Will he change his mind again?
César Pérez Ruiz, Chief Investments Officer Pictet Wealth Management.
The US/China trade war ramped up with China halting Boeing orders and Liquid Natural Gas purchases from the US. Meanwhile, America threatened port fees of USD50 per ton of cargo to all Chinese ships alongside the semiconductor ban coming in May, and delayed reciprocal tariffs for the rest of the world. Tariff impacts will be given clear measure with the Purchasing Managers’ Index this week, while 23% of companies are already reporting direct effects. US industrial production dropped, with a 5.8% decline in utilities reflecting warm weather through March.) Hard data has been holding well but soft data is showing weakness.
The S&P500[i] fell 1.5% (in USD). The European Central Bank (ECB) cut rates by 25 basis points, bringing the deposit rate to 2.25% as expected. Christine Lagarde said the “downside risks to economic growth have increased” with tariffs creating a “negative demand shock”. Jerome Powell warned that “significantly larger than anticipated” tariffs would likely slow US growth and raise inflation.
Trump attacked Powell for being slow to cut rates and claimed the right to fire him, having already axed board members at two independent agencies, testing an historic Supreme Court ruling preventing presidents from removing appointed leaders of federal agencies for political reasons. Ensuing doubts about the Fed’s independence lifted the Euro 0.3% and pushed gold to a new record high at USD3327 per ounce, reflecting uncertainty about dollar stability. For the first time in 12 years, the yield spread between US Treasuries and Bunds is widening at the same time as the dollar is falling. Treasury Secretary Scott Bessent labelled bond market selloffs a result of “normal deleveraging”, not foreign offloading.
Quote of the week
Trump said Powell’s termination “cannot come fast enough”.
Key data
US retail sales were up more than expected by 1.4% in March. Vehicle sales saw the strongest increase in two years as purchasers front-load – behaviour likely to continue until auto tariffs are implemented.
[i]Source: Pictet WM AA&MR, Thomson Reuters. Past performance, S&P 500 Composite (net 12-month return in USD): 2020, 18.4%; 2021, 28.7%; 2022, -18.1%; 2023, 26.3%; 2024, 25%.
