Case of the Yips

We now have a blueprint on how the U.S. will surrender on tariffs

What a year this month has been! (And we are only halfway through April…) At Accrued Interest, instead of fighting the Sunday Scaries, we reflect on lessons learned and think about what lies ahead for the markets.

Last week we learned that a rapid sell-off in U.S. Treasury bonds can make even the President of the United States fold faster than a lawn chair.

I would suspect many would say the biggest news last week was when the U.S. hit “pause” on the latest round of reciprocal tariffs, reversing course less than 12 hours after they went into effect.

However, I would argue that the real revelation was that in the absence of a coherent economic plan, this administration will back down from its bluster if the bond market sends the right signals.

Many news outlets reported that the dramatic reversal on tariff policy happened because the stock and bond markets were getting afraid.

Last week, POTUS said - "I thought that people were jumping a little bit out of line. They were getting yippy. You know, they were getting a little bit yippy, a little bit afraid,"

Saying the markets were “getting a little bit yippy” is both factually true, but also a bit of projection. The Wall Street Journal reported on April 12th that POTUS, “has privately acknowledged that tariffs could trigger a recession but has said he didn’t want to cause a depression”.

Wednesday would not be the only time last week the administration would make tariff concessions without receiving anything in exchange. Late Friday, tariff exemptions were announced for smartphones, computers and a short-list of other electronic devices before any trade talks were even held with China.

I think this might be the strategy the U.S. uses to back down from the destructive trade war that it started. Despite the maximalist demands, China is witnessing that if they merely wait-and-see, the U.S. will back down rather than risk a financial crisis.

In the coming weeks and months, I envision the current hodgepodge of tariffs to get watered down through industry and product-specific exceptions.

By no means should you interpret this as me being bullish. It’s truly impossible to predict what will transpire in the markets this week. But I think we will look back and realize last week was the point of maximum escalation by the White House.

A deal with China must get done in the next 90 days because right now bilateral trade between the two nations has ground to a halt. While Amazon and Walmart may be fine for a quarter or two, many small and medium businesses need this grenade defused before the summer, so they can properly plan for the all-important holiday shopping season.

Whether the tariffs placed on China get rolled back in some sort of “grand bargain” or in piecemeal, we now have a rough blueprint on how this administration will fold.

Here are some things to keep in mind for the week ahead:

Monday - 4/14: Federal Reserve Bank of New York releases its Survey of Consumer Expectations for March. It will give us a snapshot of expectations for inflation, job prospects, and earnings growth, among other topics.

Tuesday - 4/15: I’ll be following the Omnicom Group Q1 earnings release. I want to get their commentary on the advertising market, to hear how their clients are navigating the tariffs.

Wednesday - 4/16: More consumer datapoints when the Census Bureau releases retail and food services sales for March.

Thursday - 4/17: I’ll be covering Netflix’s Q1 earnings release.

Good luck and be sure to check back here for more exclusive content!

-Accrued Interest