U.S. Indices rallied on Monday on reports that US President Trump’s April 2nd tariffs may be more targeted, excluding sector-specific tariffs, while a strong S&P Global Services PMI also supported the risk tone. However, Trump did later state he will be announcing tariffs on autos, lumber and chips over the next few days, but he did add he may give a lot of countries breaks on tariffs, which helped add to the equity bid. Stocks closed around highs with all sectors in the green, with notable outperformance in Consumer Discretionary thanks to near 11% gains in Tesla (TSLA) and 3.6% gains in Amazon (AMZN). Communication Services also outperformed, while the defensive sectors underperformed, but mostly ended higher (utilities finished flat). T-notes were sold across the curve on the Trump-targeted tariff reports with encouraging risk sentiment also weighing. Reports in WaPo suggesting tax revenue this year will be 10% lower Y/Y also added to the pressure. There was also a slew of corporate issuance ahead of 2, 5 and 7 year supply this week, but T-note selling accelerated after the strong PMI data, which saw the composite rise thanks to a strong services print, although manufacturing PMI fell into contractionary territory. The Dollar Index saw gains thanks to higher yields but also the strong PMI data while the Japanese Yen was the clear laggard on yield differentials. Both the Australian Dollar and Canadian Dollar outperformed due to their cyclical nature with stocks rallying, with AUD/USD turning green on Trump’s possible country tariff break remark. Crude prices were bid due to the risk tone despite several bearish reports. Reports included Egypt putting forward a proposal to try to put the ceasefire between Israel and Hamas back on track; Indian refiners are set to issue fewer tenders for crude oil purchases on the spot market in the coming months due to increased Russian supply, via Reuters. It was also reported by Reuters that OPEC+ is set to proceed with plans for the next monthly oil output hike in May, according to sources. Nonetheless, oil prices were pushed higher, supported by Trump announcing secondary tariffs on Venezuela, where any country that purchases oil and gas from Venezuela will be forced to pay a tariff of 25% to the US on any trade they do. This is of concern for China, Spain, India, and Italy (via Reuters), where if there are no changes in trade policy, China could face tariffs of up to 45% (25% secondary tariffs on top of the 20% existing tariffs). US S&P Global Flash PMIs for March were mixed. Services topped expectations at 54.3 (exp. 50.8, prev. 51.0), while Manufacturing unexpectedly fell back beneath 50 to 49.8 (exp. 51.7, prev. 52.7). The surge in Services more than offset the manufacturing slump, allowing the Composite to rise to 53.5 from 51.6. Commenting on the data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said a welcome upturn in service sector activity has helped propel stronger economic growth at the end of the first quarter. However, the survey data are indicative of the economy growing at an annualized 1.9% rate in March and just 1.5% over the quarter as a whole, pointing to a slowing of GDP growth compared to the end of 2024. In addition, he added that near-term risks also seem tilted to the downside, and business confidence in the outlook has also darkened, souring further from the buoyant mood seen at the start of the year. Williamson adds that a pivotal concern over tariffs is the impact on inflation, with the March survey indicating a further sharp rise in costs as suppliers pass tariff-related price hikes on to US companies. In an interview with Bloomberg, Fed Member Bostic maintained his hawk stance, announcing he was one of the dots who pencilled in just one rate cut for 2025, down from his prior estimate of two rate cuts. For reference, the Fed median FFR dot plot sees two cuts this year while money markets currently price 68bps of easing. On uncertainty, Bostic said there is a lot on the economy, and as such, “forecasting is more challenging than in the past”. The 2027 voter expects inflation to be very bumpy and he doesn’t see it returning to target until some time in 2027 (in line with the Fed median view). Bostic is comfortable keeping policy restrictive to get inflation to target and noted he focuses on the medium and long-term inflation expectations, as opposed to more volatile short-term expectations. Bostic stated he is hearing more concern about the path of the economy, but data has not shown that yet. Additionally, businesses think price pressures are moving higher, are bullish on sales, and wage pressures are not outsized. On the labour market, he said it’s still tight, but “not as tight as two years ago”. Regarding the QT pace slowdown on Treasury securities, he prefers to stay at this rate until they stop. Bostic said he would consider selling MBS but the Fed has not had any conversations about it. Elsewhere, Oil closed higher by 1.22% while Gold was heavy, closing lower by 0.7%.
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