Market Brief: Tariffied Markets Await Rose Garden Announcement

The dollar is retreating against most of its peers, Treasury yields are holding near one-month lows, and stock markets are sliding once again as the world counts down to US President Donald Trump’s tariff announcement later today.

Major media outlets are reporting that the administration is still working to establish the scale and scope of the reciprocal tariff plan ahead of its unveiling, which is now* scheduled to begin at 4 pm in the White House Rose Garden this afternoon. According to Bloomberg, CNBC, Fox, the Wall Street Journal, and the Washington Post, there are at least three architectures under consideration, including a flat 20-percent tariff on all US trading partners, a 10- and 20-percent tiered flat rate, and a customised approach based on an assessment of the tariff and non-tariff barriers in place in specific countries. Whether these levies will come on top of previously-announced measures is unclear, and the status of existing exemptions remains unknown.

We very much doubt that today’s decision will materially reduce market uncertainty. If recent history is any indication, the accompanying documents are unlikely to contain the detailed determinations and clear-cut instructions needed for full implementation, implying that major areas of ambiguity will persist long after the announcement. In the last two months, a series of hastily-constructed policy changes have collapsed under the weight of internal logistical contradictions, forcing the administration to backtrack, often within hours. The president has also countermanded his own positions on tariffs dozens of times over the years, leading most market participants to believe that major carve-outs will be announced over the coming weeks and months.

The foreign exchange market reaction could prove complex and counter-intuitive. Although it might seem obvious that the euro, Canadian dollar, and Mexican peso could rally in response to a more conciliatory tone from the president, it’s almost impossible to know how much is already priced in—and the dollar itself could also gain on a smaller-than-feared increase in import taxes.

Yesterday’s US factory activity report was unremittingly negative. The Institute for Supply Management’s manufacturing measure fell back into contractionary territory in March after a two-month expansion, with sub-indices pointing to a rise in prices and inventories paired with a slowdown in sales, hiring activity, and production. The anecdotal section was dominated by trade policy worries, with one respondent saying “newly implemented tariffs are significantly impacting gross profits,” another warning of possible “demand destruction”, and several pointing to slowing sales in Canada as a potential drag on revenues. The report said “price growth accelerated due to tariffs, causing new order placement backlogs, supplier delivery slowdowns, and manufacturing inventory growth… orders continue to slow, as discussions about who will pay for potential tariff costs are the prime topic of negotiations between buyers and sellers”.

Stagflationary winds are blowing through the American economy. Friday’s University of Michigan survey showed long-term consumer inflation expectations climbing to a 33-year high, and Richmond Federal Reserve president Thomas Barkin yesterday told an audience at the Council on Foreign Relations that a “cage match” could get underway between financially-strapped consumers and tariff-afflicted businesses, with prices climbing, demand falling, and labour markets weakening. In an interview on Fox, Chicago Fed president Goolsbee warned “You’ve seen businesses and consumers, confidence, sentiment numbers almost cratering,” saying “If the consumer stops spending or business stops investing because they’re uncertain or they’re afraid where we’re headed, that would be a bit of a mess”.

Central bankers across the planet are caught between a rock and a hard place. As US tariffs and retaliatory actions in other countries begin to reduce the efficiency of the global economy—by raising background inflation and limiting the extent to which prices can adjust downward in response to changes in demand—monetary policymakers are being forced onto a reactive footing, with many taking a wait-and-see approach to setting interest rates. The number of monthly policy actions taken by central banks is rapidly approaching zero, and the longer-term outlook for interest rates is becoming less clear. Simply put, it’s difficult to know whether rates will go up as prices rise, or fall as demand weakens.

For now, this is translating into lower volatility in currency markets. With the exception of the Bank of Canada—which is seen responding to the trade shock with at least one additional rate cut—year-end policy expectations have remained almost unchanged across most major central banks since early January, reducing the extent to which evolving rate differentials have influenced spot rates. This won’t last: at some point, the major questions facing market participants will be answered, and the narrative impetus for big shifts in exchange rates will be back.

*In an interview on Monday, Treasury Secretary Scott Bessent said the announcement was set for 3 pm, but White House Press Secretary Karoline Leavitt yesterday said it will begin at 4 pm.

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