Top of the Morning: POTUS 47 - Another brick in the tariff wall
At a Glance
The desk argues that ongoing developments in U.S. trade policy, particularly in the form of tariffs, remain a critical factor influencing market dynamics, as highlighted in the recent UBS commentary. Per the full note, the effective tariff rate has not escalated as much as possible due to various exemptions, but aggressive measures are still in place, solidifying trade barriers. Trade tensions contribute to the dollar's resilience against major currencies, impacting positioning among traders. There are no imminent catalysts on the economic calendar that could alter this trajectory in the near term.
Key Takeaways
- 01Ongoing U.S. trade policy reinforces tariff structures, impacting inflation and economic activity.
- 02Despite some exemptions, the effective tariff rate is firmly in place, providing support to the dollar.
- 03No significant calendar events ahead imply continuity in current positions concerning trade.
- 04Market volatility may increase if further tariff actions materialize, reflecting shifts in economic sentiment.
Full Analysis
What the desk is arguing
The current stance of U.S. trade policy reflects a commitment to maintaining tariff pressures amid a complex global economic landscape, according to insights from UBS. The metaphor of a 'brick in the tariff wall' symbolizes the ongoing fortified U.S. position, suggesting that trade negotiations may not soften, as some had speculated.
Kurt Reiman noted the effective tariff rate has increased, although not uniformly across sectors, risking further distortion in trade flows and associated economic impacts. The impacts are already being felt domestically, potentially heightening inflationary pressures as supply chain costs rise due to tariffs, which could influence future Federal Reserve policy responses.
Where it sits in our coverage
Our consensus target for USD/EUR stands at 1.075, with a range from 1.04 to 1.12. Firms like jpmorgan set their targets at 1.10 for Mar-26, while bofa is more conservative at 1.04.
This perspective aligns closely with the cross-firm consensus, although it skews slightly toward the upper bound of the spread, which suggests a relatively optimistic outlook on the dollar against the euro.
How other firms see it
Firm views diverge, with jpmorgan and citibank remaining aligned in their outlooks favoring the dollar, while bofa and goldman adopt a more bearish stance.
Indicators like the USD/JPY currency pair could reflect the broader impacts of U.S. trade policies, while adjustments in the Federal Reserve's interest rate posture remain critical to market movements.
Market Implications
Watch for USD strength, particularly if tariffs continue to escalate or remain firmly in place, potentially pushing the USD/EUR rate toward the upper bounds of our forecast range. Positioning signals could shift around trade rhetoric or upcoming data releases that stress inflation pressures.
From the original
Kurt rejoins in-studio for the latest POTUS 47 update where we discuss the developments surrounding US trade policy, concerns over Fed autonomy, and geopolitical points of interest - how these factors have been impacting the markets and shaping the investment outlook. Featured is
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The desk anticipates ongoing uncertainty in the U.S. trade policy landscape will continue to weigh on economic sentiment and the dollar. Per the full note [source], Jonathan Pingle from UBS highlights that recent tariff announcements exceeded market expectations, suggesting significant volatility ahead. This thought aligns with potential shifts in monetary policy direction as the Fed navigates these headwinds. Commentary on the evolving trade environment underscores the impact of tariffs on the economic outlook, especially as companies aim to adjust to the shifting landscape.
Top of the Morning: POTUS 47 - Has the worst of the tariff threat passed?
The desk maintains that the U.S. trade policy landscape may be stabilizing, particularly regarding tariff threats, per the full note from UBS. Key developments suggest that the recent court rulings may play a significant role in diminishing immediate tariff concerns, potentially allowing for smoother trade negotiations, especially with China. Additionally, historical context indicates that stabilizing trade relations could positively impact market sentiment, particularly in foreign exchange valuation. With no major economic events on the calendar in the coming month, the focus will remain on how the Biden administration navigates the ongoing tariff situation and its broader implications for global trade dynamics.
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