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.

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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.

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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.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with news of a potential new economic stimulus program that could potentially boost growth and stock prices in China. We next review several other international and US developments with the potential to affect the financial markets today, including signs that Germany’s new fiscal policies are boosting business optimism in that country and the latest developments on US tariff policies.

China: To spur stronger consumer demand and faster economic growth, Chinese officials are reportedly considering a multi-billion dollar program to subsidize purchases of services such as travel, tourism, and sports. The program would apparently supplement the government’s existing consumer subsidy program, which aims to spur purchases of merchandise such as autos and appliances. Even if implemented, however, the temporary program may do little to reverse the big structural headwinds holding back China’s economy and financial markets.

Australia: Ahead of elections that must be held by May, the ruling Labor Party government has proposed a budget for the upcoming fiscal year that would cut taxes for the working class and hike spending on energy subsidies, healthcare, education, and defense. The measures are expected to produce a budget deficit equivalent to about $17.4 billion after two straight years of surpluses due to high commodity prices. In response, Australian stock prices and the Australian dollar have both appreciated modestly so far today.

Germany: The IFO Institute today said its March Business Climate Index rose to a seasonally adjusted 86.7, modestly beating the expected reading but up comfortably from the February index of 85.3. The index remains historically weak, reflecting Germany’s recent economic headwinds and slow growth, but the upturn may suggest that the government’s new fiscal stimulus policies are being well received by companies.

Israel-Hamas: The Israeli Defense Forces’ new chief of staff has reportedly developed a plan to reconquer the Gaza Strip and establish a long-term occupation to finally root out the Hamas militants that currently govern the territory. If approved by the government’s cabinet, the plan would likely be supported by the Trump administration, but it would also likely generate further criticism of Israel by many countries and weigh on the Israeli economy and financial markets.

United States-Denmark-Greenland: Second Lady Usha Vance, National Security Advisor Waltz, and other top officials from the Trump administration have announced that they will be in Greenland later this week, in part on an ostensibly private visit to attend a dogsledding competition and see the sights. Given President Trump’s threats to take over Greenland, Danish Prime Minister Fredericksen and the Greenland government have rejected any characterization of the trip as “private” and instead called it out as a provocation.

• Besides signaling Trump’s continued interest in acquiring Greenland, the trip may be designed to generate a positive response among the island’s residents.
• However, all Greenland political parties have rejected Trump’s call to acquire Greenland, and public opinion polls suggest about 85% of the island’s residents don’t want to become a part of the US. Press reports say residents are planning a protest at the dogsledding event to be attended by Vance and the US officials.

US National Security: President Trump today is facing a scandal after his national security officials included an editor from The Atlantic in a group chat planning last week’s airstrikes against Houthi rebels in Yemen. The most serious concern is that the officials were using the Signal commercial communication platform to discuss such sensitive planning, rather than the Defense Department’s secure encrypted systems.

• Although Signal is known for its strong encryption and has been endorsed by Elon Musk, it has also been subject to security bugs. The advanced encryption used by US national security and intelligence organizations is significantly stronger than Signal’s.
• It is not uncommon for new administrations to make such errors. After all, new administrators often come from the private sector where strict protocols are not necessary. Nevertheless, the use of Signal and the apparently inadvertent inclusion of the reporter in the group chat will add to concerns that administration officials may have a relatively casual approach to national security, especially if similar mistakes happen in the future.
• More broadly, poor communication security practices by the administration may add to concerns that allies may stop sharing sensitive intelligence information with the US out of fear that it could be exposed. Although the US intelligence agencies generate the bulk of the information vital to national security, foreign partners provide intelligence that can be critical to “filling in the gaps” of US knowledge.

US Tariff Policy: One day after reports indicated that President Trump may limit his April 2 “reciprocal” tariffs to only about 15 countries, he yesterday suggested that his sectoral tariffs on products such as automobiles and lumber may not come until sometime in the future. At the same time, he unexpectedly said he would impose an additional 25% tariff on any country that buys oil or gas from Venezuela.

• The Financial Times this morning also reports that officials in the administration are considering a two-step process where tariffs would be initially imposed using one legal authorization but later rely on a different law. The move would aim to make the tariffs more legally durable.
• Importantly, officials cited in the article said they were more focused on using the tariffs to generate revenues rather than to punish other countries for their US trade imbalances.
• In any case, as we’ve noted before, we think the administration’s erratic tariff announcements could keep asset prices volatile for the time being.

US Labor Market: The Office of Federal Contract Compliance Programs, which oversees the activity of firms doing business with the government, has said it will review the civil-rights plans submitted by those contractors prior to President Trump’s current term to determine whether they should be penalized for discriminatory employment practices. Given that the government has some 40,000 contractors, the move suggests the administration’s fight against diversity and equity programs in the private sector could now broaden dramatically.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with new indications that the Trump administration’s “reciprocal” tariffs to be announced on April 2 could be narrower than expected. The news is giving a significant boost to US stocks so far this morning. We next review several other international and US developments with the potential to affect the financial markets today, including a snap election called in Canada for April 28 and growing pushback against a US plan to impose big, new fees on Chinese ships calling at US ports.

US Tariff Policy: Administration officials over the weekend said the new “reciprocal” tariffs that President Trump plans to announce on April 2 will likely be narrower than expected. It appears that officials are coalescing around a plan to impose big tariffs against just 15 nations that have especially large trade imbalances with the US, although other countries could also be hit with more modest levies. The officials also suggest Trump will hold off on some of the broad sectoral tariffs that he has threatened, such as those on autos and pharmaceuticals.

• News of the narrower tariffs has given a strong boost to US stock futures so far this morning, suggesting that stock prices will jump after the open.
• Nevertheless, we would caution that President Trump could still change his mind and impose broader tariffs than what today’s reports indicate. In addition, whatever tariffs are announced on April 2 could subsequently be modified, and other tariff announcements could come later. In other words, the situation remains fluid, which will probably prompt continued stock market volatility in the coming weeks.

European Stock Market: Now that European stocks have performed so well in the first quarter of 2025, it’s notable that German software firm SAP today has overtaken Danish pharmaceutical giant Novo-Nordisk as the continent’s most valuable company in terms of market cap. SAP’s stock price has surged some 40% over the last year as it successfully migrated its business to the cloud. In contrast, Novo-Nordisk’s stock value has been roughly halved as investors question how it will follow up its recent success with weight-loss drugs.

Eurozone: In a preliminary report, S&P Global and Hamburg Commercial Bank said their March composite purchasing managers’ index rose to 50.4 from 50.2 in February. Like most major PMIs, the one for the eurozone is designed so that readings over 50 indicate expanding activity. At its current level, the data suggests that the eurozone economy is growing, but just barely. The region’s slow growth and susceptibility to new US tariffs will likely be a test for European stocks going forward.

Japan: In an interview with the Financial Times today, Finance Minister Katō warned that Japan hasn’t truly exited its long period of deflation, even though the headline consumer price index has shown annual inflation as high as 4.0% in recent months. According to Katō, inflation in Japan today is largely the “wrong kind,” reflecting the weak yen (JPY) and high commodity prices, rather than strong underlying economic growth. The statement suggests the government will continue looking for ways to boost consumer demand and overall economic growth.

China: Researchers have unveiled a device that can cut through armored subsea communication cables at a depth of up to 4,000 meters — twice the maximum operational depth of today’s subsea telecom infrastructure. The revelation apparently marks the first time any country has officially disclosed that it has such an asset.

• Although ostensibly for civilian salvage and deep-sea mining, the device could be deployed by submarines to cut critical communication lines between Chinese adversaries in time of geopolitical tension or war. For example, the device could be used to cut the telecom cables linking the US to Japan or Taiwan.
• China and Russia have already been linked to multiple cable-cutting incidents in relatively shallow waters around Taiwan and in the Baltic Sea, but the damage in those cases has been from ships dragging their anchors. The new Chinese device, if it’s real, could threaten a much bigger swath of the world’s telecom infrastructure.

Turkey: Mass protests against the detention of Istanbul mayor Ekrem İmamoğlu  continued over the weekend, resulting in the arrests of hundreds of demonstrators. President Erdoǧan apparently had the popular İmamoğlu arrested last week to keep him from potentially winning the country’s upcoming elections. The arrest of İmamoğlu has raised concerns about Erdoǧan’s government becoming even more authoritarian, raising the risk of continued political unrest, economic disruptions, and weaker stock prices.

Canada: Yesterday, Prime Minister Carney, who assumed the office from Justin Trudeau just nine days earlier, called snap elections for April 28. The quick election comes as Carney’s Liberal Party has seen a resurgence in support in response to US President Trump’s threat to take control of Canada. If Carney can take advantage of the Liberals’ rebound in the polls, Ottawa’s economic policy would likely see only a limited moderation versus the progressive policies followed by Trudeau.

US Port Fees: The Wall Street Journal today says that hundreds of trade associations, farmers, and other individuals have filed protests or asked to speak at a hearing this week on the Trump administration’s proposal to impose big fees on Chinese ships calling at US ports. The proposed fees have bipartisan support among policymakers, having stemmed from a probe ordered last year by President Biden. However, the groundswell of criticism by shippers concerned about higher costs raises the chance that the fees will be reduced or eliminated.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are looking for clues on consumer sentiment, as tariff uncertainty impacts demand projections. In sports, the NCAA tournament’s low rate of perfect brackets (1.65%) highlights its unpredictable nature. Today’s Comment will cover Europe’s NATO contingency plans, US critical minerals production efforts, and other market-relevant developments. As always, the report will include a summary of key domestic and international data releases.

Amerexit? European leaders are formulating transition plans for a potential US withdrawal from NATO, aiming to bolster their own security capabilities while enabling the US to redirect more of its strategic focus toward China.

• The UK, France, Germany, and Nordic countries are spearheading a plan to substantially boost defense spending across the alliance, positioning Europe to assume the bulk of the financial and operational responsibilities for continental defense in the event of a unilateral US withdrawal from NATO. The agreement outlines a 5- to 10-year timeline for Europe to strengthen its military capabilities, ensuring a smooth transition and the ability to independently safeguard its security interests.
• This initiative emerges as the Trump administration intensifies its pressure on Western allies to significantly increase their defense spending. On Thursday, reports revealed that NATO will call for Europe and Canada to boost their expenditure on military equipment and weapons by 30%. Simultaneously, the US is urging member countries to raise their defense spending to 5% of GDP — a figure that surpasses the current 2% benchmark and even exceeds the percentage of GDP that the US allocates to its own defense.

• The move coincides with widespread expectations that the US is poised to scale back its military presence in Europe. Last month, a Pentagon official confirmed that the US is considering relocating up to 100,000 troops from the region, signaling a potential shift in its strategic priorities.
• Growing doubts about the US commitment to Europe have intensified pressure on European nations to develop contingency plans to support Ukraine. The UK has signaled its willingness to assist Ukraine in enforcing a ceasefire by potentially deploying ground troops, as well as air and naval forces. Simultaneously, the EU is advancing efforts to allocate 5 billion EUR ($5.4 billion) to secure ammunition for Ukraine, though France and Italy are pushing for adjustments to the proposal before finalizing the agreement.
• The increase in military spending across EU countries is expected to elevate their debt levels, as governments may need to borrow additional funds to fulfill their defense obligations. This could lead to a rise in bond issuance by individual nations. We are closely monitoring the potential for implicit backing of defense-related bonds by EU institutions, which could enhance the attractiveness of these securities and help lower borrowing costs across the EU bloc.

More Mining Please! President Trump has invoked war powers to facilitate the mining of critical minerals, a strategic move aimed at bolstering the United States’ competitive edge in military technology amid an intensifying rivalry with China.

• On Thursday, the president signed an executive order invoking the Defense Production Act to expedite and streamline the production of critical minerals, underscoring the importance of national security. The order empowers the government to fast-track project permitting and provide financial support, including loans, to bolster the domestic mining industry. This action aligns with the president’s broader mission to secure the resources necessary for developing advanced technologies.
• The Trump administration’s efforts to secure critical resources extend beyond its borders. The US is currently exploring a deal to gain access to Ukraine’s mineral reserves as part of the proposed peace negotiations with Russia. Additionally, the administration’s interest in acquiring Greenland may, in part, be driven by its rich deposits of rare earth elements. Meanwhile, the Democratic Republic of the Congo has sought to leverage its mineral wealth to gain US support in its fight against rebel groups.

• The US is accelerating efforts to diversify its critical mineral supply chains due to growing vulnerabilities, particularly concerning its reliance on China. China’s dominance, notably its 70% control of global rare earth production (as shown in the chart below), has become a strategic concern. Recent export restrictions on chip-related minerals, imposed in response to US semiconductor technology limitations, underscore the escalating strategic rivalry.

• The Trump administration’s push to increase production of critical resources is likely to benefit chipmakers in the long term, as it could lead to lower input costs. However, this move also signals a deepening rivalry between the US and China. While we remain cautiously optimistic that this competition will not escalate into direct conflict, the ongoing AI arms race offers little reassurance and underscores the growing tensions between the two global powers.

US Earnings Concern: Just weeks before the president is set to implement new tariffs, there are growing concerns that businesses are already experiencing significant margin pressures.

• FedEx Corporation has lowered its profit outlook for the third consecutive quarter, citing ongoing weakness and “uncertainty in the US industrial economy” as primary concerns. The company’s freight business has been particularly impacted, with fewer shipments and lower weights continuing to drag down earnings. FedEx’s CEO highlighted that the unpredictable demand in the current economic environment has further exacerbated these challenges, intensifying concerns about the company’s near-term performance.

• Retail giant Nike has also expressed unease by warning that its sales are likely to suffer in the current quarter. The company attributed the anticipated downturn to the impact of new tariffs and a significant decline in consumer confidence. This gloomy outlook appears to align with the findings of the University of Michigan’s consumer survey, which revealed that 66% of consumers expect unemployment to rise over the next 12 months.
• Amid widespread concerns about the economy, it’s worth noting that hard data still does not provide strong evidence of a recession. In the upcoming quarter, earnings reports will be a critical focus. If companies manage to deliver positive surprises, equities could potentially overcome the current negative sentiment and weather the concerns about tariffs. However, if earnings disappoint, the markets may face significant turbulence.

UK Trouble Builds: The Starmer government faced a double blow of bad news within the last 24 hours. Borrowing in February significantly overshot expectations, while the country’s largest airport was forced to shut down due to a fire.

• The government ran a budget deficit of 10.7 billion GBP ($13.8 billion) last month, significantly surpassing the Office for Budget Responsibility’s forecast of 6.5 billion GBP ($8.4 billion). This shortfall was driven by lower-than-expected tax revenues and higher public expenditures, casting doubt on its ability to meet self-imposed fiscal targets. The overshoot is likely to heighten pressure on the government to curb spending as it strives to balance the current budget — excluding investment — by the 2029-30 fiscal year.
• At the same time, Heathrow Airport was forced to shut down for the remainder of the day after a nearby fire disrupted power to the hub. While the cause remains unclear, authorities have launched an investigation, including the possibility of terrorism. The airport closure is likely to heighten concerns about the resilience of the country’s critical infrastructure, particularly at a time when security has become an increasingly pressing issue throughout Europe.
• While UK Prime Minister Keir Starmer has seen a recent surge in popularity due to his handling of the Trump administration, his net approval rating remains deeply negative at -23. This could worsen if he is compelled to implement unpopular decisions, such as budget cuts, or if he faces additional security threats. The uncertainty surrounding his administration is likely to weigh on government bonds, as it raises doubts about his ability to restore the country’s fiscal stability.

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