Ear to the Ground
04 April 2025
Liberation – the act of setting someone free from imprisonment, slavery, or oppression.
For many months markets and investors have been focussed on US non-farm payroll data, with this seen as a proxy for how well the economy was performing. Not this week, despite a much stronger report for March, which revealed that 228,000 jobs were added in the month. This was way ahead of the expectations of 135,000.
All eyes were focussed on ‘Liberation Day’, the day on which Donald Trump would release the reciprocal tariffs on countries around the world. There was a great deal of uncertainty around what this would look like, in particular the severity of tariffs which would de dealt. Upon release, it is fair to say that the markets fears were realised.
The level of tariffs imposed have clearly been aligned with the level of trade deficit which the US has with that company, with a minimum 10% tariff imposed. The chart below, which plots the US trade deficit with countries against the reciprocal tariff introduced clearly shows this.
Source: US, Exante.com, Steno.
There are differing opinions as to their purpose. Are they simply a starting point from which negotiations can take place? Others meanwhile believe that they are there to enforce structural change. Trump has clearly stated that he want to bring back industries to the US and he sees this as a way to help achieve this. Their release is clearly fresh and economists and market strategists alike are trying to understand what this means for global trade moving forward, economic growth and inflation.
Whilst the scale is an unknown and probably a best guess at best, growth is likely to be revised down sharply, whilst inflation looks inevitably to rise. Either way, equity markets have not taken to it kindly, no matter where you are in the world. The FTSE 100 since its close on the 2nd April, ahead of the announcement, has closed on the 4th having posted a 6.43% loss. The S&P 500 meanwhile, at the time of writing, has fallen over 9.5% with the Nasdaq Composite index down a similar level. The EStoxx50 meanwhile is down over 7.5%. Better news if you are a government bond investor, with the UK 10 year gilt yield falling under 4.5% whilst the US Treasury yield has fallen below 4%, thereby provided capital appreciation.
Time is needed to fully digest the ramifications of Liberation Day, along with the counter tariffs which may me see from countries in retaliation. Global trade may not quite be as global as it has been.
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