Rudi’s View: Captive & Uncomfortable

Rudi's View | Mar 26 2025

Captive & Uncomfortable

By Rudi Filapek-Vandyck, Editor

Between now and April 2, financial markets are likely to remain captive to whatever comes out of the Trump White House.

Reciprocal tariffs? Universal, but with flexibility? No exceptions, except for some?

There are still many variations possible and the general mood can swing on a daily basis in accordance with the latest political signals thrown into the public arena.

After the initial draw down, which pulled US indices -10% or more off their all-time record highs, with Australian indices not far behind, the general mood has becalmed, allowing technically oversold equities to bounce back somewhat.

This happens partially because many investors still believe those tariffs will not be put in place. They are a negotiating tactic, or so goes the narrative. Others will tell us even if tariffs will be put in place, they won't be permanent.

Transitory's Back

All of a sudden the term 'transitory' has found its place back in financial market's lexicon, also including the Federal Reserve.

Chair Jerome Powell indicated last week the Fed is prepared to look through higher inflation numbers as long as they are solely related to US import tariffs, and thus temporary, or transitory, i.e. such an occurrence can be ignored as far as central bank policy decisions are concerned.

Powell's communications with markets have contributed to the aforementioned 'bounce' as nervous and spooked investors welcomed the message from the world's most powerful central bank it stands ready to provide support in case things do get hairy after April 2.

Financial markets like being supported, be it by the Fed or otherwise, but the key question remains: how much is the US economy slowing down already on the back of tariff uncertainty?

If It Quacks Like A Duck

Last week, I mentioned how various 'soft' economic indicators, including consumer sentiment and business' capex intentions, are weakening at quite the rapid pace.

Since then, it is increasingly clear the Canadian populace has turned against their aggressively bullying neighbour from the South, cancelling holidays and trips to the US and now also actively boycotting US goods and services.

None of this will push the US economy into a recession, of course, but if you know that Canadians visit New York to the magnitude of one million visitors each year, this can leave quite the negative impact short-term and nothing the Fed can do to quickly provide compensation.

Economists are expecting this rapid deterioration in 'soft' data surveys to start showing up in 'hard' economic data such as sales, business inventories and consumer spending as more and more forecasts are now leaning towards weaker economic momentum.

Last week added more credibility to such expectations as Nike and FedEx guided investors to rapid deceleration in their respective businesses, following on from Delta Airlines the week prior.

I probably don't have to spell this out, but the combination of import tariffs, threats or otherwise, ongoing central bank support (that's an implicit promise) and the damage already done to US economic momentum is turning share markets into a much riskier environment than what we've all witnessed over the past 18 months or so.

Probably no coincidence then, some of the smarter minds have been making comparisons to the 2020 covid lockdowns, suggesting universal reciprocal tariffs, if implemented in full, potentially have the same disruptive consequences for global supply chains as what happened back then.

Why then are markets not selling off more?