U.S. Indexes closed higher following another choppy session on Friday. T-Notes initially saw downward pressure to hit lows of 109-08 in wake of a dismal consumer confidence report accompanied by surging inflation expectations. However, stocks and bonds recovered from the earlier lows into the closing bell. Aside from the University of Michigan Survey, the PPI data was soft -in fitting with CPI- but sparked little reaction. On US/China tariffs, China responded in the European morning by raising the additional tariff on US goods to 125% from 84%, matching Trump’s latest move. This initially caused risk off trade with the Dollar plummeting, seeing the Dollar Index fall sub-100. There was no response from the US Friday on China, but we will be on the lookout for any commentary in response to the move from the US over the weekend. However, CNN’s Atwood posted on X that in private talks hour before China announced new retaliatory tariffs the Trump admin warned China against such a move & again told them to request a Xi-Trump call. The next catalyst on trade will likely be any conversations between the US and China. Crude prices ultimately settled in the green after sharp losses in recent weeks, while in FX the Dollar downside was the primary driver while the New Zealand Dollar and the Euro outperformed. In US trade stocks and bonds got a helping hand from two reports released around the same time. The FT posted an interview with Fed’s Collins, who said the Fed remains absolutely ready to step in if needed to stabilise the market. Meanwhile, FBN’s Gasparino reported that Trump is listening to CEO concerns about the impact of tariffs on the economy and market, while noting the White House has already started to pivot to its growth agenda. Headline PPI declined by 0.4% M/M, well beneath the +0.2% forecast and down from the prior revised 0.1%. The headline was weighed on by a chunky 4.0% dip in Airline fares, similar to what was seen in the CPI print. Headline Y/Y rose by 2.7%, well beneath the 3.3% forecast and beneath the lowest analyst forecast of 3.0%, falling from the prior 3.2%. The core M/M declined by 0.1% (exp. +0.3%, prev. +0.1%), with the Y/Y easing to 3.3% from 3.5%, beneath the 3.6% forecast. The supercore rose by 3.4%, down from the prior 3.5%, with M/M +0.1%, down from the prior 0.4%. The soft inflation report bodes well for a soft Core PCE print too, with the chunky drop in airline fares – a component of PCE – likely to weigh on PCE prices. The other components were also softer than the prior, aside from Nursing Home Care, which ticked up to 0.2% from 0.1%. After the CPI and PPI data, Pantheon notes the data implies the core PCE deflator increased by 0.13% in March, reducing the Y/Y rate to 2.6% from 2.8% in February. The consultancy highlights their forecast for the core PCE is unchanged from their forecast after the CPI, “due to a lack of volatile movements in most of the PPI components feeding into the core PCE deflator.” The preliminary University of Michigan for April was a dismal report. The headline tumbled to 50.8 from 57.0, and well beneath the expected 54.5, with the decline, like last month’s, pervasive and unanimous across age, income, education, geographic region, and political affiliation. Conditions and expectations also sank to 56.5 (prev. 63.8, exp. 61.5) and 47.2 (prev. 52.6, exp. 50.8), respectively, with both of them printing outside the bottom end of the forecast range. The inflation expectations surged, with the 1 Year ahead lifting to 6.7% from 5.0%, the highest since 1981, while the 5 Year expectations rose to 4.4% from 4.1%. However, the inflation expectations have a distinct political bias, so it is hard to read too much into them. Highlighting this, our friends over at ZeroHedge note that Democrats’ 1 Year forecast was 7.9%, whereas Republicans had 0.9%. Despite this, the report notes that this month’s rise was seen across all three political affiliations. For the record, the survey was conducted between March 25th and April 8th, so the cut-off was just before the 9th of April, when President Trump hiked tariffs on China, but reduced reciprocal tariffs on other nations. Fed Member Williams raised his inflation forecast to 3.5-4%, due to a boost from tariffs – in February (pre-tariffs) Williams said he expects inflation to hang around 2.5% this year. Since February, he also changed his unemployment and growth view, now seeing the jobless rate climbing to between 4.5-5% this year (prev. 4-4.25%) and growth to slow considerably to 1% this year (prev. to grow around 2% this year and next). Williams said the current economy is not one of stagflation, but noted that soft data has weakened a lot, although hard data has held in so far. On Fed policy, Williams said it’s well positioned for what lies ahead and allows the Fed space to react. Regarding tariffs, there is still quite a bit of uncertainty about tariffs but there are more details; how other countries respond to tariffs is a big issue. On the economy, said there is an ‘unusually wide array’ of outcomes that lie ahead for the economy; tariffs and trade are key drivers of the huge uncertainty. Williams added that longer-term inflation expectations are anchored and they must maintain that, noting he remains fully committed to getting inflation back to 2%. Meanwhile Fed Member Collins said the current rate policy is well positioned and holding steady for now remains appropriate, though there may still be scope to lower rates later this year. She acknowledged that tighter financial conditions could restrain economic activity but emphasized that monetary policy is still positioned to reduce inflation pressures. Collins warned of both upside inflation risks and downside risks to growth, noting that the Fed must keep inflation expectations anchored and remain nimble in a highly uncertain environment. She recognized the difficulty of policy choices given the trade-offs involved and cautioned that renewed price pressures could delay the timeline for rate cuts. On tariffs, Collins said they could significantly impact the outlook by pushing core inflation “well above” 3% this year while also dampening economic growth. Collins also spoke later to the FT, noting the Federal Reserve “would absolutely be prepared” to deploy its firepower to stabilise financial markets should conditions become disorderly. However, she said markets are continuing to function well and they are not seeing liquidity concerns overall. Finally, Fed Member Kashkari said it is difficult to get a clear picture of what’s happening beneath the surface of the economy, but the Fed’s job is to ensure long-run inflation expectations remain anchored. He said he has not seen evidence that expectations are rising yet and highlighted encouraging details in the recent CPI report. However, with inflation still elevated, Kashkari expressed discomfort with a “look-through” approach to tariffs, noting that after four years of high inflation, such an approach would be riskier now than in the past. He warned the effect of tariffs suggests inflation will be going back up again, job is to ensure it does not turn to long-term inflation. The Minneapolis Fed President emphasised that the outlook depends heavily on how tariff negotiations evolve—if they drag on, it may take longer to reach the level of confidence needed to lower rates. Kashkari also stressed caution in any actions that could signal a weakening of the Fed’s commitment to reducing inflation. On market dynamics, Kashkari said the Fed has tools to provide liquidity if needed, but any intervention from the Fed or Treasury should only be done reluctantly. Kashkari thinks they are quite a ways away from the market conditions they saw in the pandemic. He is not seeing big dislocations yet, but he is seeing some stresses. Elsewhere, Oil ended Friday’s session with a gain of 2.38%, while Gold surged, closing at a new all-time high with a gain of 2.1%.
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