Markets
It was April fool’s day after all. US President Trump pulled a Trump. Talking the (stock) market up from the sell-off lows only to make space for another blow. Rumours and suggestions of ending the war against Iran while leaving the Strait of Hormuz blocked triggered a short squeeze in riskier assets earlier this week even as those messages still conflicted with what is happening on the ground. Markets found their Easter egg when the US President addressed the nation during a speech last night. Again, the writing was on the wall in a series of social media posts shortly after US trading got started. It didn’t prevent key US equity indices from another 0.5%-1.15% gains yesterday. Gains which have been blasted away in futures trading by now (-2%). The core of the matter: Trump tried to sell to the American people why they went to war in the first place and made the case for more and stronger action against Iran in the next 2-3 weeks. He threatened to destroy all of the country’s infrastructure, including its oil facilities and electric power production, unless Iran agrees to a deal. He showed no intention whatsoever for leaving the Middle-East without control over the Strait of Hormuz. Brent crude (June contract) spiked from around $100/b to $107 and sets its eye on the contract high at $110. The fog of war is thick and erring on the side of caution going into the long Easter weekend remains our preferred scenario. Risks of escalation are high. US Treasuries drop back to Monday’s levels this morning. At the front end because of central bank reaction functions, at the long end because of rising risk premia. US T’s already underperformed yesterday as amongst others due to a batch of consensus-beating US eco data. The US economy added 62k jobs in March according to the private sector ADP employment report. Headline retail sales rose by 0.6% M/M, be it in February. Growth in the control group, proxy for consumption in GDP calculation, also beat consensus at 0.5% M/M (vs 0.3%). The March manufacturing ISM rose from 52.4 to 52.7, the best level since August 2022. Details were less encouraging though. The pace of new order growth slowed with the order backlog declining as well. Both continue to point to expanding activity though, but new uncertainty over the Iran war in combination with very large price increases over the last few months don’t bode well for coming months. The survey’s price index jumped from a lofty 70.5 in February to 78.3, also the highest since 2022. All commodity prices in the survey (24) were reported up with 25% of them reported in short supply. The head of the ISM survey said that the impact of the Iran war is more pronounced because it’s on top of other stuff (chaotic tariff environment). On FX markets, the dollar rebounded together with the oil price. EUR/USD’s attempt to regain the 1.16 figure failed (currently 1.1535).
News & Views
The Trump administration is changing its steel and aluminum tariff regime in response to domestic companies calling it too complex to calculate the appropriate charges. The current 50% duty will remain in place for so called commodity-grade steel and aluminum products – goods that are made almost entirely made of the metals. A 25% levy would be applied to the entire value of a finished product (called derivative products) containing one or both of the commodities and would replace the earlier 50% that only applies to the steel or aluminum used. While the rate in the new system will be lower in many cases, the net effect is that actual tariffs will end up higher than before the adjustment because of the larger calculation base. In other tariff news, the administration may announce today tariffs of as much as 100% on select pharmaceutical companies’ products that haven’t struck a deal with the White House to lower their prices.
The US Treasury yesterday said it would meet domestic and international insurance regulators to discuss the risks in private credit. The department said the objective is to “allow participants to survey recent market events, emerging risks, risk management practices and outlooks for the sector”. It highlights growing concern about the sector’s health after recent upheaval and the increasing intertwinement with the insurance sector. US life insurers for example have been investing in what are known as opaque, illiquid and often complex private credit products in search for higher returns while large private capital managers have been partnering up with insurers amongst others to manage their investment portfolios.
