Liberation Day brace yourself

We indicated on Monday that a bounce from the oversold levels the US equity market had reached was on the cards, so with little enthusiasm, the month started on a slightly better foot. This was despite another US economic report that had stagflation fears written all over it. The monthly Institute for Supply Management’s Manufacturing Index came in at 49, indicating contraction in the sector and below expectations. In addition, the prices paid index jumped higher. The employment index declined to 44.7 from 47.6 in February, while the supplier deliveries index fell to 53.5 from 54.5. Possibly the most concerning inventories exceed new orders by the most significant amount in four decades as businesses prepare for the tariffs. To keep the cheery theme, job openings in the US declined by almost 200,000.

This is a busy week for economic data output; the UK Manufacturing S&P Global PMI came in at a pretty unattractive 44.9. However, as anyone will point out, manufacturing has less influence on our economic output these days. The services data later in the week will be of greater significance. The composite of manufacturing and services is expected to stay just in expansion. Euro area inflation came in at 2.2%, which may encourage the ECB to cut rates again at their next meeting. Generally, car sales data suggests no one is buying a new car at present, except perhaps the Spanish, where new car sales jumped by 23% year over year, against a forecast of a 1% decline.

What may be helping US stocks, or at least halting the decline, is that  2-year US treasury yields are hovering around 3.9%, having come down steadily from the start of the year. This reflects the increased expectation that the Fed will act in the coming months to ease monetary policy. The next meeting, however, is not till the start of May.  As far as the UK goes, there is no expectation that the Bank of England will cut this month and limited expectations that they will act before August’s meeting.

Trump’s popularity among American voters is showing signs of weakening. Today is Liberation Day. Mr Trump will unveil a tariff plan to reverse what he called “unfair practices that have been ripping off our country for decades”. John Authers, writing this morning in his daily Bloomberg commentary, claims it could prove transformative, in a good or bad way, or it might be a non-event. Thanks for that, John. He adds, “Don’t trust the immediate market reaction.” That’s taken from an old market adage: The first move is often the wrong move. There is another old market adage: sell on the rumour and buy on the facts. Basically, the market gets there first. We shall see if this rally has any legs.