What to wait on ‘Liberation Day’

Good morning. The shares, especially technology actions, had an ugly breakfast yesterday, but they gathered in the afternoon. Biotechnical reserves, especially modern, Charles River Labs and other vaccine manufacturers, were hit more after a senior official of the Food and Drug Administration vaccine resigned over the weekend. Email us: robert.armstrong@ft.com and aiden.reiter@ft.com.

Day of liberation

Tomorrow is President Trump’s “Day of ERITION”: Moment, we have been told, he will announce the content of his trade policy, especially in mutual tariffs. The Reams of Wall Street Research on this topic is washed in the boxed box, and despite many talks on uncertainty, a very clear set of consensus expectations emerges from it. There are four points of the broad deal, but hardly universal (note that most of the research was written before Trump’s weekend comment that “essentially all” American trade partners would be hit with tariffs):

• The tariff program Trump announces will leave average taxes for US trading partners between 10-20 percent, with most commentators setting the number in the bottom half of that range. There are many tables that navigate about comparing these figures with historical levels. This comes from David Seif in Nomura:

• Immediate or close tariffs will be announced in the group of countries with the largest trade inequalities with the US (China, EU, Mexico, Vietnam, Ireland, Germany, Taiwan, Japan, Canada, India, Thailand, Italy, Switzerland and Malaysia). These will be imposed using one or other form of executive privilege.

• Implementation of sectoral tariffs, in addition to automobile tariffs, will be postponed to a later date, pending further study by the administration. But sectoral fees for semiconductors, pharmaceuticals, raw materials and copper are all expected eventually.

• Many in Wall Street await signaling of a possible fee mitigation in Mexico and Canada, perhaps in the form of confirmation that goods that are “in accordance” under the USMCA trade agreement between the three countries will remain without tariffs.

On the other hand, Wall Street does not know what to think about two essential points. It remains unclear which tariffs will “accumulate” on one another, and where only the highest tariff will apply. And the severity of the treatment of non-tariff barriers (quotas, license restrictions, other taxes, etc.), real or imagined, is everything, but unknown.

As for the tariff market implications, the consensus is very clear that it is negative for capital (will reduce revenue) and positive for the dollar (“relief valve” for major changes in relative prices). Many also see it as positive for bond prices. Here is Michael Black, US policy search chief in Morgan Stanley, summarizing things yesterday:

The result that would be more useful for fixed income than its capital is where investors receive high clarity for significant tariff increases. This may seem like an increase in tariffs that exceed tariff differences, to calculate foreign consumer taxes and non-tariff barriers, as well as a clear indication that the bar is high for negotiations with trading partners to mitigate new actions. Here, according to our economists, there is a clear weakness for our already US sub-brainwin expectations.

Is it all this at a price already? Most analysts say “no”. The essential iswash is that no one seems to believe in what Trump says, but at one point he will actually do something and continue to do it, at that point the market will be forced to appreciate it.

Trump likes uncertainty because it gives him a negotiating lever by keeping his opponents out of balance and holding attention to himself. This will not change soon. If we get a reduction in policy insecurity on Wednesday, the Paded expects it to be temporary.

Customers

The rich are the engine of American consumption. Families in the top 10 percent of income distribution made up half of consumer spending last year, according to Analytics Moody – a huge increase from a few years ago, says Mark Zandi, its main American economist:

Their expenditure was steadily increasing over the years, but it was raised significantly after the pandemia, due to the increase in the values ​​of the shares and home values. (Expensive) homes and shares are disproportionately owned by well-to do. This has led to a powerful effect of wealth: if people see (value) what they own in connection with what they owe – in other words, wealth – they tend to be more aggressive.

If wealth inflation led the consumption boom after a fandemia, can’t the poorest markets be caused to cause a decline? If the rich are pulled back, can a decrease in the recession be made?

We have received some gentle indicators that the rich can ease their expenses. The Michigan University Consumer Sentiment survey showed that it is sinking in the third third of winners faster than other groups:

The richest families are also more exposed to the stock market – and, as such, the latest correction. According to Q4 data from the Federal Reserve, 10 percent of the High Families with Retails in the SH.BA make up 87 percent of all ownership capital. Only 0.1 percent high holds 23 percent. Since Donald Trump’s Election Week in November, 10 percent high of the richest American families have seen $ 2.7TN of their wealth deleted in the market, compared to $ 656BN for the last 90 percent. Yesterday, we noticed that the latest PCE data showed an increase in the degree of personal savings and softer than the expected consumption. The richest families can explain most of this.

But the impact should not be overrated. As the correction suppressed the well-made brokerage accounts, it destroyed only a relatively small portion of their total assets: 2.4 percent for 10 percent high, and 3 percent for 0.1 percent high. And this is after years of returning the market for fugitive shares and home price appreciation. According to Samuel Tombs, the main US economist in Pantheon macroeconomics, even after correction 20 percent higher winners still have many fluid assets, compared to previous slows and lower profit groups (graph from graves):

We have not seen a decline in restaurant and hotel sectors, two areas of consumption carried by the rich. And, historically, large stock market declines have not always caused higher income customers to withdraw, according to the graves:

20 percent of the high income households continued to increase their expenses in 2001 and 2002, regardless of (a) the sharp decline in the total return index for S&P 500 of 12 percent and 22 percent, respectively, and later in 2022 (-18 percent).

The richest households have the elasticity of the highest demand demand, and may be able to view any inflation from Trump’s tariffs, as they did during the 2022 inflationary growth. They are also less likely to be employed in sectors that may be more affected by tariffs: production, home construction and consumer electronics.

A withdrawal from wealthy consumers would be very worrying for the economy. This can happen if the market gets another big foot down. But for now, the rich look was decided to continue the expenses.

(Reiter)

Correction

In yesterday’s letter, we said PCE Core grew 4 percent month a month. This was a mistake – it was 0.4 percent, which is still the highest monthly growth since January 2024. We apologize.

A good reading

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