by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the very latest on the Trump administration’s new tariff policies. We next review several other international and US developments with the potential to affect the financial markets today, including potential policy responses to the tariffs from countries such Japan and Germany, and news that the administration is considering a massive cut in the US Army’s active-duty troop count.

US Tariff Policy: President Trump’s baseline 10% tariff on most US imports went into effect over the weekend, and Treasury Secretary Bessent and Commerce Secretary Lutnick said in press interviews that the additional “reciprocal” tariffs on dozens of countries will start as planned on Wednesday. They also warned that even if foreign countries offer concessions to reduce their tariff rates, any negotiations will take time, and the maximum tariffs would be in place until then.

• Bessent also downplayed the drop in the value of risk assets because of last week’s tariff announcement, saying, “Americans who want to retire right now, Americans who have put away for years in their savings accounts, I think they don’t look at the day-to-day fluctuations of what’s happening.”
• Bessent’s statement is further evidence that the administration intends to stick by its economic policies even if economic activity weakens or risk assets continue to lose value. That raises a risk that any needed course correction may not come until it’s too late to avoid a recession or an even steeper market downturn.
• In a continuing response to the tariffs, stock prices in Asia and Europe plunged overnight, and US stock futures are signaling another sharp drop at market open. Oil prices also continue their sharp drop, while investors are bidding up bonds, which is driving down yields.
• Just as concerning, we have noted that gold, cryptocurrencies, European defense stocks, and other assets that had recently been appreciating are now turning downward as well. That suggests that at least some investors are now facing margin calls and are selling what they can, not what they want to. That creates a risk of the financial markets entering into a self-reinforcing downward spiral that causes lasting economic damage.
• Of course, US investors have a very high level of cash “on the sidelines” in money market funds, which could theoretically be used to buy stocks once they look like a good value. However, the administration’s promise to stay the course with its aggressive policies and its past backtracking have created so much uncertainty that investors may be unusually wary about buying the market’s current decline.

Eurozone: Greek central bank chief Yannis Stournaras, who sits on the policymaking board of the European Central Bank, warned in an interview today that the Trump administration’s new tariffs would create an unexpected demand shock for the eurozone, potentially pushing down consumer price inflation below the ECB’s target. The statement signals that some of the region’s policymakers may want to keep cutting interest rates at the ECB’s policy meeting next week, despite ECB President Lagarde’s recent hints of a pause in rate cuts.

Germany: Friedrich Merz, who is negotiating to form the country’s next government and is likely to become its chancellor, warned today that the economic and financial market turbulence from the US’s new tariffs mean that Germany must regain economic competitiveness as quickly as possible. Indeed, Merz said that strategies to deal with the US tariffs will now be a key focus for his center-right CDU party and the center-left SPD as they continue talks to form a coalition. That raises the prospect for big economic reforms in Germany once the government is formed.

United Kingdom: According to lender Halifax, the average price of a home in March was up just 2.8% year-over-year, matching the increase in the year to February but coming in short of the expected increase of 3.5%. On a month-over-month basis, UK home prices fell in each of the last two months, adding to the evidence that the rapid home price appreciation of 2024 has come to an end.

Japan: With the Japanese economy facing both brutal import tariffs in the US and fast-rising prices for food and other basics at home, some politicians in the ruling Liberal Democratic Party are pushing for a cut in the country’s consumption tax. Top LDP leaders are still reluctant to go that far, fearing wider budget deficits and increased debt, but rank-and-file party members are pushing to put such a tax cut in the LDP’s platform for this summer’s Upper House elections.

• The rising calls for consumption tax cuts in Japan illustrate how countries around the world will feel pressure for stimulus programs as their exports run up against the Trump administration’s new tariffs.
• As the debate in Japan shows, any such stimulus programs could lead to bigger fiscal problems and exacerbate the economic disruptions from the new US trade policies.
• Separately, press reports say Chinese officials are also mulling significant economic stimulus measures, including a devaluation of the renminbi, to cushion the blow of the tariffs.

European Union-United States: European Commission Vice-President Séjourné today hinted in an interview that the EU won’t put tariffs on US bourbon as it retaliates for the Trump administration’s new imposts. That suggests that the EU executive has caved to demands from the wine and spirits industries of countries such as France, Italy, and Ireland, which feared the US would impose even higher tariffs on their products if the EU retaliated against US whiskey.

US Military: According to a report late last week, the US Army is “quietly” mulling a cut in its active-duty troop count from about 450,000 now to as little as 360,000 in the coming years. It is unknown whether any cuts are being considered for the Army Reserve or the National Guard. The contemplated cuts reflect a number of pressures, including President Trump’s directive to cut the defense budget by 8% and the administration’s plan to shift military resources away from land maneuver forces in Europe to naval and air forces in the Asia-Pacific region.

• If the US downsizes its ground forces and shifts military assets out of Europe before the Europeans can rebuild their own defense capabilities, Russia would likely be emboldened to assert itself in the region, if not by actual territorial aggression, then perhaps by political pressure.
• In any case, the drive to cut defense spending comes even though the US defense burden (military outlays as a share of gross domestic product) is now at a historic low of only about 3.3%, versus an average of 3.6% during the War on Terror and 7.1% during the long Cold War.

US Agriculture Industry: A report on Friday said administration officials and congressional lawmakers are considering new fiscal support for farmers hurt by retaliatory tariffs or other trade barriers imposed by other countries in response to President Trump’s tariffs on US imports. The talks are in the early stages, so it isn’t yet clear how big any such relief program would be. Still, the news suggests that US agribusiness stocks may hold up better than expected amid the evolving global trade war.

• On a related note, new analysis shows that the recent retreat in US egg prices likely stemmed from a massive surge of imports. According to the data, February egg imports from Mexico and Turkey were about four times higher than they were in the same month one year earlier.
• As avian influenza decimated US flocks earlier this year, prompting egg shortages and driving prices higher, Mexican and Turkish producers evidently responded to the price signal by shipping more to the US, exactly as economic theory would suggest. One key question now is whether the administration’s new tariffs will push those egg imports down again, creating another fowl price experience for US egg buyers.

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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 jobs data while reacting to new tariffs from China. In sports, Chattanooga defeated UC Irvine to win the NIT Championship. Today’s Comment will analyze whether the tariff impact will be temporary or long lasting, examine recession risks, and highlight other market moving news. As always, we’ll close with key domestic and international economic data.

The Day After! With flat tariffs set to take effect on April 5 and even more extreme tariffs to follow four days later, the market continues to assess the potential economic impact.

• President Trump has signaled a willingness to consider reducing tariffs — but only in exchange for the right deal. His remarks suggest a potential shift, marking the first indication that he may reconsider the aggressive tariffs imposed on other countries. His response appears to be a reaction to the backlash following his tariff announcement, which triggered the worst market sell-off since the COVID pandemic.
• The sell-off has intensified this morning after China announced a 34% tariff on all US goods, along with export restrictions on rare earths, a critical resource for semiconductor production and other advanced technologies.
• Despite threats of retaliation from other countries, the responses to US tariffs have been relatively muted so far. Canada imposed tariffs on US auto imports but exempted those covered under the USMCA agreement. Meanwhile, France has encouraged corporations to stop investing in the US but has not put a formal law in place.
• The muted response suggests that negotiations between the US and other nations may still be underway. While existing tariffs could remain in place — and retaliatory measures from trading partners remain possible — the US’s reluctance to escalate tensions after Canada’s retaliatory auto tariffs signals that the White House may at least be willing to tolerate limited pushback. However, China’s tariffs may be a different story.

• The key question facing markets is whether these tariffs will fundamentally reshape global trade dynamics and challenge the dollar’s dominance. Yesterday’s sharp decline in the US greenback suggests investors are pricing in a scenario where the US retreats from its role as global importer of last resort. This could force trading partners to accelerate currency diversification.

The Recession Question: There are growing signs that the economy is losing momentum; however, there is still no conclusive evidence of a downturn.

• In March, the ISM Services PMI dropped from 53.5 to 50.8, signaling a potential slowdown in economic momentum. The decline was primarily driven by weakening employment conditions, as survey respondents cited growing pessimism about hiring. Notably, the prices-paid component also softened, suggesting businesses may be losing confidence in their ability to sustain pricing power.
• Meanwhile, regional central banks are sending mixed signals. The Atlanta Fed’s GDPNow tracker points to a sharp slowdown in recent months, while the New York Fed’s Nowcast maintains its projection of steady growth. Markets appear to be more heavily weighting the Atlanta Fed’s model, as its real-time tracking, though more volatile, has proven more reliable than the New York Fed’s estimates in recent cycles.

• While tariffs remain a concern, markets are primarily focused on economic fundamentals. As long as data continues to show US economic expansion, a market recovery appears likely in the near term. However, should economic indicators deteriorate, the risk of a bear market would increase significantly. At this time, we still think it is a coin toss as to whether we are in midst of a downturn; therefore, we still advise investors to remain calm and patient as things play out.

Tax the Rich? Republicans may drop budget cuts and instead raise taxes on the wealthy, signaling a shift from neoliberal economics to a more populist ideology.

• Conservative lawmakers are proposing to increase the top marginal tax rate to 39.6%, reversing previous Trump-era cuts for high earners. This measure aims to offset costs while maintaining other tax reductions. The proposed revenue would fund the elimination of taxes on tips, overtime pay, and Social Security benefits, as well as the increase in the SALT deduction cap from $10,000 to $25,000.
• The move to raise taxes on top earners signals a deliberate shift by conservatives to shed their “party of the wealthy” image. Conservatives are also targeting two controversial loopholes: eliminating the carried interest tax break — long criticized for favoring private equity — and ending preferential tax treatment for sports team purchases.
• The proposed tax hike on high earners will likely face internal GOP resistance, as many members have historically pledged opposition to all tax increases. Just this year, nearly every Republican voted against measures that would limit tax cuts for the wealthy if paired with Medicaid reductions, highlighting the party’s traditional stance.
• Republican support for taxing the wealthy may be a last-ditch effort to pass their stalled tax bill. With the party divided and deficit-conscious members hesitant, this move could both satisfy fiscal conservatives and potentially draw Democratic backing. As a result, we are highly optimistic that a tax bill will be finalized over the next few weeks.

Shake Up in Defense: The president has fired several members of his National Security Council team as part of the fallout over the Signal leak.

• The decision appears to stem from Laura Loomer, a social media personality and trusted Trump confidant. She reportedly urged the president to target those responsible for leaking information to a journalist during sensitive discussions about the administration’s approach to Houthi conflicts in the Red Sea.
• Loomer’s growing influence in the administration signals the populist wing’s resurgence within a presidency that has traditionally favored tech and financial sector allies. Earlier this year, she had an X account suspended and lost access to certain pay features after she challenged Elon Musk’s stance on visas for skilled workers claiming that they go against the “America First” agenda.
• Loomer’s rise amid Musk’s waning clout underscores the president’s transactional leadership, rotating favor between party factions as political winds shift. Should populists consolidate influence, expect a doubling down on contentious policies, potentially rattling markets with abrupt ideological pivots.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are analyzing the implications of the latest tariff measures, while in sports news, Shohei Ohtani’s powerful home run last night propelled the LA Dodgers to their eighth consecutive victory. Today’s Comment will focus on the economic impact of the newly announced tariffs, the EU’s cautious approach toward including US suppliers in its military procurement strategy, and other market-moving events. As always, we’ll also provide a roundup of today’s international economic data releases and indicators.

Liberation Day: The president’s unveiling of targeted tariff measures triggered a market sell-off. The dollar and equity markets declined sharply, and US Treasurys rose.

• On Wednesday, President Trump announced reciprocal tariffs targeting nations he accused of unfair trade practices. To substantiate his position, he presented a chart comparing existing foreign tariff rates on US imports to his proposed reciprocal rates, demonstrating that current charges were approximately double his recommended levels. The new tariffs would be added on top of previously announced taxes on US imports.
• Under the new tariff structure, China faces the highest rate at 54%, while several Southeast Asian nations — particularly Vietnam — confront steep increases exceeding 45%. The EU received a 20% tariff, while countries maintaining trade deficits with the US were subject to a comparatively lower 10% rate. Key takeaways:
  • The Good: The administration would like these tariffs to be the worst of it. Treasury Secretary Scott Bessent has stated that if other nations refrain from retaliation, the tariffs will be capped at their current rates, with the possibility of future negotiations to reduce them. Additionally, the US spared its largest trading partners, Mexico and Canada, from additional tariffs. Similar exemptions were granted for commodities such as oil, gold, copper, and products affected by Section 232 tariffs, including steel, aluminum, and lumber.
  • The Bad: The tariffs were significantly higher than market expectations. According to Bloomberg, the effective tax rate on imports (projected to be around 23%) now rivals levels seen during the protectionist 1930s. Meanwhile, signs of retaliation are emerging as Canada is set to announce countermeasures on Thursday, and the EU has vowed a unified response to the new tariffs.

• The Ugly: The apparent calculation methodology behind these reciprocal tariffs raises significant concerns about how the administration defines unfair trade practices. The formula divides a country’s trade surplus with the US by the value of its exports to America. While not perfect (for example, the EU’s 37% rate falls slightly below the administration’s 39% benchmark), the calculation aligns with projections for Japan (46%) and produces similarly elevated figures for China (67%) and Indonesia (64%).

• The administration appears to have adopted a de facto stance that any country running a trade surplus with the US is engaging in unfair tariff practices. Given this position, these reciprocal tariffs are likely to remain in effect and may even be adjusted in coming months, particularly if affected nations implement retaliatory measures. We will be paying close attention to the dollar as a persistent drop could have spill-over effects.

Political Fractions Emerging: A rare bipartisan coalition opposed the president’s trade war immediately before he announced new tariffs.

• On Wednesday, Senate Democrats introduced a bill to repeal tariffs on select Canadian imports. The measure passed 51-48, with four Republican senators joining Democrats to advance the legislation. While the bill is unlikely to clear the House, the vote served as both a rebuke of the president’s aggressive tariff policies and a broader test of congressional sentiment on executive trade authority.
• While Democratic support for the bill was expected, the Republican backing represents an unwelcome surprise for a president who prizes loyalty above all. This rare defiance signals growing congressional unease with how the president has used his ability to impose tariffs unilaterally. Should the administration’s trade levies not achieve their intended goals, lawmakers may consider reasserting their constitutional authority over tariff policy, which would address the perceived expansion of executive power.
• Although the US’s economic dominance is often cited as its key advantage in a trade war, public sentiment remains a decisive factor. Recent special elections in Florida, Wisconsin, and Pennsylvania suggest growing opposition to Trump’s agenda, although much of it may have to do with his government spending cuts. Should this trend continue, lawmakers may be forced into a politically difficult reversal.
• We still believe the president’s core base will largely support his trade policy shift — after all, his tough stance on trade helped get him elected. Once the tax bill passes, it should generate enough goodwill to offset some backlash. The key challenge now is minimizing the economic pain from tariffs to avoid a financial crisis. Difficult, but possible.

Europe Defense Build Up: NATO allies continue to prepare to operate independently of the US. However, American officials have requested that Europe still buy American weapons.

• Secretary of State Marco Rubio cautioned Baltic EU leaders that excluding the US from defense procurement initiatives would trigger a strong backlash from Washington. He is set to reiterate this stance later this week at the NATO Foreign Ministers’ meeting. His remarks come amid a broader EU push to bolster its domestic defense industry and reduce reliance on American military supplies.
• The move comes as European countries begin developing a joint plan to fund military purchases. The UK has expressed interest in joining the EU-led initiative, which aims to establish a collective fund for stockpiling weapons amid growing concerns over Russian aggression. There has been notable support — particularly from France — for restricting the fund to purchases of weapons manufactured within the EU.

• Europe would like to change how it buys weapons for two main reasons: trade disputes with the US and a fading trust in American security promises. While Europe can’t yet match US weapons technology in terms of scale or sophistication, it would like to invest heavily in its own arms industry. The goal is to rely less on American suppliers and eventually compete in the global weapons market. These moves could seriously change how Europe and the US work together on defense.

Musk Exit? There are conflicting reports that the Tesla CEO and leader of the DOGE taskforce is rumored to be stepping down from his position within the Trump administration.

• According to Politico, President Trump informed cabinet members that Elon Musk would step down from his advisory role in the administration. While White House spokesperson Karoline Leavitt and other officials later denied the report, it suggests Musk’s temporary position — which by statute lasts only 130 days — will not be extended beyond its original term.
• Elon Musk’s expanding influence has made him an increasingly polarizing figure, raising concerns among observers. Recent reports suggest he may now be marginalized within Trump’s core advisors, signaling a potential decline in his political sway.
• Musk’s departure could mean many of the proposed spending cuts may not be as deep as initially hoped. Without him, the administration will need to either find another leader capable of driving the mission or develop alternative strategies — such as efficiency-based deficit reduction — to avoid politically risky spending cuts while maintaining fiscal discipline.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning. The market is currently focused on tariffs and jobs data. In sports, Real Madrid advanced to the Copa del Rey final after a narrow victory over Real Sociedad. Today’s Comment will analyze the potential impact of Trump’s reciprocal tariffs, provide updates on his legislative agenda, and discuss other key market drivers. We’ll conclude with a summary of international and domestic data releases.

 Tariff Day: The White House is making last-minute adjustments to its reciprocal tariffs in a move that could disrupt the international trading system. Markets are likely to focus closely on the outcome as they assess the potential impact on the global economy.

• President Trump is set to unveil his tariff plan in a Rose Garden announcement after the market closes. While details remain scarce, the plan is expected to feature a tiered system with flat rates for certain countries, though rumors suggest some tariffs could be more customized. Treasury Secretary Scott Bessent has reportedly informed lawmakers that tariffs will begin at their highest levels, with opportunities for countries to take steps to reduce them.
• Countries around the world are waiting with bated breath as they prepare to respond to US trade restrictions, weighing concessions against potential retaliation. Many South Asian nations, including South Korea and Vietnam, have sought to appease Washington by agreeing to purchase more American imports such as natural gas, while also reducing some of their own tariffs.
• Meanwhile, other major players — particularly China and the European Union — have adopted a more measured approach, offering limited concessions. Last month, the EU notably reduced fines against US tech companies for violations of its Digital Services Act. At the same time, China has sought to emphasize the mutual benefits of its economic relationship with the US. Despite these gestures, both powers have it made clear that they stand ready to respond, with the EU and China each vowing strong countermeasures.

• The Trump administration’s “Three R” tariff strategy — revenue generation, retaliation leverage, and reciprocity enforcement — represents a calculated approach that extends beyond conventional protectionism. The emphasis on reciprocal measures reveals a broader ambition to reshape foreign regulatory regimes to benefit US commercial interests. This strategic framework helps explain recent administration actions targeting the EU’s nondiscriminatory VAT policies and restrictions on foreign tech firms.
• Early signs suggest nations are adapting to this strategic shift, with the UK reportedly considering preferential tax rates for US tech giants in exchange for tariff relief. However, this reciprocal dynamic appears set to prolong trade tensions, as trading partners will likely resist unilateral demands. In this evolving landscape, markets face sustained uncertainty as participants attempt to navigate a changing economic environment.

Tax Optimism: Republicans are preparing to push through the highly anticipated “one big, beautiful bill,” which aims to encompass the entirety of the Trump administration’s tax agenda. However, the specifics of the proposal are still being finalized.

• Senate Republicans are developing a strategy to circumvent the parliamentarian in order to permanently extend the Trump-era tax cuts while adding other benefits. This procedural maneuver would allow the legislation to advance without a full assessment of its potential impact on the federal deficit. If successful, they plan to use the budget reconciliation process to pass the bill without the help of Democrats.
• Conservatives are pushing to adopt the “current policy baseline,” a controversial accounting approach that would significantly expand their budgetary flexibility. Essentially, this method would allow them to permanently extend existing tax rates while avoiding recognition of the policies’ $4 trillion fiscal impact (as projected by nonpartisan fiscal watchdogs).
• That said, lawmakers are still negotiating how to fund the bill and secure support from Republican holdouts. The White House is making the case that strong GDP growth — projected at 3% — could generate sufficient revenue to offset the tax cuts. Meanwhile, there are concerted efforts to include cuts to safety-net spending in the package, and some discussions have even floated the possibility of raising tax rates on top earners.

• Although significant hurdles remain, the tax legislation appears to be gaining momentum. The proposed bill, which would eliminate taxes on tipped income, increase the SALT deduction cap from $10,000 to $25,000, and extend the Trump-era tax cuts, could provide sufficient economic stimulus to improve US market sentiment, provided there is no major economic downturn.

Greenland Takeover? The Trump administration is exploring avenues to persuade Greenland to become a US territory, despite growing local resistance to foreign territorial claims.

• US administration officials are conducting a comprehensive cost-benefit analysis of the potential acquisition, evaluating both the upfront expenditures and long-term revenue opportunities from Greenland’s vast natural resources. As part of this assessment, policymakers are weighing an incentive package that would improve upon Greenland’s current $600 million annual subsidy arrangement with Denmark.
• These developments follow strong resistance from both Denmark and Greenland to the US overtures. Greenland’s incoming president has reaffirmed commitments to strengthen ties with Denmark while pursuing eventual sovereignty for the island. Meanwhile, Danish Prime Minister Mette Frederiksen is planning a visit to the island in a move seen as reinforcing Danish interests following the notably cool reception given to US Vice President JD Vance during his recent trip.
• The Greenland dispute underscores a deepening divide between the US and its NATO allies, with tensions escalating as President Trump maintains his pursuit of the territory while leaving military options on the table. While we don’t anticipate armed conflict over the region, this posture signals a marked shift toward a more assertive US foreign policy stance — one that has already begun prompting allies to reassess their dependence on American leadership.

Walmart Takes on Beijing: The retail giant continues demanding that its Chinese suppliers absorb tariff costs despite growing government resistance to this practice.

• Walmart is reportedly demanding price reductions of up to 10% from vendors with each new round of tariffs, according to sources familiar with the matter. The retail giant is taking this aggressive stance to avoid absorbing the full impact of trade war costs, leveraging its massive purchasing power to extract concessions from suppliers.
• Beijing is likely to respond to Walmart’s pricing demands with measured retaliation, though analysts expect any action to be restrained given the retailer’s significant support of Chinese suppliers. These tense negotiations exemplify how US tariffs are reverberating through China’s export economy, forcing difficult compromises between multinational corporations and their manufacturing partners.

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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.

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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.

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