Let’s just say for the sake of argument that you are leading a caravan of cars heading north on I-95. For whatever reason, you decide you’ve all been going in the wrong direction. You decide it’s time to reverse course and head south.
You do a series of maneuvers. You get in the right hand lane. You click on your directional signal. You take the exit ramp. You turn left. You go under the highway. You turn left. You go up the entrance ramp. You gather speed. Soon enough, you’re rolling down I-95 South, with the caravan rolling along right behind you. Well done.
Or: you can be traveling north of I-95 at 70mph, with that caravan right behind you and, almost without warning, throw your vehicle into reverse. The result is what local TV news people call “a multi-car crash.”
Something like that happened last Wednesday afternoon just after 4pm. President Trump threw long-standing trade policies of the United States into reverse all of a sudden and all at once. The collateral damage was immediate and immense.
Immense meaning:
The stock market went off a cliff last week after President Trump announced the highest tariffs in more than a century, vaporizing more than $6 trillion of wealth in two days.
Whether the real economy will follow is impossible to know. But the risks are tilting in that direction.
The available evidence suggests U.S. economic fundamentals remained strong through March. Job growth accelerated, with nonfarm payrolls rising 228,000, unemployment low at 4.2%, wages rising at a healthy clip and layoffs rare.
But the world changed Wednesday, which Trump dubbed Liberation Day. He announced massive tariffs on almost every country—effectively the largest U.S. tax increase since 1968, according to JPMorgan. On Thursday, U.S. markets suffered their steepest declines since 2020, with the S&P 500 falling 4.8%. On Friday, China retaliated with 34% additional tariffs on all goods imported from the U.S., and the S&P 500 plunged an additional 6%.
The stock declines, a parallel selloff in junk bonds, the cost of tariffs, and the prospect of weaker exports from retaliatory tariffs all now weigh on the outlook.
In a note titled “There Will Be Blood,” JPMorgan’s head of economic research, Bruce Kasman, raised the probability of a global recession to 60% from 40%. The bank expects U.S. gross domestic product to contract 0.3% in the fourth quarter of 2025 from a year earlier; it previously expected 1.3% growth. Unemployment will reach 5.3% next year, JPMorgan says. (Source: wsj.com)
Immense meaning:
On Friday, Beijing matched Trump’s 34% additional tariffs and for the first time it hit all U.S. products, no exceptions. It also restricted exports of certain rare-earth minerals, added U.S. companies to trade blacklists and aimed an antitrust probe at the China operations of U.S. chemicals and materials company DuPont. (Source: wsj.com)
Immense meaning:
Donald Trump’s “liberation day” tariff blitz has sparked the biggest sell-off in the US junk bond market since 2020, signaling growing angst among investors that an economic slowdown will hit corporate America.
The premium investors demand to hold speculative-rated corporate debt compared to that offered by US government bonds — a proxy for default risk — has shot up by 1 percentage point to 4.45 percentage points since Wednesday, ICE BofA data shows. That is the biggest rise since coronavirus triggered widespread lockdowns in 2020.
The sell-off in corporate bonds since Wednesday, when Trump took US tariffs to their highest level in over a century, highlights investors’ worries that the move will hit economic output and raise unemployment, leaving weaker companies struggling to repay their debts, analysts said.
“Credit is obviously a canary in the coal mine,” said Brian Levitt, global market strategist at Invesco. “Credit tends to go first . . . if the economy’s going to roll over, the odds of a recession pick up and then you’re going to see spreads blow out.” (Source: ft.com)
Immense meaning:
Hedge funds have been hit with the biggest margin calls since Covid shut down huge parts of the global economy in 2020, after Donald Trump’s tariffs triggered a rout in global financial markets.
Wall Street banks have asked their hedge fund clients to stump up more money as security for their loans because the value of their holdings had tumbled, according to three people familiar with the matter. Several big banks have issued the largest margin calls to their clients since the beginning of the pandemic in early 2020.
The margin calls underscore the intense turbulence in global markets on Thursday and Friday as Trump’s tariffs announcement was followed by retaliatory duties by China, and other countries readied their own responses. Wall Street’s S&P 500 share index was set to post its worst week since 2020, while oil and riskier corporate bonds have sold off heavily.
“Rates, equities and oil were down significantly . . . it was the breadth of moves across the board [which caused the scale of the margin calls],” said one prime brokerage executive, adding that it was reminiscent of the sharp and broad market moves in the early months of the Covid pandemic.
“We are proactively reaching out for clients to understand [risk] across their overall books,” said a prime brokerage executive at a second large US bank. (Source: ft.com)
Immense meaning:
(I)t’s not just European strategists at European banks dissing the American dollar. Goldman Sachs’ FX team are out with a new call this evening, and it’s a big one. They now see the US dollar’s weakness “persisting and deepening further”.
The trigger is not, per se, the extreme level of the “reciprocal” tariffs that the Trump administration rolled out this week, which they say were incorporated in its previous forecasts. Goldman’s changing view has more to do with its sharp reappraisal for what the new regime means for the dollar.
Like many other analysts, Goldman’s previously reckoned that tariffs would buoy the dollar. Now it thinks otherwise, “for a number of reasons”.
First, the combination of an unnecessary trade war and other uncertainty raising policies is severely eroding consumer and business confidence . . . so that any Dollar positive impulses are being offset by the likelihood of lower growth.
Second, the negative trends in US governance and institutions are eroding the exorbitant privilege long-enjoyed by US assets, and that is weighing on US asset returns and the Dollar, and may continue to do so in the future unless reversed.
Third, and related, the implementation of the tariffs themselves is eroding the ability of investors to price these. While it is still true that currencies (and Dollar strength) provide the most natural margin of adjustment to US tariffs, as was the case both in the first trade war and also in the first episode of Canada/Mexico tariffs in late-Jan/early-Feb, the constant back and forth on timelines and the rudimentary calculations compound the uncertainty that underpins rising recession risks.
Moreover rather than clearly targeted tariffs that allow precise room for negotiation, with such broad, unilateral tariffs there is less incentive for foreign producers to provide any accommodation — US businesses and consumers become the price-takers, and it is the Dollar that needs to weaken to adjust if supply chains and/or consumers are relatively inelastic in the short term.
The upshot is that Goldman’s new base case is now the dollar’s “exceptional” position over the past decade is now reversing, which will benefit the euro and the Japanese yen in particular. (Source: ft.com/Robin Wigglesworth, italics mine)
When all hell breaks loose at the end of a week, the natural inclination of most people is to presume that, after a weekend’s reflection, things will get sorted out and by mid-day Monday, something resembling “normalcy” will return.
All hell broke loose after 4pm on Wednesday. Normalcy will not be returning any time soon. This is not a “correction.” This is something far more treacherous.
The last time the market got thrown into reverse while speeding along up “I-95”, there followed a global financial crisis that reverberates to this day. Let’s hope that doesn’t happen this time. The fact that it could is unnerving enough.
2. From perplexity.ai:
The number of cups of coffee Americans drink daily varies slightly depending on the source. According to some reports, Americans collectively consume about 400 million cups of coffee each day. However, a more recent report from the National Coffee Association indicates that this number has increased to approximately 517 million cups per day. This reflects a significant increase in coffee consumption over recent years.
Guess what?
You can’t grow coffee in any of the United States of America except Hawaii. And you can’t begin to grow enough coffee in Hawaii to meet even a small part of America’s daily demand. So you have import it from all around the world (Africa, South America, Central America, Asia).
Right now, a cup of coffee or a can of coffee at the supermarket or a 5-pound bag from News Items’ favored roasting company, costs X. This week it will cost X plus 10%. At least. If the coffee comes from certain countries, it will cost X plus a lot more.
Politically speaking, what the White House has managed to create here is a daily reminder to every single coffee drinker in the United States of America that their cost of living has increased. Every day they will get this little memo:
Your coffee used to cost $1.75. Now it costs $2.00. We’re sorry. Tough luck. Sincerely yours — the Trump administration.
In the annals of political stupidity go, there are “own goals” and there are “own goals”. This one is epic.
Would you please do me and your readers a favor? Go find the price of coffee last week and publish that value and track the price of coffee every month over the next six months for our amusement. There is a chance that you are right and it will increase a double digit percentage but I believe it is also possible that it will not.