Late Friday, April 11, the Trump administration announced that smartphones, computers and other electronic components are exempt from reciprocal tariffs, days after the United States imposed the highest levies on foreign goods in a century.
Inflation-linked bonds, TIPS or Treasury Inflation-Protected Securities–are the biggest losers in this month’s Treasury market selloff. The cause of the drop in this market extends beyond damage done by rising inflation expectations. The problem also is a result of a drop in liquidity on the TIPS market. And as such it’s a sign of increasing stress in the financial markets in general. (My YouTube video today is about stress in another are of the system–the growing inability of banks to sell on debt on their books from private-equity buyout deals.)
The latest University of Michigan consumer sentiment survey released Friday showed sentiment hitting its lowest level since June 2022. The index slid to a reading of 50.8, below the 57 seen last month and the 53.8 expected by economists.
Pessimism about inflation outlook soared again, as one-year inflation expectations jumped to 6.7%–the highest since 1981-—from 4.9% the prior month.
Today’s Hot Money Move is Where’s the Systemic Risk This Time? I’m watching the banking sector for signs of a liquidity crunch-—specifically, the growing pile of “stranded loans” from private equity buyouts. Banks lent billions for these deals but now can’t offload the debt to investors, locking up capital that should be flowing elsewhere. If this logjam gets worse, the Fed could see it as systemic risk—-just like in 2008 or 2020-—and step in with a lifeline. The Play: Watch mid-tier banks (think PNC, not JPMorgan) when earnings drop in April. If they start warning about stuck loans, it’s a signal the Fed might move. That’s when liquidity fears could turn into a market-wide event. For now, it’s a waiting game—-but one worth tracking closely.
China retaliated against President Donald Trump’s latest tariffs by hiking duties on all U.S. goods. Beijing will raise tariffs on all U.S. goods to 125% from 84% starting April 12, the Ministry of Finance said on Friday, after the White House clarified that levies on Chinese goods rose to 145% this year. This will be the last increase in tariffs from China–which, it turns out, isn’t because China has decided to be kind. “Given that American goods are no longer marketable in China under the current tariff rates, if the United States further raises tariffs on Chinese exports, China will disregard such measures,” according to the statement from the Ministry of Finance. Tariffs are now at levels set to halt most all trade between the world’s biggest economies.
It’s easy to get so caught up in the current increases and decreases of the Trump tariffs that we lose track of how big an increase even the reduced 10% global tariff that President Donald Trump announced on Wednesday, April 9, is from the pre-Trump rates. At the end of 2024, the average effective tariff rate for the United States was 2.2%, according to the World Trade Organization (WTO).
CPIS inflation cooled in March. The all-items or headline inflation rate fell by 0.1% in March from February. That was the first monthly decrease in nearly five years. The core Consumer Price Index, which excludes more volatile food and energy prices, increased by just 0.1% from February, the least in nine months, according to Bureau of Labor Statistics data on Thursday.
The slowdown in the all-items rate reflected a drop in prices for energy, used vehicles, hotel stays and airfares. The cost of motor vehicle insurance — a main source of inflation in recent years — also retreated. But, and this is an important caveat, the numbers were too early capture much of the effect of higher tariffs.
President Donald Trump has pledged tariffs on drugs exported to the United States. Besides the threat to supply chains that could disrupt the supply of drugs to U.S. consumers, the potential tariffs threaten a clash between drugmakers and insurers over who will pay the higher prices.
We started off the day with the stock and bond markets headed for another retreat on news that the European Union and China were both slapping higher tariffs on U.S. exports and the United States was raising tariffs on China to 125% We ended the day with a 10%–or better–rally as President Donald Trump paused last week’s Liberation Day tariffs for 90 days–and replaced them with a 10% across the board rate–for everyone but China.The 125% tariff rate for China would remain intact. So what’s it all mean? It’s too early for definitive conclusions but here are my initial thoughts.
Today’s U.S. Treasury auction of $39 billion in 10-year notes went better than expected despite recent volatility in the bond market. That lessened my worry about a potential tightening of liquidity in the critical Treasury market.
Today’s Video: No Powell Put…Yet. The market is betting on the Fed riding to the rescue with rate cuts, but I don’t see it happening anytime soon. The Fed’s job is controlling inflation and employment—not propping up stocks. Even with recent market jitters, the economy still looks too strong for the Fed to panic. Jobs numbers are holding up, and we haven’t even felt the full drag from tariffs or the potential stimulus of looming Trump tax cuts. The Fed won’t move until the data screams weakness—and right now, it’s just whispering. Meanwhile, traders are pricing in three cuts this year, with some even hoping for an emergency cut before May. That’s wishful thinking. The Fed knows premature easing could backfire, especially with tariffs threatening inflation. Technically, the S&P 500 could drop another 5% to 10% before hitting key support levels. Bottom line: Don’t get suckered by bear market rallies. The Fed isn’t bailing anyone out yet, and betting otherwise is a dangerous game.
Just in case you were getting bored with the lack of volatility in today’s market: On Wednesday afternoon, President Donald Trump announced he would raise the tariff charged on Chinese exports to the United States to 125%, effective immediately. And that he would pause for 90 days most of the tariffs he announced just last Wednesday on Liberation Day and instead implement a 10% global tariff. Here’s what President Trump wrote on social media
