Good morning,
As promised, President Trump’s reciprocal tariffs have gone into effect. And in a bit of a script reversal from recent weeks, volatility and near-panic selling, reserved for the stock market lately, are thriving in the Treasury market this morning. Yield curves have steepened dramatically as most of the selling has been in longer maturity instruments. The steep rise in yields suggests that the classic haven is safe no more.
This morning, China hit back with eye-watering tariffs on US goods, though given that they buy relatively few, the impact on US growth should be relatively limited. Sentiment, on the other hand, is taking a hit. At least China did not opt for open confrontation on the currency front.
There is an outcry this morning for the Fed to act. I suspect that’s a non-starter, especially with our Treasury Secretary’s stated view that today’s action is normal deleveraging and nothing systemic.
Slightly surprising is that stocks have been soft but less volatile this morning. Maybe it’s fixed income getting all the attention, or perhaps there is a small sell-the-rumor / buy-the-news trade percolating. We’ll see about that today and I’ll see you tomorrow. Stay cool; it is going to be OK – it may just take a few weeks to get beyond this.
All the very best,
Mike