Yahoo: Trump says 'no room left' for Mexico and Canada to avoid 25% tariffs which start Tuesday
President Donald Trump says "there's no room left" for Mexico or Canada to avoid 25% tariffs on imports that will go into effect on Tuesday, sparking renewed fears of a North American trade war. U.S. stocks tumbled after Trump made the comments…
… AND with tariffs in mind, China responds this morning …
Bloomberg: China Suspends Imports of US Logs and Soybeans From Three Firms March 4, 2025 at 10:30 AM UTC
… and with THAT in mind, we add this in to the mix …
…The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -2.8 percent on March 3, down from -1.5 percent on February 28. After this morning’s releases from the US Census Bureau and the Institute for Supply Management, the nowcast of first-quarter real personal consumption expenditures growth and real private fixed investment growth fell from 1.3 percent and 3.5 percent, respectively, to 0.0 percent and 0.1 percent.
“No room” … he said. Markets did NOT like this and Team Rate CUT now, with all the dust settling, has this, from TGT to mull over …
CNBC: Target warns February sales were soft, adding to concerns about consumer health
THIS is why we draw the TLINES … not a moment after hitting send on what was clearly a more bearish lean (TLINE, momentum, bla bla bla) did said TLINE HOLD and bonds found a bid …
ZH: US Manufacturing Survey Signals Continued 'Expansion' But Inflation Fears Soar
… this then was followed up by … yep, you guessed it …
ZH: Atlanta Fed Slashes GDP Forecast (Again) After Small Dip In ISM Manufacturing Survey
… do me a favor and so, the next time I lead with a chart and some sorta misplaced poorly justified opinion, delete the post and move along to something of more value … perhaps watching and Anora trailer or something like that …
Thats it for me for now. I’ll show myself out but before I do … here is a snapshot OF USTs as of 700a:
… HEREis what this shop says be behind the price action overnight…
… WHILE YOU SLEPT Treasuries are twist steepening after a circuitous journey overnight to 4.11% in 10s and back after momentum carried into the Asia reopening. Our desk suggests foreign real$ sellers stepped in to cap gains after the squeeze, with fast$ names also profit-taking into the London handover. FX px-action (DXY -0.4%, EUR +0.3%, CNH +0.3%, CAD +0.4%, and MXN -0.7%) and US risk-assets appears resilient, with S&P futures showing -5pts here at 6:45am, though DAX futures are -2% alongside weakness in Euro-banks (3.6%). UST 2s10s30s is +2bps, 2s10s +3bps, while the German curve is bull-steepening (5s30s +5bps). Crude is -1.2%, XAU +1%, and copper -1.7%.
… for somewhat MORE of the news you might be able to use … a few more curated links for your dining and dancing pleasure …
NEWSQUAWKUS Market Open: China imposes retaliatory tariffs, US futures modestly lower and USD hit ahead of Trump’s State of Union Address … Bonds bolstered by growth concerns and tariff updates despite pressure from block trades & EU spending … Given the ongoing bullish bias, with USTs firmer in a 111-13 to 111-28+ band, yields are lower across most of the curve aside from at the 20yr point which is essentially flat. Focus ahead is on the fallout of President Trump's allowing the tariff pause to end, and also on his State of the Union address this evening.
… The new Trump administration's deliberate ambiguity on trade tariff policies and geopolitical alliances appears designed to keep rival negotiators guessing and calculated to wring concessions, but it may take a toll on the U.S. economy if corporate America doesn't know what exactly they're planning for.
…ISM's February survey of manufacturing firms showed that both new orders and employment readings have slipped back into contractionary territory after some post-election buoyancy, while tariff-irked inflation expectations are back on the rise. And S&P Global's poll of businesses in the U.S. dominant service sector showed overall activity turned negative last month for the first time in 16 months.
…Loaded into the closely-watched Atlanta Fed "GDPNow" model, the net exports variable posits the first quarterly contraction in overall U.S. GDP in nearly three years and the deepest since the pandemic lockdowns of 2020.
While some dismiss the number as a statistical glitch, it's still alarming in an investment universe where many have convinced themselves that the business cycle has died - and priced most U.S. securities accordingly.
Finviz (for everything else I might have overlooked …)
Moving from some of the news to some of THE VIEWS you might be able to use… here’s some of what Global Wall St is sayin’ …
AND the hits,they keep on comin’ …
Barclays: ISM manufacturing: Tariff worries undermine earlier optimism
The manufacturing ISM softened from 50.9 to 50.3 in February, remaining above 50 for a second consecutive month. In our view, the headline overstates the strength, with the detailed components showing evidence of intensifying cost pressures, and tariff-related uncertainty dragging on demand.
… and then there’s this one from same shop …
Barclays: January construction spending falls on residential weakness
Construction spending fell 0.2% m/m in January, driven by weak residential spending. Today's data come alongside upward revisions to November that shed further light on the increased residential investment spending shown in last week's secondary Q4 GDP print.
A rather large German bank and one of it’s more popular stratEgerists offered one that catches the eye so we should slow down to review …
It is hard to over-estimate the scale of change taking place in global economic and geopolitical relations in a matter of days. Over the past twelve hours, President Trump has announced the suspension of military aid to Ukraine as well as 25% tariffs on Canada and Mexico, unravelling a trade agreement he signed just a few years ago. At the stroke of a pen, two pillars of America's role in the world are being fundamentally challenged: the US's security backstop for Europe and the respect of rules-based free trade. Approximately half of total US imports are now subject to tariffs of more than 20% and the average US tariff rate is now above 10%, the highest since 1970. We stand by our conclusion that this marks the biggest shift in global trade relations since the collapse of Bretton Woods. In the meantime, the scale of threatened withdrawal from Europe is so large, it is prompting the biggest shift in German fiscal stance since re-unification and the announcement of an 800bn EUR package on defence from the European Commission this morning….
…Bringing it all together we are starting to become more open-minded to the prospects of a broader weaker trend unfolding. There are a few things holding us back: the constant change in newsflow out of the US and the prospect of at least a partial policy reversal on fiscal policy, given the likely damage to the US economy; the reluctance of the Fed to ease in an environment where tariffs will create upside pressure on prices; the broader knock-on impact of tariff and geopolitical developments in the rest of the world which pose severe downside growth risks and will prompt a more globally dovish reaction function. Our dollar views remain neutral for now but the key message is that we are becoming a lot more open-minded about two-sided risks to the dollar.
Here’s one I don’t normally advance but is a regular (weekly?) produced note … this one caught my attention for obvious reasons …
DB: IG & HY Strategy - Don’t Count on Fed Cuts To Save the Day
The last two weeks of macro volatility have been exceptional, and the ensuing market pricing is now a contradiction in terms. Rising inflation expectations have coincided with the market pricing 50bps more of Fed cuts through YE’26. The market is saying the Fed will overlook above-target inflation (making no real progress toward 2%) & will prioritize weaker growth instead. But investors are also saying US growth weakness will be mild, as $HY credit staged an exceptional relative outperformance vs. the S&P 500. Over the last two weeks, $HY returned +0.4%, while the S&P 500 returned -2.6%. This is only the sixth time in 11 years $HY has produced a positive two-week return, with the S&P 500 down more than 2.5%.
This “best of both worlds” reading of the US macro backdrop to get “risk-friendly rate cuts” is unlikely to realize. Disappointing US data YTD isn’t being driven by a normal slowdown that brings nominal growth & inflation lower. Our base case for "an overheating" credit cycle is starting to play out; the US private-sector credit impulse is rising, suggesting faster nominal growth (all else equal). And US household nominal income expectations are "fine"; it's real income expectations that have collapsed. The root causes of weak US data then are likely stemming from 1) temporary weather effects & 2) rising stagflation risks, amplified by policy uncertainty.
If the answer is primarily 1), we should see a more hawkish Fed, in the context of better economic data. But, even if the answer is primarily 2), the Fed should resist current rate cut pricing. The Fed cannot afford to be proactively cutting rates in a world of policy uncertainty & above-target inflation, for Fed policy can then quickly become too loose, if policy certainty crystallizes. Hence, any notion of a similar Fed reaction function to Trump 1.0 tariffs (like in 2019) is likely anachronistic in the current environment(Figure 2).
This all poses challenges for $-credit. The recent easing of financial conditions should lead to strong net issuance, while the Fed’s rate cut path is unlikely to be realized. Low recession risks in our base case should keep spread widening gradual; we stick to our 1H’25 targets of 92bp (+5) in $IG & 300bp (+20) in $HY. But the risk of a rapid overshoot to somewhere closer to our year-end targets of 110bp (+23) & 360bp (+80) will become more likely, if stagflationary data keeps accumulating and US equity & rate volatility remain elevated. Then the narrative of the last two weeks may need to be re-written.It may not be that “Slower US growth will bring down inflation.” The unexpected downside may be that “Higher inflation will bring down growth."
We now recommend to hedge this latter risk by underweighting $HY (given recent spread outperformance vs. $IG) & hedging with HYG options that protect against this stagflation concern.
The question now on more and more peoples mind at the moment …
First Trust: Monday Morning Outlook - Recession Alert?
Is the US already in recession? Probably not. But in the first quarter, real GDP is very likely to have a minus sign in front of it. Yes, a negative reading for real growth!
…Plugging the surge in imports into our models suggests negative growth for Q1, which was confirmed by the Atlanta Fed’s GDP Now, which is tracking -2.8% growth in Q1.
But just because we expect a negative reading in Q1 doesn’t mean a recession is here. The data are volatile for many reasons. For example, unusually cold winter weather plus California fires probably held down retail sales and homebuilding…
…With headwinds, tailwinds, and side winds hitting all at once, the data are not very clear. While we do expect the US to face an eventual recession, a negative Real GDP growth report for Q1 is not yet defining evidence. It is a reason to be concerned, but we will look elsewhere for confirmation.
China has unveiled a series of retaliatory actions following the implementation of an additional 10% tariff on 4 March by the US. These measures include imposing new tariffs on agricultural products and expanding the Unreliable Entities List to include more companies
… showing through to manufacturing …
ING: US manufacturing shows signs of tariff concerns
The US manufacturing ISM report was disappointing with big drops in new orders and employment. Tariff uncertainty may be playing a role and is certainly prompting companies to factor in the risks within their pricing
… uh oh, troubles in / around the forming of the stories …
MS: Narrative Fault Lines Forming | Global Macro Strategist
The 'US exceptionalism' narrative – a driver of macro markets for well over a year – faces an increasingly uphill battle, given risks to growth on both sides of the Atlantic. We think US Treasuries will benefit the most from a rethink of the narrative, while the US dollar underperforms the euro.
Key takeaways
The persistent nature of US outperformance (euro area underperformance) led forecasters to raise (lower) growth expectations starting only in August 2024.
The wider expected growth differences came with no increase in expected US growth like in 2017 – a negative divergence for the US exceptionalism narrative.
If investors grow fatigued with tariff headlines, as vol markets suggest, the tariff risk premium embedded into markets should wane further, sending USD lower.
We expect trough policy rate pricing in the US and euro area to move closer together and USD to underperform EUR – similar to its behavior in 2017.
… same shop, searching for next narrative rewrite offers NFP precap …
MS: Employment Report Preview: Strong February despite Federal pullback
Payrolls rebound sharply after being held back by wildfires and colder weather in January. We forecast a 200k rise despite sharp slowing in Federal hiring. Average hourly earnings, +0.3%m/m, stall at 4.1%y/y. The unemployment rate is unchanged at 4.0%.
… same shop with a bright spot … of sorts …
MS: US Economics and Municipal Strategy: Tax Refunds: A Bright Spot in Recent Data
Tax refunds are tracking high compared to recent years, despite a slower start. Higher refunds should be an incremental tailwind for consumers, who intend to use refunds mostly to save and pay off debts. For states, solid YoY & FYTD income tax growth points to steady growth in S&L spending.
Key takeaways
The total dollar amount of federal tax refunds issued is 33% above that of 2024 so far, trending in-line with 2018-2020.
The high dollar amount is due to high average refund size. The average refund is $3,453, above both 2023 and 2024 on an inflation-adjusted basis.
Meanwhile, the number of refunds issued so far is lagging prior years, though similar to 2024 which was also delayed. We estimate ~40% of refunds given so far.
In our AlphaWise Consumer Pulse Survey, more consumers compared to last year intend to add refunds to savings, while slightly less intend to pay off debts.
State income tax receipts are strong so far. We think this should support state budgets and contribute to steady-to-positive S&L spending.
AND the tax attacks are coming, the tax attacks are comin’ (written with a British accent …)
US President Trump lashed out in several directions yesterday, suspending military aid to Ukraine and aggressively taxing US consumers of imports from Canada, China, and Mexico. Although Trump inherited a strong economy, these moves increase US recession risks. The Ukraine decision has economic consequences. It may increase international hostility to Russia and the US, affecting sanction resolve and trade negotiations.
The trade taxes are direct attacks on US living standards. These costs will be quickly visible to US consumers, applying to high frequency purchases like food and fuel. Complex supply chains like the auto sector will be damaged if every cross-border trade is taxed. Even if short-lived, these measures cause economic damage; consumers become more aware of how tariffs work, and business uncertainty increases.
Second-round effects could do additional damage. US companies may raise prices under cover of tariffs, if they choose profit margin over market share. Profit-led inflation is also possible amongst retailers, as consumers mistakenly think a 25% trade tax justifies a 25% consumer price increase.
China and Canada are taxing their consumers with retaliatory tariffs. Non-tariff responses may be more concerning. Ontario’s premier has suggested banning energy sales to the US. As the pandemic demonstrated, stopping the supply of basic materials would risk wider US economic damage.
The good news because of the less good news …
Wells Fargo: ISM Stays Above 50, Thanks to Lift from Long Wait Times
Summary Manufacturing ISM was in expansion in February, but only barely so at 50.3. A jump in supplier deliveries kept the headline above 50. Three of the five components that feed into the headline were in contraction, and prices paid jumped to its highest since 2022.
… AND some MORE of the data, which matters for GDP, weakens …
Wells Fargo: Construction Spending Weakens to Start 2025 Residential Spending Drags Down Overall Outlays
Summary Construction Spending Dips in January Total construction outlays declined 0.2% during January. Residential spending ended a three-month streak of gains and fell 0.5% during the month. Although single-family spending continued to expand, multifamily and home improvement spending both dropped. Meanwhile, total nonresidential spending rose modestly as solid gains in infrastructure and data center spending offset weakness in manufacturing, commercial and education projects. While relatively resilient economic growth and the lagged impulse from recent federal spending packages should continue as support factors, elevated interest rates and increased economic policy uncertainty stand to constrain construction activity moving forward.
… And from the Global Wall Street inbox TO the intertubes, a few curated links …
Trying to connect some dots here …
Apollo: Quantifying the Impact of DOGE and Tariffs on GDP and Inflation
About 25% of jobs added in the US economy over the past two years were government jobs, up from 5% in 2021 and 7% in 2022, see chart below.
We are hosting a conference call today at 10 am EST to discuss the potential implications of the latest US administration policy proposals, you can register here, and the chart book we will be using is available here.
OpED from THE Terminal …
Bloomberg: Tariffs show the market guardrail may be overrated And it’s getting harder to ignore the economic warning signs.
Markets to Trump: Drop the Tariffs
The US president announced at 2:42 p.m. Eastern Time that tariffs on Canada and Mexico would commence Tuesday. Many had complained that the market had grown too complacent about tariffs. Judging by the instant reaction, they were right. The vertical lines in the chart indicate the timing of the announcement:
The S&P 500’s worst day this year showed markets disliked it, though both bonds and stocks bounced after initial selloffs. For an administration that has targeted lower 10-year Treasury yields and crude prices and a weaker dollar, the day wasn’t necessarily so bad. Stocks matter a lot for Trump, and their fall could be concerning. There’s a widespread theory that markets will act as the most important guardrail for economic policy; we should soon find out if that’s right.
The pro-growth Trump trades that took hold after the election are almost all in reverse. The following chart is indexed for Election Day and follows stocks relative to bonds, US stocks relative to the rest of the world, US growth stocks relative to value, and Bitcoin. All have turned around since January in a way that must have lost a lot of money for a lot of people. But it would be unwise to take it much further than that. The Trump trades are back where they were Nov. 5. Some extreme enthusiasm has been knocked off the top. Where they are in a year or two will depend on the impact Trump policies actually have on the economy:
My Risk-On/Risk-Off ratio has sharply declined recently and returned to levels when the ratio peaked and fell into a consolidation period back in 2021.
Here’s the chart:
Let's break down what the chart shows:
The black line is my Risk-On/Risk-Off ratio.
The Risk-On components consist of Copper (HG1), High Yield Bonds (JNK), Aussie Dollar (AUDUSD), Semiconductors (SOXX/SPY) & High Beta (SPHB/SPY).
The Risk-Off components consist of Gold (GC1), US Treasury Bonds (TLT), Yen (JPYUSD), Utilities (XLU/SPY) & Staples (XLP/SPY).
The Takeaway: Investors are experiencing fear and pessimism, as bearish sentiment dominates the surveys. The US market is beginning to mirror this mood, showing a preference for a Risk-Off environment. This is reflected in my Risk-On/Risk-Off ratio, which has returned to a key level of importance where we saw NYSE breadth reach its peak in 2021.
Will this resistance level, which has turned into support, continue to act as support, or will this ratio break down?
While there are still opportunities in the market, which JC has been pointing out, it’s important to be selective instead of broad-based buying. My Risk-On/Risk-Off ratio suggests that now is not the right time for an aggressive strategy…
CHARTS. 10s at ‘crucial’ juncture, so says the position guy…
Hedgopia: Amidst Elevated Valuations, Macro/Policy Uncertainty, Relief Rally Possible In Equities
… The 10-year treasury yield hit 4.81 percent on January 14 and finished last week at 4.23 percent, down 19 basis points week-over-week. Yields are at a crucial technical level currently. The 200-day moving average lies at 4.24 percent. Plus, horizontal support at 4.2s-4.3s goes back years (Chart 2). A breach here has the potential to take out stops and put more downward pressure on these rates.
There is a lot of consequential data coming out this week. The February update to the ISM Manufacturing Index will be released today at 10 am and the ISM Services Index will be out Wednesday. We are curious to see how the inflation proxy in these surveys (Prices Paid) comes in. Prices Paid was higher in almost every regional PMI last month suggesting that inflationary pressures are beginning to build again.
The two national PMIs will also give us some sense of employment prospects. The employment components of the ISM series have been in recovery mode for several months, but not long enough to have an impact on the February payroll figures set to be released on Friday. The chart here shows the relationship between these two data sets and argues that payrolls could be on the weaker side this month before it starts to improve. We shall see.
Don't be so hard on yourself there BondBeat man this bizz fools the best of us. I'm sure it's why I luv both Econ & skiing so much; they're both the endless challenge, always something new to learn & improve, and we're never too good to fall/fail again. Pick yourself up off the snow or floor, dust off the snow or ink, and enjoy the next run!
I'm I correct in saying that the 2, 3 and
5 year yields are now all below the
Fed Funds rate ??
The Fed was asleep at the Inflation
Pivot, no reason to think they won't be
asleep at the Recession Pivot.
What would you expect from a committee of Government
workers ???
Uncertainty, is not a valid excuse.
Because it is a Constant.
There is always Uncertainty in the market and economy.
The Fed gets paid for making well educated decisions, despite the
clouds of uncertainty..
Don't be so hard on yourself there BondBeat man this bizz fools the best of us. I'm sure it's why I luv both Econ & skiing so much; they're both the endless challenge, always something new to learn & improve, and we're never too good to fall/fail again. Pick yourself up off the snow or floor, dust off the snow or ink, and enjoy the next run!