‘Liberation day’ countdown

Dubbed ‘Liberation Day’ by US President Donald Trump, his administration is poised to implement a wave of reciprocal tariffs on several trading partners tomorrow. As you can imagine, the lead-up to this event has created considerable uncertainty – not only for market participants but also for consumers and businesses. So far this year, Trump has imposed a barrage of tariffs, rollbacks, temporary reprieves, and substantial tariff threats. It would be an understatement to say that the constant back-and-forth regarding tariffs has been dizzying.

Currently, 20% tariffs on all imports from China to the US have taken effect, a worldwide 25% levy on aluminium and steel, as well as 25% tax on foreign cars. Additionally, 25% tariffs on all non-USMCA goods (United States-Mexico-Canada Agreement) on Canada and Mexico are in place, and 25% on all goods from Canada and Mexico kick in tomorrow. In response, a handful of countries have imposed countermeasures, including China, Canada, and the European Union (EU).

Trump’s tariffs will be ‘kind’

The Trump administration is expected to remove trade imbalances with other countries by imposing tariffs on US goods that match those levied by other nations. Trump recently stated that tariffs ‘will be far more generous than those countries were to us’ and emphasised the point by adding that the tariffs ‘will be kinder’.

While Trump has framed reciprocal tariffs as a day of liberation for Americans, the reality is quite different for US businesses and consumers. Expectations and concerns of higher prices, softening consumer confidence, and ongoing on-and-off tariff threats have caused substantial doubt. Ultimately, while Trump’s announcement tomorrow will increase the overall weight of tariffs, analysts hope that Liberation Day will help clear the fog of uncertainty. In my opinion, definitive guidance from Trump still seems unlikely. Only time will tell.

What countries will be tariffed?

The size and specifics of proposed tariffs remain unknown. Nevertheless, earlier in March, Treasury Secretary Scott Bessent coined the ‘Dirty 15’, identifying 15% of economies that contribute most to trade imbalances. While Bessent did not offer extensive detail, I would expect the countries in which the US has the largest trade deficits to be impacted.

According to the ‘US International Trade in Goods and Services, December and Annual 2024’ report, countries with the largest deficits recorded with the US include the following (in billions of US dollars):

• China (US$295.4).

• EU (US$235.6).

• Mexico (US$171.8).

• Vietnam (US$123.5).

• Ireland (US$86.7).

• Germany (US$84.8).

• Taiwan (US$73.9).

• Japan (US$68.5).

• South Korea (US$66.0).

• Canada (US$63.3).

• India (US$45.7).

• Thailand (US$45.6).

• Italy (US$44.0).

• Switzerland (US$38.5).

• Malaysia (US$24.8).

• Indonesia (US$17.9).

• France (US$16.4).

• Austria (US$13.1).

• Sweden (US$9.8).

How have markets responded?

Risk-off sentiment dominated the market open yesterday amid anxiety heading into Liberation Day; however, global equities eventually recovered into the close. The S&P 500 ended Q1 25 in the red, down 4.6%, pencilling in the worst quarter since 2022 and its first losing quarter since 2023. Although sentiment remains cautious ahead of tomorrow’s tariff announcement, Asian and European shares have rebounded today, with US stock futures moderately lower as of writing.

Technically, while the S&P 500 continues to tread water around weekly support at the 5,600 neighbourhood, the lack of energy from bulls here places a bold question mark on daily support from 5,570. This potentially unearths a bearish scenario towards another layer of daily support at 5,405.

Safe-haven assets have clearly been the place to be. Spot Gold (XAU/USD) powered to another all-time high in recent trading, scraping just south of US$3,150. I have been banging the drum about overhead resistance on Gold for some time now, between US$3,264 and US$3,187. Although momentum remains strong, I still believe this zone warrants attention from a technical perspective and, given the precious metal is overbought, could trigger some profit-taking. The Japanese yen (JPY) and Swiss franc (CHF) are also moderately bid in the London session this morning, with US Treasuries also catching a bid across the curve.

On the macro front, with Eurozone CPI inflation data (Consumer Price Index) reporting softer numbers on both headline and core measures for March, attention now shifts to the US Institute for Supply Management (ISM) manufacturing Purchasing Managers’ Index (PMI) for the same month and US Job Openings and Labour Turnover Survey (JOLTS) data for February at 2:00 pm GMT.

The ISM manufacturing PMI fell to 50.3 in February, down from 50.9, with March estimated to have dropped back into contraction at 49.5 (estimate range is between 50.7 and 48.0). The key here for me will be the prices paid component, which jumped to 62.4 in February, the highest level since 2022. So, if we come in higher on the price component (median estimate suggests March rose to 65.0), this could garner some interest from an inflationary standpoint, given Friday’s stubborn PCE inflation numbers (Personal Consumption Expenditures). Another index I will watch closely is the employment component, which fell back into contractionary space in February to 47.6.