We always felt Trump tariff on Mexican goods was a bluff. However, coming off unending negative headlines, the move was plausible enough. If the rumor is true in a closed-door meeting over the Republicans threatened to block Trump Mexico widen ranging tariffs. Stocks should continue to rally following the weak payroll report on the back of Trump decision to suspend tariffs. Asian stocks, led by China staged a relief rally on the positive Mexico trade news. US 10-year yields should stay above 2.06%, and could improve as the expectation for the Fed has become excessively dovish. Language from the Fed has indicated flexibility over wait-and-see. Elsewhere, Trump resumed his criticism of the Fed policy further, worrying investors over the independence of the world most important central banks. With global monetary policy normalization reversing, and macro-economic risk increasing, CHF remains in high demand.

Historically, CHF has outpaced G10 FX during Fed easing cycle and recession. Despite the SNBs negative interest rate policy and threats to penalize savers, further CHF is the king of economic safe-haven plays. Switzerland has the largest current account surplus as a percent of GDP in the majors. Last month the CHF has gained 2.5% against the USD with signals that the trend could accelerate sharply should the global economy deteriorate further. It is unclear how much appetite the SNB has for additional physical intervention, given the central bank’s bloated balance sheet and questionable effectiveness. Given our skepticism for meaningfully interventions setting a SNB pain threshold becomes more difficult. That said, the SNB has a long history of punishing traders and most likely target psychological warfare before psychical interventions.

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