Introduction
LONDON, April 2 (Reuters) - U.S. markets are poised for significant announcements today, particularly concerning new tariffs under President Trump, which may lead to widespread economic consequences.
Context
The greater the buildup to an event, the higher the risk of disappointment. Wednesday's much-anticipated announcements might not meet expectations, but regardless, this issue is far from resolved.
I'll discuss market reactions leading up to the big reveal and provide insights.
Today's Market Minute
- U.S. President Donald Trump is set to impose sweeping new reciprocal tariffs on global trading partners today, disrupting decades of rules-based trade and likely inciting retaliation from multiple sides.
- Drugmakers are lobbying for phased tariffs on imported pharmaceuticals to ease the impact of the charges and provide time for manufacturing adjustments.
- Reuters examines historical periods marked by tariffs.
- The U.S. administration plans an executive order to ease regulations on military equipment exports, coinciding with Europe's fastest rearmament in at least 80 years.
- One of the largest global auto part suppliers is preparing for Trump's tariffs by "controlling the uncontrollable."
Developments
Trouble with a capital 'T'
The unveiling of Donald Trump's long-awaited trade strategy is scheduled for 4 p.m. Eastern Time today.
Reports suggest an announcement of 20% across-the-board import tariffs, while others mention a tiered approach. Uncertainty prevails among financial traders and investors about what to expect.
In anticipation of all outcomes, Wall Street stocks experienced a slight uptick on Tuesday as the second quarter began, although they lagged behind their European counterparts. However, S&P 500 futures reversed those gains overnight, and most global markets were slightly down on Wednesday.
The VIX "fear index" hovered around 22, above historical averages but well below the seven-month high of nearly 30 set a month ago.
Regardless of today's outcome, there will likely be a wave of measures that have not been thoroughly analyzed in terms of their global impact.
Tuesday's ISM report indicated a decline in U.S. factory activity last month, with rising price expectations. Job openings also dropped in February, setting a tense tone ahead of key labor market updates.
March payroll figures are set to be released on Friday, with the ADP private sector job count due later today.
Despite futures markets pricing in three Federal Reserve interest rate cuts this year, there's speculation of five cuts by July next year, despite concerns regarding tariff-related inflation. This would bring the policy rate back to what Fed officials view as the long-term neutral rate.
Treasury yields ticked up slightly early Wednesday, while the dollar index weakened.
In other political news, Susan Crawford was elected to the state Supreme Court, preserving its 4-3 liberal majority—a setback for Trump and his financial supporter Elon Musk, who backed her conservative opponent.
On a more positive note for the administration, Republicans are projected to win two special elections in Florida, which would strengthen the party's slim House majority by filling vacancies from Trump's cabinet selections.
Tariff Shock Less Worrying Than Slow Burn
The still-uncertain U.S. announcements on Wednesday make it challenging for investors to look beyond this week, but the real risk is a gradual decline in the U.S. market from an open-ended plan—creating months of uncertainty rather than a one-time shock.
Most medium-range market forecasts have been sidelined in the past week, as strategists lack a tariff baseline for analysis. Meanwhile, a poor quarter-end sentiment has gripped Wall Street, and implied volatility has risen.
The specific details of the tariffs remain unknown, and the range of countries impacted is unclear.
If Wednesday's announcement arrives with a dramatic impact, it could at least alleviate some tension on Wall Street, where many have been on edge about the issue all year.
Analysts citing relatively contained stock index volatility suggest that there isn't much left to be unexpectedly revealed on Wednesday that would significantly skew those measures.
Maxwell Grinacoff, head of equity derivatives research at UBS, noted that tariffs are already priced into the S&P 500 index and that investors have actively derisked in March by selling equities rather than hedging.
This trend has resulted in sharp declines in equity prices but only a moderate reaction in volatility, particularly when compared to spikes in the "fear index" seen during previous bull markets.
"Volatility is now experiencing its 'dirty-shirt' effect—it’s already stained, so a little more 'mud' won’t make much difference," wrote Grinacoff, highlighting that VIX levels are likely to remain around 20.
The prospect of Wednesday's tariffs announcement clearing uncertainty could be considered a positive, but only for those optimistic about the U.S. economic outlook.
"We believe the potential for heightened volatility from this point is limited," Grinacoff added. "Unless the U.S. enters a recession in the coming months/quarters, though that isn't our base case."
The absence of a recession remains a significant caution.
Goldman Sachs recently argued that the chance of a U.S. recession in the next 12 months has risen substantially, estimating it slightly over one in three—a bit below the 40% seen by JPMorgan.
Moreover, GDP models are already predicting a contraction in the first quarter, with the "GDPNow" forecast indicating a dramatic 3.7% annualized decline in national output for the first quarter. Some of this distortion is attributed to gold imports, but the Atlanta Fed's gold-adjusted estimate shows a contraction of 1.4%.
March high-frequency data did little to improve sentiment. Reports indicated a slip back into contraction for the factory sector, and declining job openings suggest emerging vulnerabilities in what once appeared robust.
Regardless of this week’s outcomes, lingering uncertainties about the trade war's endgame and the unpredictable effects of import levies on prices, demand, hiring, and activity will likely remain.
The administration retains the option to extend, increase, delay, or even cancel the tariffs, depending on high-pressure negotiations with allies and rivals.
Additionally, the global response and retaliatory actions to U.S. moves remain unpredictable—an underappreciated factor in the looming trade war.
While economists may gain clarity after Wednesday, absolute certainty seems unlikely.
Long-term uncertainty and gradual economic deterioration—a slow burn—could be quite damaging for equity markets that are already fragile and relatively expensive.
Chart of the Day
Gold buyers are experiencing the perfect storm they have sought for almost 40 years. Trade wars, military tensions, fractured Western alliances, inflation worries, recession fears, and doubts about the dollar's dominant position have driven gold prices up nearly 20% this year to an all-time high of $3,148 per ounce, marking its strongest quarter since 1986.
This time, U.S. protectionism and isolationism add to the mix. With rising tariff barriers and increasing military spending, central banks globally have gradually bolstered gold holdings as part of precautionary reserve building.
Conclusion
Today's Events to Watch
- The White House's announcement on the 'reciprocal' trade tariff plan is expected around 4 p.m. Eastern Time.
- U.S. ADP March private sector payrolls and February factory goods orders are due.
- Federal Reserve Board Governor Adriana Kugler speaks, alongside European Central Bank President Christine Lagarde and ECB chief economist Philip Lane.
- European Union defense ministers are set to meet in Warsaw.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence, and freedom from bias.