade sentiment and growth. In the interim, commodities could provide a potential buffer against market uncertainty.

Producer Prices Ease: Following a report of easing consumer inflation in February, producer prices also showed a slowdown in supplier price pressures. However, the ongoing trade war raises concerns that this relief may be temporary.

• The overall Producer Price Index (PPI) showed a year-over-year slowdown, easing from 3.7% to 3.2%, while core PPI, which excludes food and energy, also moderated, falling from 3.8% to 3.4%. This deceleration was largely attributed to a decline in trade services, which tracks changes in profit margins between wholesale and retail businesses. The report indicates that businesses may be hesitant to pass on higher costs to consumers.
• Trade services are expected to remain a critical indicator to monitor as the trade war persists. Changes in margins between retailers and wholesalers reflect the pass-through effects of price increases, making this metric particularly sensitive to the impact of tariffs. As a result, it could provide valuable insights into how businesses are navigating the challenges posed by ongoing trade tensions.
• This indicator proved particularly useful in assessing the impact of supply chain disruptions and surging demand on businesses during the pandemic. As the gap between retail and wholesale margins widened, inflationary pressures intensified. Conversely, as these margin differentials began to narrow, price pressures started to ease for consumers.

• In short, as long as trade services remain relatively subdued, the inflationary impact of tariffs is likely to be contained. As highlighted in previous reports, while many argue that taxes on imported goods are inherently inflationary, we believe the effects may vary significantly depending on the type of good. In fact, we contend that earnings compression — where businesses absorb higher costs rather than passing them on to consumers — could also emerge as a realistic outcome of the trade war.

Benefits on the Chopping block? President Trump is open to allowing Republican lawmakers to explore cuts to certain social spending programs as part of efforts to secure funding for his priorities, including tax cuts, border security, and defense spending.

• The president is reportedly permitting Senate Republicans to identify instances of “waste and fraud” within Medicaid as part of an effort to curb spending and reduce costs. This development follows reports that Elon Musk’s cost-cutting taskforce, DOGE, has been examining inconsistencies in entitlement disbursements as part of its broader initiative to address the deficit. Both efforts highlight a growing focus on fiscal responsibility, though such measures are likely to draw scrutiny and debate.
• The heightened focus on spending comes as Republicans seek to finance an ambitious tax bill, with several conservative lawmakers insisting they will not support any legislation that exacerbates the fiscal deficit. Recently, Senator Rand Paul (R-KY) has been vocal about his concerns, vowing to oppose the stopgap bill due to its potential impact on spending. Similarly, Kentucky Representative Thomas Massie voted against the legislation in the House, citing the same reservations.
• The ongoing debate over how to fund the proposed tax cuts indicates that conservatives remain determined to pass the legislation. Efforts to target waste and inefficiency may offer some financial flexibility, but so far, these measures have not yielded substantial savings. While we anticipate that the tax bill will likely be passed before the end of the year, we remain skeptical about its ability to be deficit-neutral.

Ceasefire Close? The Russian president appeared to downplay the possibility of agreeing to a temporary ceasefire with Ukraine, instead expressing a preference for pursuing a long-term resolution. That said, there does seem to be progress.

• Putin has indicated openness to the proposed arrangement but emphasized that further discussions are necessary before he would agree to the plan. A central point of contention revolves around the allocation of territory between Ukraine and Russia, which remains a highly sensitive and unresolved issue. Additionally, negotiations would need to address the critical question of control over a large power plant, a matter of strategic and symbolic importance for both sides.
• Despite the lack of clarity, President Trump seems optimistic that a deal will be done between the two sides as Ukraine has already agreed to the terms of the truce. While there is no timeline as to when an agreement will be reached, it is clear that Russian and US officials are in contact to get something done over the next few months.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is currently weighing the possibility of a government shutdown. In sports news, Real Madrid secured a victory over cross-town rivals Atlético Madrid and advanced to the quarterfinals of the Champions League. Today’s Comment will delve into the bond market’s subdued reaction to the latest CPI report, explore why Senate Democrats are engaging in a high-stakes standoff over the stopgap funding bill, and cover other key market-related news. As always, the report includes a summary of domestic and international economic data releases.

CPI Down, Market Shrugs: While the Bureau of Labor Statistics Consumer Price Index (CPI) indicated a better-than-expected inflation reading for February, the bond market’s muted response is signaling ongoing investor apprehension regarding tariffs.

• Annual inflation in February surprised to the downside, declining from 3.0% to 2.8%, while core inflation also slowed, dropping from 3.3% to 3.1%. Both figures came in below expectations, as headline inflation was forecast to fall to 2.9% and core inflation was projected to ease to 3.2%. The moderation was driven by cooling shelter costs and declines in the prices of airfare and gasoline. Although egg prices surged 58% year-over-year, they had a negligible overall impact on the index.
• Despite the positive inflation news, concerns over tariffs took center stage. On Wednesday, the US imposed tariffs on steel and aluminum products, a move expected to significantly impact automakers and homebuilders. Furthermore, the prospect of additional tariffs, set to take effect on April 2, raises the risk of renewed price pressures in the near future.
• Despite inflation posting its strongest two-month start since the pandemic, the potential disruption from tariffs has led many investors to refrain from concluding that the fight against inflation will end anytime soon. The 10-year Treasury yield ended the day roughly 3 basis points higher, reflecting growing skepticism that inflation will reach the 2% target this year.

• One area we will be closely monitoring during the trade war is the labor market. We anticipate that firms may attempt to offset profit losses caused by tariffs by reducing their workforce. Such a move could help exert downward pressure on inflation. However, if the labor market remains tight or tightens further due to tariffs, inflation is likely to stay stubbornly elevated.

Polish Nuclear Power? Polish President Andrzej Duda has proposed that the US station nuclear warheads in Poland, reflecting growing global interest in nuclear arsenals amid perceived US reluctance to provide security guarantees.

• Duda believes that President Trump should consider relocating US nuclear warheads currently stored in Western Europe or the United States to Poland as a strategic deterrent against Russian aggression. His proposal aims to revive discussions around nuclear sharing, a dialogue initiated during the previous administration. This initiative comes at a critical juncture, as Eastern European nations seek enhanced security measures to counter potential threats from Russia.
• While it is unclear whether Trump will entertain such a proposal, the idea highlights the deepening anxieties among Eastern European nations regarding the potential fallout from the ongoing Russia-Ukraine conflict. Duda’s remarks align with his recent push to increase Poland’s military spending to a minimum of 4% of GDP, reflecting a broader effort to strengthen regional security and deterrence capabilities in response to heightened geopolitical tensions.

• Poland’s proposal to request nuclear weapons from the US highlights a growing trend among nations seeking to fill the security void left by America’s apparent reduction in global military engagement. While such a move would be politically untenable in most countries, it reflects a broader strategy for self-preservation, as possessing nuclear capabilities could deter potential invasions and eliminate the prospect of unconditional surrender in the face of aggression.
• This trend may extend beyond Europe, as regions like the Middle East also seek nuclear capabilities for security. A US military pullback could spur nuclear proliferation, risking a global arms race. For investors, this instability could boost commodities, as demand for safe-haven assets like gold and raw materials often rises amid geopolitical uncertainty.

On Second Thought: While it was widely anticipated that Senate Democrats would approve the stopgap measure to fund the government for the next six months, the group ultimately failed to support the legislation. This unexpected setback has significantly increased the likelihood of a government shutdown over the weekend.

• Senate Democrats are advocating for a short-term 30-day stopgap bill, prioritizing their push for specific legislative measures over the longer-term funding proposal put forward by their counterparts. Their refusal to support the extended bill heightens the risk of a government shutdown, which could be averted only if they reconsider their stance before the critical Friday deadline.
• The ongoing standoff between Democrats and Republicans underscores the deepening partisan divide, as both sides struggle to find common ground on reducing the government deficit. In the first five months of fiscal year 2025, government spending soared to a record $1.147 trillion, including $307 billion from President Trump’s first month in office.

• This mounting fiscal challenge underscores the pressing need for bipartisan cooperation, yet the persistent deadlock casts doubt on the government’s ability to effectively address its escalating financial obligations. While Democrats currently oppose the measure, there remains a possibility that they could ultimately support it in order to avert the political fallout and economic disruption that would accompany a government shutdown.

Europe’s Borrowing Costs: As EU countries move to significantly increase military spending, the resulting pressure on government budgets is driving up bond yields, compelling the bloc to explore drastic measures to prevent debt from escalating into a long-term economic challenge.

• The potential downgrade by Fitch Ratings has pushed France’s 30-year government bond yields to their highest levels in 14 years, as investors react to heightened fiscal concerns. Last month, the ratings agency warned that France might scale back its planned fiscal consolidation following the passage of its budget. These concerns have only intensified since the government pledged to increase defense spending, further straining its financial outlook and raising questions about its long-term debt sustainability.
• France is not alone in facing fiscal pressures, as Germany is also experiencing a sharp rise in long-term bond yields amid plans to significantly increase spending. The yield on Germany’s 10-year bund has surged the most in a single week since 1990, following efforts to revise the country’s budget rules to accommodate higher defense expenditures.
• One of the key developments to monitor as these countries aim to strengthen their defense capabilities is the potential shift toward a more integrated fiscal union. Recently, Italy has proposed the creation of a European guarantee mechanism, which would enhance the marketability of bonds issued by countries seeking to increase debt to fund defense initiatives. This implicit backing could make European bonds more attractive to foreign bondholders.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are digesting the latest inflation data. In sports, Gonzaga clinched a victory over Saint Mary’s in the West Coast Conference Finals. Today’s Comment will cover key developments, including the ongoing US-Canada trade tensions, Ukraine’s proposed 30-day ceasefire, and other market-moving stories. As always, the report will also feature a summary of recent domestic and international economic data releases.

Tariff Uncertainty: US equities swung sharply on Tuesday amid fears of a US-Canada trade war. The S&P 500 briefly dipped into correction territory, rebounded, then fell again as trade concerns lingered, keeping markets on edge.

• Market volatility surged as tensions escalated between the US and Canada over retaliatory tariffs. The day began with President Trump imposing 50% tariffs on Canadian steel and aluminum products as a response to Ontario’s threat of a 25% surcharge on electricity exports to Michigan, Minnesota, and New York. The standoff eased after Ontario agreed to drop the surcharge in exchange for a meeting with the US Secretary of Commerce Howard Lutnick to discuss the USMCA trade agreement.
• Following the arrangement, President Trump scaled back the tariff on Canadian steel from 50% to 25%, alleviating some market concerns but failing to fully ease fears over ongoing trade uncertainty. While Ontario has withdrawn its electricity surcharges, Canada has opted to maintain its tariffs on US goods and has signaled that it will only reconsider once it believes the Trump administration is prepared to be respectful in its approach. The situation remains fluid, leaving markets wary of further developments.
• At midnight, universal tariffs on aluminum and steel products were imposed without exemptions, marking a significant escalation in trade policy. The European Union retaliated with its own tariffs that are expected to take place mid-April, while the UK is expected to maintain its current stance and refrain from immediate action. Meanwhile, Chinese tariffs on US agricultural products have also gone into effect.

• The ongoing trade war is expected to keep equities highly vulnerable to midday swings, as investors attempt to assess the potential economic impact of tariffs. While there have been preliminary signs of an economic slowdown — such as major airlines reporting weaker demand for both leisure and business travel — these indicators remain anecdotal. For now, there is no concrete evidence of a broader economic downturn, but the uncertainty continues to weigh on market sentiment.

Ukraine Peace Deal: US officials successfully persuaded Ukraine to back a ceasefire agreement with Russia. Although the deal still requires Putin’s approval, it includes provisions for the US to share military intelligence with Ukraine and restore military aid, underscoring the continued strong relationship between the two nations.

• The proposal outlines a 30-day ceasefire that would encompass the entire front line, expanding beyond the initially proposed restrictions on air and sea operations. This development comes at a critical juncture, as Ukraine’s recent territorial losses in Russia’s Kursk region have weakened its negotiating position, diminishing a key bargaining chip tied to territorial control. The agreement represents a potential shift in the conflict’s dynamics, though its broader implications remain uncertain.
• With Ukraine agreeing to the ceasefire, the focus now shifts to Moscow. Russian President Vladimir Putin has consistently justified the continuation of the war as a means to achieve the country’s long-term strategic goal of preventing NATO expansion near its borders. While the conflict has likely stalled Ukraine’s bid to join the military alliance, Russia has yet to secure full control of the Donbas region — a key objective that would mark a significant success in its campaign.

• That said, the ceasefire agreement signals a potentially positive development, suggesting that the Russian invasion may be nearing its conclusion. This would be a significant boost for risk assets, particularly in Europe, as the resolution of the conflict could pave the way for the return of Russian energy supplies to the global market. Such a scenario would likely accelerate Europe’s efforts to revitalize its industrial sector, with Germany standing to benefit considerably.

Shutdown Avoided: The House of Representatives has passed a bill to fund the government for the next seven months. The legislation is now headed to the Senate, where it is expected to pass with bipartisan support, as Democrats are likely to back the measure to ensure government operations continue uninterrupted.

• The proposed legislation, featuring a $6 billion boost to defense spending, additional funding for border security, and a $13 billion reduction in non-defense programs, has become a lightning rod for controversy. Republican lawmakers argue that the bill fails to adequately address government overspending, while Democrats express deep concern over the targeted cuts to crucial programs they are aiming to protect.
• While the bill ultimately passed, the vote was not without its share of drama, as there were defections in both the Republican and Democrat camps. Notably, conservative Kentucky Representative Thomas Massie, a staunch deficit hawk, voted against the measure, while Maine Democrat Jared Golden broke ranks with his party to support it. This lack of unity on both sides underscores emerging intraparty tensions, suggesting that ideological and strategic rifts may be deepening within each camp.
• The interparty divisions appear to be more pronounced within the Democratic Party, as lawmakers continue to grapple with the shifting political landscape following Trump’s victory. While many Senate Democrats view the stopgap bill as insufficient, they are reluctant to oppose it outright, fearing the potential fallout from a government shutdown.
• The passage of the budget resolution to fund the government through the rest of the year is likely to set the stage for a more contentious battle over the president’s tax bill. While Republicans have largely supported the measure, there is increasing pressure within the party to ensure the bill is as deficit neutral as possible. On the other side, Democrats remain united in their efforts to shield key programs from cuts, though it is evident that many are open to compromise. The passage of a tax bill this year seems highly likely.

Greenland Speaks: The center-right Demokraatit Party secured a surprising victory, as voters demonstrated strong support for the region’s independence. This outcome followed controversial overtures from Trump, who had previously expressed interest in acquiring the territory from Denmark.

• The Demokraatit Party was not the only pro-independence group to experience a surge in support, as the Naleraq Party also secured a strong second-place finish. Their successes underscore the depth of voter concern over the perceived threat of US annexation and highlight a growing desire among the electorate to have a greater say in shaping the region’s future.
• That said, it is important to note that the election results also revealed a preference among voters for a more gradual approach to independence, indicating that the population is not yet ready to fully sever ties with Denmark. While support for pro-independence parties has grown, the cautious pace advocated by some factions suggests a desire to balance aspirations for self-determination with the stability and benefits provided by the current relationship with Denmark.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a few words about yesterday’s steep sell-off in the US stock market. We next review several other international and US developments with the potential to affect the financial markets today, including increased investment in the European and Australian defense industries and the latest on the US stopgap spending bill to avoid a partial government shutdown starting at the weekend.

US Financial Markets: Futures trading so far today suggests that stock prices could stabilize or even rebound modestly after their steep declines yesterday, when the S&P 500 index fell 2.7%, and other indexes fell even more. Yesterday’s plunge appeared to stem largely from statements by President Trump and his administration suggesting that they are willing to tolerate short-term economic disruptions or even a recession for their longer-term goal of economic restructuring. Investors today will continue to digest those concerns.

• As we noted in our Bi-Weekly Geopolitical Report from January 27, the evolving Trump economic strategy is probably more consistent and coordinated than many observers realize. Many of the strategy’s components are classic pro-growth measures that investors should like. We think the key risks are in the administration’s effort to suddenly and sharply cut spending and push many of the costs of economic adjustment onto other countries, potentially sparking a trade war and shattering the US alliance system.
• Investors are likely to keep focusing on those risks in the coming days and weeks, especially if incoming economic data continues to soften. For example, since market close yesterday, both Delta Airlines and American Airlines have reported softening consumer and business demand. Similar reports could push stock prices lower again.
• From a technical perspective, we note that yesterday’s plunge pushed the S&P 500 below its 200-day simple moving average for the first time since October 2023. The share of the S&P 500 stocks trading above their 200-day SMA is now down to 46.8%, coming closer to the 30% or so that many traders consider a weak market. If the S&P 500 continues to fall, its next major support level is probably at about 5,433, at which point it would be in correction territory.

Japan: Revised figures showed that fourth-quarter gross domestic product expanded at an annualized rate of just 2.2%, far below the initial estimate of 2.8%. Nevertheless, the growth in the fourth quarter was an acceleration from the 0.6% rate in the previous quarter, and it marked the third straight period of expansion. The data will probably help prompt the Bank of Japan to keep raising interest rates after boosting its benchmark rate to 0.5% in January.

Australia: The government has unveiled a roughly $19-billion investment plan to upgrade the country’s defense industrial base so it can support future nuclear-powered submarines built through the AUKUS security pact with the US and the United Kingdom. The new investments in Australia’s industrial plant and workforce, coupled with regulatory reforms, show how rising defense spending around the world is likely to spur broader economic development and boost economic growth in the coming years.

North Korea: For the first time, state media over the weekend showed images of what it called “a nuclear-powered strategic guided missile submarine” under construction. South Korean analysts believe the sub would be able to carry about 10 nuclear missiles, potentially threatening the US mainland. The development has the potential to reignite tensions between Pyongyang and the governments of the US, Japan, and South Korea.

European Union: At the European Parliament today, European Commission President von der Leyen said the EU’s new 150-billion EUR ($164 billion) loan program for member states to boost their armed forces can only be used for purchases from European producers, including those in the UK, Norway, and Switzerland. According to von der Leyen, the rule aims to not only help EU nations rebuild their militaries, but also to strengthen Europe’s defense industry. The rule is likely to add even more fuel to European defense stocks and help boost Europe’s economy.

Denmark-Greenland-United States: Greenland today is holding parliamentary elections, the outcome of which could determine whether and when the territory will hold a referendum on independence and whether the US can acquire it, as President Trump wants. According to a January poll, about 85% of Greenlanders don’t want to be taken over by the US. In addition, the legislature has passed laws clamping down on foreign governments attempting to influence the island’s elections.

US Fiscal Policy: As the Friday deadline approaches for Congress to pass a stopgap spending bill to avoid a partial government shutdown, 21 House Republicans have signed a letter to their leadership opposing the elimination of clean-energy tax benefits in the Biden administration’s Inflation Reduction Act. The signatories have threatened to vote against any spending package that eliminates the IRA funding to help pay for President Trump’s tax-cut extension.

• As we’ve noted before, Biden’s signature IRA programs have ironically channeled billions of dollars of manufacturing subsidies and other funds into districts dominated by Republicans. The signatories to the letter all represent districts that have received significant funding from the IRA.
• The letter illustrates how the IRA has created a constituency for green-energy facilities even in Republican-dominated areas. Nevertheless, it isn’t clear whether their resistance will prevent planned cuts to the IRA funding or disrupt passage of the stopgap bill.

US Military: Even as the US Army appears to be reversing its recent recruitment crisis, new data shows that almost 25% of enlistees are washing out and leaving the service before their initial two-year contract is up. Army officials suggest much of the problem stems from a poor recruiting pool, with few young Americans able to meet the service’s stringent physical and educational standards. Today’s healthy labor market and rising civilian wages could also be pulling new recruits away. The data points to potential problems in US military readiness.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a new example of the possible repercussions from today’s reordering of the geopolitical landscape — a call by Poland’s prime minister for his country to consider building its own nuclear weapons. We next review several other foreign and US developments with the potential to affect the financial markets today, including an outright annual decline in China’s consumer price index and a statement by President Trump that he may be willing to spark a recession to restructure the US economy.

Poland: In a speech to parliament on Friday, Prime Minister Tusk said that Poland must respond to the US’s changing foreign policy by dramatically increasing the size of its armed forces and “boldly” considering the development of its own nuclear weapons. The statement illustrates an important potential risk as the Trump administration pushes US allies to take more responsibility for their own defense: Rather than simply spending more on their militaries, key countries could develop destabilizing capabilities.

• The administration continues to show signs that it may not live up to the commitments made in the US’s various mutual defense treaties, including the one underlying the North Atlantic Treaty Organization. That brings to mind the old proverb that the purpose of NATO was to “Keep the Americans in, the Germans down, and the Russians out.” If the US pulls back from NATO, keeping the Germans (and Poles) down will be much harder.
• By raising questions about its commitments, the US action is already spurring stronger defense spending by its allies, especially in Europe. As we have long predicted, that has been giving a significant boost to European defense stocks over the last year or so.
• However, if the allies believe they will be left to fend for themselves, there is no set limit to the capabilities they will want to develop. While the UK and France are currently the only NATO allies with nuclear arsenals, Germany, and now Poland, may build them as well. Other countries could also consider them, even if building or buying nukes may require them to break nuclear nonproliferation treaties.
• Without the ballast of the US to restrain them, these historical enemies at some point could fall into disputes and sharp disagreements, raising the risk of nuclear confrontation between them. Just as destabilizing, the Russians would also be alarmed if European countries on their doorstep began building independent nuclear arsenals.
• For investors, an important implication is that the demand for uranium will likely get a further boost, even beyond the bump it is expected to get from the increased use of nuclear power plants to generate electricity. As we’ve written in the past, China’s massive expansion in its nuclear arsenal is probably already supporting uranium prices. A potentially broader nuclear arms race should support uranium prices even further.

Germany: In a survey by the Financial Times, eurozone economists, on average, said Germany should be able to issue 1.9 trillion EUR ($2.1 trillion) in new debt over the next decade to fund increased defense spending and infrastructure investment. According to the economists, that’s the amount of new debt that Berlin could take on for those priorities without hurting its economic growth. As a result, German debt would rise to 86% of gross domestic product from 63% now. The figures suggest that Germany has plenty of fiscal space for stimulative spending and faster growth.

Syria: In other security-related news, a wave of sectarian killings arose in Syria’s coastal region over the last several days. The violence apparently started when insurgents supporting the deposed dictator Bashar al-Assad ambushed forces of the new government on Friday. Since then, government forces and their allies seem to be attacking perceived enemies, including the Alawite sect that had supported Assad. The violence raises the risk that Syria could devolve into broader sectarian violence rather than calming down under the new government.

China: The February consumer price index was down 0.7% from the same month one year earlier, coming in even weaker than expected and posting its first outright decline in 13 months. The government attributed the decline to an earlier-than-usual start to the Lunar New Year holiday, but even if that’s true, the lack of any inflation in China illustrates how weak price pressures have become as the country confronts a range of economic headwinds.

China-Canada: Beijing announced on Saturday that it will impose tariffs of up to 100% on canola, pork and other food products. According to the Chinese government, the tariffs are to retaliate for Canada’s decision last August to impose steep tariffs on Chinese electric vehicles, steel, and aluminum. However, the new duties are being widely seen as a warning to Ottawa not to cooperate with the US as it puts up tariffs and other trade barriers against Chinese imports.

Canada: Former central banker Mark Carney yesterday won the election to become the new leader of the center-left Liberal Party. Some 85.9% of party voters selected Carney, giving him a landslide win over former Finance Minister Chrystia Freeland. In coming days, Carney will be named prime minister, replacing Justin Trudeau, after which he will likely call national elections. Carney has signaled that his priorities will be to resist President Trump’s effort to annex Canada and shore up the Canadian economy’s resilience against US tariffs.

Mexico: President Sheinbaum yesterday held a giant fiesta in the capitol’s main square to celebrate a second month’s suspension of US tariffs proposed by President Trump. The fiesta, which included thousands of workers bussed in from all parts of the country, was originally planned for Sheinbaum to outline her retaliatory tariffs against the US. With the further suspension of many US tariffs last week, the party was repurposed into a show of national unity and Sheinbaum’s determination to resist US economic pressure.

US Economy: In an interview that aired yesterday, President Trump refused to rule out the chance that his tariffs and other economic policies could lead to a recession this year. He instead repeated his previous statements that due to the big changes he is trying to bring about, the economy will have to go through a “transition” period. Trump’s response suggests that investors shouldn’t necessarily expect Trump to pull his punches when or if the economic data starts to show softening growth, rising unemployment, or faltering asset prices.

• As of this writing, the administration plans to impose 25% tariffs on all imported steel and aluminum starting on Wednesday. The administration also plans to add “reciprocal” tariffs against any country that charges higher tariffs against the US than the US does against it, starting April 2.
• The president’s interview statements appear to be the key reason for a downdraft in US equity markets so far this morning. As of this writing, S&P 500 futures are trading down about 1.0%.

US Oil Industry: Following on Trump’s statement about a rough economic transition, the Financial Times today carries an interview with his energy secretary, Chris Wright, in which Wright says that Trump’s policies to boost US shale oil output will produce low prices, a wave of bankruptcies, and industry disruption. However, he insisted that the result will be a US oil industry that is more efficient and can produce at lower cost. Wright’s statement underscores the administration’s willingness to impose short-term economic costs for long-term benefits.

US Lumber Market: As Canadian export taxes and US import tariffs drive a widening price divergence between Canadian spruce, fir, and pine versus US southern yellow pine, CME Group has announced it will begin offering futures on the US lumber starting March 31. The new futures for southern yellow pine will trade under the ticker SYP. Please be careful that you don’t confuse it with SPY, the popular exchange-traded fund tracking the S&P 500 stock index!

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