Edge of Tomorrow

Financial markets are on high alert ahead of today’s hotly anticipated US tariff announcement (4:00pm New York, 9:00pm London). USD is mixed within a tight range, global equity markets are churning, and bonds are holding on to recent gains.

According to the Wall Street Journal, the Trump administration is looking at three options: (i) 20% universal tariff on virtually all imports, (ii) reciprocal plan that would apply different tariffs to different countries, (iii) across-the-board tariff on a subset of nations that likely would not be as high as the 20% universal tariff option.

White House press secretary Karoline Leavitt said yesterday that the tariffs would be “effective immediately.” Uncertainty about the economic impacts of tariffs and the scope of potential retaliatory measures can further weigh on financial market sentiment, bolstering USD.

Regardless, the softer US growth outlook does not support a sustained cyclical recovery in USD. Indeed, Fed funds futures are now pricing-in almost 100bps of easing over the next twelve months. That’s up from 75bps in mid-March, 50bps in late February, and 25bps in mid-January.

The US manufacturing sector dropped back into contraction in March. The ISM manufacturing index fell more than expected to a four-month low at 49.0 (consensus: 49.5) vs. 50.3 in February. The details point to heightened risk of stagflation. New Orders and Employment indexes plunged deeper into contraction territory while the Prices index surged to 69.4, the highest level since June 2022.

The US labor market is showing signs of weakness. JOLTS job openings undershot expectation at 7568k (consensus: 7658k) vs. 7762k in January and the job opening rate dipped 0.2pt to 4.5% to be at the level below which a significant rise in the unemployment rate typically unfolds. The March ADP private employment report is up next (1:15pm London). ADP is expected at 120k vs. 77k in February.

Meanwhile, the Atlanta Fed GDPNow model estimates Q1 growth at -3.7% SAAR, down from -2.8% on March 28. The same model adjusted for imports and exports of gold is tracking Q1 growth of -1.4% SAAR vs. -0.5% on March 28. The next updated is due tomorrow.

Fed Governor Adriana Kugler speaks on inflation expectations and monetary policy (9:30pm London). This is a timely speech amidst mixed signals from indicators of inflation expectations. Market based 5y5y inflation swaps are well anchored around 2.5% but consumer survey of inflation 5 to 10yrs out surged to 4.1% in March, the highest since February 1993.

POLAND

National Bank of Poland is expected to keep rates steady at 5.75%. At the last March 12 meeting, the bank kept rates steady and reiterated that “inflation this year will remain markedly above the NBP inflation target.” Governor Glapinski added “the inflation target is a compass for monetary policy. This compass clearly now shows that there’s no basis to change interest rates.” Despite the hawkish comments, the swaps market is pricing in a total 120bps of easing over the next 12 months. This looks optimistic given the inflation trajectory. Headline CPI printed at 4.9% y/y for a third consecutive month in March, well above the 1.5-3.5% target range.