Top of the Morning: The week in review and preview
Per the UBS podcast source, the initial market response to a U.S. Court of International Trade ruling blocking Trump tariff authority was muted, as a federal appeals court quickly paused the decision, underscoring the real-time uncertainty. The desk argues trade policy remains highly fluid, with rates and equities reacting to each twist. No specific currency pair is cited, so internal coverage is absent, and the calendar shows no high-impact events, leaving the desk focused on headline-driven volatility.
What the desk is arguing
UBS strategist Mike Gourd argues that markets are struggling to process the fast-evolving trade tariff story, as evidenced by the muted initial reaction to the Court of International Trade ruling followed by a swift reversal after a federal appeals court paused it. The desk frames this as a 'real-time uncertainty' where each headline can reverse the prior move, making it difficult for traders to position.
The supporting evidence comes from the rate market: a bear steepener on the first ruling was fully retraced after the appeals court action, and equity futures gave back early gains. Gourd emphasizes that credit spreads barely tightened, suggesting institutional skepticism about the durability of any legal victory.
By implication, the desk is rejecting the view that clarity has arrived. The alternative read—that the trade dispute is heading toward a resolution—is dismissed because the legal process is only beginning, and the administration retains alternative tariff mechanisms.
Key takeaways
01Trade tariff policy remains highly uncertain, with legal rulings reversed in hours.
02Market reactions have been muted, reflecting skepticism about the durability of court decisions.
03Rate and equity signals are dominated by headline risk, not fundamental clarity.
04No clear currency pair direction emerges from this narrative; traders should stay agile.
Market implications
Expect continued intraday volatility in USD and risk assets tied to trade headlines. Watch for any further court rulings on tariff authority, as well as administration comments—each could trigger sharp but short-lived moves in rates, credit, and equity futures.
Risks to this view
The call is invalidated if the appeals court issues a definitive ruling blocking tariff use under emergency authority, or if the administration pivots to a different legal justification. Conversely, a rapid escalation via executive orders could also render the muted-reaction thesis obsolete.
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Hi everyone, Siobhan Schapman here, and welcome to Top of the Morning on the UBS Market Moves podcast channel. It's Friday morning, which means it's time for the Week in Review and Preview conversation, where my guests will recap how markets have performed over the past few sessions and preview what you can expect in the week ahead. Joining us for the conversation, I'm glad to welcome back Mike Gord, Asset Allocation Strategist Americas with the UBS Chief Investment Office.
Mike, welcome. We're happy to have you. Hey, Siobhan.
Good morning. Happy to be here. And happy Friday.
Happy Friday, Mike. So let's get started. Earlier this week, we saw that U.S.
Court of International Trade blocked President Trump from imposing tariffs under emergency authority. How have markets responded to this development and what are the implications here to U.S. trade? Yeah, it's a great question.
So I'd start by saying the immediate market reactions to that decision on Wednesday were more muted than might be expected, given what seemed to be a critical headline. And that became apparent. Why?
Just yesterday. So the immediate market reaction saw a bear steepener in rates. Before those moves were retraced, credit wasn't all that much tighter.
Equity futures rose into the U.S. session, but pared gains and closed Thursday, you know, much, you know, much lower than they had started the day. And the reason for these moves, you know, it's really because there isn't clarity just from this initial ruling, as was obvious yesterday, you know, because that ruling was paused by a federal appeals court. You know, this is all happening, like, in very much in real time.
So my comments here may not even be accurate by the time, you know, some of our listeners do end up hearing this, but here in CIO, we're doing our best to deliver the latest news and the implications of each of these twists and turns. But given that, you know, obviously a lot of details around tariff policy in the months ahead are going to be determined by the courts. And from an economic impact perspective, this brings, you know, some interesting variables into play.
And I'd say the biggest one is going to be in the event that there is some type of pause on, you know, all of these tariffs, we'd likely see a rapid, rapid increase in imports as importers try to front run what they will likely see as tariffs being reapplied in the future. So that's going to add a huge amount of noise into some of this already very noisy activity and consumption data. And that really is important because it even further complicates the Fed's already challenging task of supporting its dual mandate, because the economic data will be almost too noisy for them to glean any real information from.
So that's kind of the current, the current status of, you know, that decision and where we stand. But we will see how this plays out from here, but expect more twists and turns down the road. Thank you so much for the update on that, Mike.
So it was a busy week for the macro data releases. What are some notable takeaways? Yeah, so a few, you know, eye catching releases this week.
So starting with GDP, and just to be clear, these were secondary estimates that were revised from last month's first quarter estimates. So GDP came in at minus 0.2% for the first quarter. At the surface level, really not all that surprising.
Economic policy uncertainty, especially related to tariffs, effectively put so many major business decision on decisions on hold, and firms were focused more on shoring up their existing operations, supply chains, etc. Then really starting out and focusing on, you know, inherently riskier business operations. But looking into the details kind of below the surface provides us some more information.
Internet exports subtracted almost 5 percentage points from the GDP print. Again, not all that surprising, just outside of the magnitude of that contribution. You know, naturally, importers are going to try and front run the tariffs because they were so widely communicated.
Then they boosted their inventories in March ahead of the tariff implementation. And that pulls back from GDP. This also showed up in durable goods orders.
The preliminary April print that we got on Monday, which saw a 6.3% monthly decline versus last month's 9.2% increase, rapid inventory accumulation ahead of the tariffs, then sharp reductions once they're put in place, pretty, you know, as expected. But the flip side of the boosted inventories coin is that, you know, this antagonistic nature that the administration has exhibited towards their trading partners, even those traditionally viewed as allies, has resulted in some movements around the world similar to boycotts of U.S.-made products and services. So that's hurting our net exports as well.
Another big contributor in the GDP figure was the decline in federal government spending. As we know, the executive branch has continued to hold back congressionally approved funding. So, you know, the federal government is not really a small spender.
So this will have an impact all the way up at the broad GDP level. But important to note, again, going forward, GDP numbers are going to be messier and harder to forecast and susceptible to all of this economic data volatility as it relates to tariff policy. Also, just want to mention, just a little while ago this morning, we got some really high popping figures.
The advanced goods trade deficit fell almost 20 percent lower in April than May. And the, excuse me, the total value of imported goods fell 46 percent month over month. So very clearly the tariffs are doing one of the intended goals that the administration had, which was reducing that trade deficit, you know, hats off to them.
They were able to come out with a clear goal in mind and already it's showing, you know, significant progress. You know, we'll see how this goes forward, but it's going to be messy and it's going to be painful. You know, imports down 20 percent in a month is not something that, you know, American consumers can really fully grasp.
It's the biggest drop that we've ever seen and it's going to take some time for that impact to start being felt, you know, kind of within the general populace. Coming to inflation, honestly not as big of a story given what we just went through. And I don't really expect it to become a major focus for the next couple of months once we start to see that initial price shock related to tariffs really filtering through the economy and showing up in more inflation gauges.
I will mention, though, that we did get core PCE prints that came in at 0.1 percent month over month, which brought the annualized rate to two and a half percent. That is the lowest since 2021. And that coincided in 2021 with the rapid rise following the, excuse me, following the pandemic.
And it's important to mention this, you know, this lower level of core PCE inflation because it gives the Fed just a little bit more wiggle room with their, you know, widely communicated wait and see approach to determining their next move on interest rates. So a little bit more breathing room there, but yeah, the trade data and the GEP is definitely taken center stage for the data that came out this week. Moving over to the FOMC, is there anything to note there?
Yeah. So, I mean, you know, Fed is clearly, you know, saying that they are in a wait and see mode. You know, no real surprise there, they have been out there saying that for some time.
But a couple of interesting comments worth highlighting. The first one was the recognition of the immediate market reaction to Liberation Day announcements. This is when U.S. stocks rates and the U.S. dollar all sold off together.
And that is a really concerning market dynamic, especially for the U.S. market that views its debt and currency as safe haven assets. Fed members remarked that the U.S. dollar should no longer be, that should the U.S. dollar no longer be viewed as a safe haven currency. It warrants monitoring as a risk to financial stability and could have long lasting implications for the economy.
The second point they reiterated was that the tariff policies make their job harder on two fronts. First, inflation will rise directly as a result from the tariffs. And worth adding also that forward inflation expectations are also rising.
And that actually hurts their argument that the tariff induced price shocks can be viewed as kind of a one off level shift higher in prices. You know, consumers are preparing for higher and more persistent inflation. But as businesses struggle to continue, you know, raising sales at a higher cost and lower consumption environment, unemployment is set to increase.
So this means their two mandates of price stability and full employment are at odds with one another. If they prioritize fighting inflation, they need to raise rates, which causes unemployment to rise. economic activity, hoping to support employment, inflation could, you know, really take off again. So, you know, they're cognizant of the risks, but, you know, worth keeping a close eye on those.
So we are coming to the end of our conversation, Mike, and I want to turn to next week. What is taking place that investors should be mindful of? Yeah, I mean, outside of any further twists and turns in the tariff courts showdown, if you will, next week, I'll be looking at ISM data, particularly the prices paid and new order components, which, you know, are going to feed into inflation and will act as leading indicators for future economic activity.
You know, they're most likely going to be impacted by the tariffs, but also keeping an eye on the the employment component, because we did actually just this week get the highest level of continuing jobless claims in almost four years. So only to keep an eye on there on next Tuesday, we will get the high frequency jolts job data also worth keeping an eye on, you know, and honestly, we should just call next week the labor data week because it does all come together on Friday with the nonfarm payroll data for May and an update to the unemployment rate. So since inflationary pressures seem to be contained for now, at least, you know, the labor side of the Fed's decision making could rise or could rise in importance depending on how that data comes in next week.
So that will definitely be a focus for us and for the rest of the market. That's it for me, Siobhan. Thank you so much for that, Mike.
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