U.S. Indices closed notably in the red on Wednesday as they were hit by risk-off trade due to a combination of factors, namely Trump tariff developments and an FT article overnight that Chinese energy efficiency rules could hit Nvidia (NVDA) sales. As such, Technology was the clear sectorial laggard, with mega-cap names Communication Services and Consumer Discretionary the next worst performers. Overall, sectors were mixed as Consumer Staples, Utilities, Energy, and Real Estate all saw gains (in that order), with the former buoyed by gains in the crude complex. However, WTI and Brent trimmed gains amid the souring of broader risk sentiment which was largely stoked by two remarks: 1) Bloomberg reported that US President Trump prepares auto tariff announcement as soon as today, something later confirmed by the White House, and 2) FT reported that EU Top Trade Negotiator Sefcovic expects US President Trump to hit the bloc with tariffs of about 20% next week. In wake of the latter, we saw Dollar strength pick up and the Euro lag, with equities also selling off to session lows. In FX, both the Japanese Yen and Sterling were weak, with the latter hit in response to UK Chancellor Reeves’s budget and inflation data. Treasuries chopped to strong Durable Goods Orders data and the aforementioned downbeat risk tone. For the record, Fed speakers saw Goolsbee warn that it may take longer than expected for the next cut to come due to economic uncertainty, while Kashkari said they should sit where they are to see how the economy reacts to tariffs. Musalem also said that patience with policy is appropriate. In addition, doubts continue to linger on whether the Russia/Ukraine partial ceasefire will hold, as both sides accused the other side of launching attacks on their facilities, with each side refuting the other’s claims thereafter. Albeit not garnering a market reaction, Atlanta Fed GDPnow (Q1) was unrevised at -1.8% (prev. -1.8%), while “gold adjusted” was revised lower to +0.2% from +0.4% on March 7th. There were several updates on the trade front on Wednesday. Reports overnight noted that US President Trump may implement copper tariffs within weeks, while the White House later announced they will give an update on auto tariffs alongside the closing bell, after Bloomberg reported Trump is preparing an auto tariff announcement as soon as today. Meanwhile, the Wall Street Journal reported that Trump is considering more limited tariff plans and that automotive tariffs could be narrowed and reciprocal tariffs lowered in the latest administration proposals. The WSJ was citing Senator Moreno (Republican) and others familiar with the discussions. The senator said that the White House is mulling plans to impose tariffs on finished vehicles coming into the US but not automotive parts. On reciprocal tariffs, it reported Trump’s team is preparing action by calculating tariff rates for trading partners based on barriers including taxes and regulations, but the administration might not implement the full value of the tariff rate for each country. Also, the FT reported commentary from the EU’s Top Trade Negotiator, who said he expects US President Trump to hit the bloc with tariffs of about 20% next week, and it would apply to all 27 member states, although FT reported that a White House official said no final decisions have been made. Meanwhile, Politico suggested tariff rate slightly differed, with the cited two diplomats postulating the Trump April 2nd tariff rate on the EU to be as high as 20 or 25%. Durable Goods surprised to the upside in February with the headline rising 0.9%, above the -1.0% forecast, adding to the strong rise in January of 3.3%. The Ex-defense metric rose by 0.8%, above the 0.0% forecast, versus the prior 3.7% print. Ex transport rose 0.7%, above the 0.2% forecast, accelerating from the prior 0.1%. The strong data shows that core numbers were strong, with ex-defense and ex-transport both beating expectations. The better-than-forecast data also likely shows that orders are still flowing ahead of the implementation of tariffs. The US Steel and Aluminum tariffs took effect on the 12th March, so it will be interesting to see if there is a reversal next month. Capital Economics highlights that “Stronger orders for primary metals and fabricated metal products in February suggest that tariff effects helped to drive up core Durable Goods Orders last month”. The desk also notes that with underlying capital goods shipments also doing well, machinery and equipment investment is on track to rebound this quarter, albeit not by enough to prevent a sharp slowdown in overall GDP growth. In wake of the data, the Atlanta Fed updated their GDP estimate, which was unchanged at -1.8%, although the gold-adjusted model was updated to show growth at +0.2%, down from the prior 0.4% on March 7th. Fed Member Kashkari said a lot of progress can be made on bringing inflation down, but there is still more work to do. Kashkari added that in the next year or two, the Fed ought to be able to reduce interest rates further. Note, on 7th Feb he said, barring something really surprising on admin policy, he expects the policy rate to be modestly lower at year-end vs now. On confidence, noted this is the most dramatic shift in confidence in last decade, save for COVID era. Kashkari added that it is conceivable that the hit to confidence could be a bigger effect than the tariffs themselves, and he takes very seriously the hit to confidence; the longer it lasts, the more meaningful it is. He concluded kind of wash between the forces on interest rates from tariffs, so we should sit where we are. Meanwhile, Fed Member Goolsbee via FT, said it may take longer than anticipated for the next cut to come because of economic uncertainty. He echoed other officials that a ‘Wait and See’ approach is the correct approach when facing uncertainty. He reiterated that he believes borrowing costs will be a fair bit lower in 12–18 months. The Chicago Fed President added that if investor expectations begin to converge with those of American households, the Fed would need to act. He also noted that market angst over inflation would be a red flag. Elsewhere, both Oil and Gold closed flat on Wednesday.
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