Written Commentary
STOCK INDEX FUTURES
Not surprisingly, global equity markets have responded negatively to the latest presidential salvo announcing a wave of new US tariff initiatives. In addition to ratcheting tariffs up on neighboring Canada, the president announced as many as 62 countries are facing reciprocal tariffs as of today. Furthermore, the President announced a 10% US global baseline tariff rate. As if the trade news wasn’t discouraging enough the president also called on drug companies to reduce prices in a development that will certainly spark liquidation among pharmaceutical shares. Berkshire Hathaway will release its earnings tomorrow morning with Warren Buffett announcing his retirement. The Oracle of Omaha has been a stalwart bullish force in US equities, and some could perceive his retirement as an end of a classic investment era. Key earnings reports today include Exxon, Colgate-Palmolive, Dominion Energy, Kimberly-Clark, Moderna and Barnes & Noble. However, as indicated already internal fundamentals like earnings are unlikely to countervail early bearish macroeconomic forces today. In fact, without a wide off the mark payroll report, today’s scheduled data is also unlikely to countervail the latest heating up of the trade war.
CURRENCY FUTURES
Apparently, an avalanche of new US reciprocal tariffs announcements this morning have not discouraged dollar buyers as the currency index reached its highest trade since early May. In other words, the trade no longer thinks the dollar will extend the massive 2025 plunge off the idea that “taking on the whole world in a trade war” will throw the US economy in recession. In fact, the trade seems to have shifted its thinking 180° on the impact of the US raising tariffs on most of its trading partners with many now calculating positive debt and deficit implications for the US. In fact, with the announcement of a global US baseline tariff rate and the announcement of 62 reciprocal tariffs this morning we think that officially begins the process of capping the spiraling US deficit. Even the macroeconomic differential set up favors dollar bulls with US jobs data expected to hold up again today.
INTEREST RATE MARKET FUTURES
Apparently, escalation in the global trade war has not extended recent flight to quality buying interest in US treasuries as bonds this morning have posted a three-day low face of across the board global equity market declines. Clearly, the latest round of US tariffs announcements (which are broad and likely to foment global inflation) are an indirect pressure on US debt. However, in an unusual reaction, the US dollar has posted a new high for the move and has not been devalued under the recent theme of the US fighting the entire world with tariffs. Looking ahead to today’s US scheduled data it is unlikely a surprisingly soft data point will be released given persistent US Federal Reserve Chairman comments that the US jobs market remains solid. On the other hand, given the bearish tilt in treasuries to start today a slightly disappointing job report shouldn’t rekindle the bull track seen earlier this week.
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