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We will keep a close eye to see what leaks out.

Hopefully it’s a chance for a reset but I’m not holding my breathe.

This article was written by Adam Button at www.forexlive.com.

• High yield 4.233%
• WI level at the time of the auction 4.227%
• Tail +0.6 basis points vs 6 month average of -1.3 bps
• Bid to cover 2.53X vs six with average of 2.69X
• Dealers 12.67% versus average of 9.05%
• DIrects 26.1% versus six month average of 19.64%
• Indirects 61.2% versus six-month averages 71.31% .

Auction Grade:D+

The US treasury had to pay 0.6 basis points above the WI level at the time of the auction. That compares unfavorably to the -1.3 basis point average seen over the last six month auctions. The bid to cover was below the six-month average as well with the dealers settled with a much higher percentage of the auction versus the average.

Domestic buyers were the only bright spot is a or 26.1% versus 19.64% average. International buyers were much lower at 61.2% versus 71.3% six-month average.

This article was written by Greg Michalowski at www.forexlive.com.

• US is serious about Greenland
• US will promote its interests in the Arctic
• Concern that NATO sees the North as the possible foothold for conflicts.
• Russia has never threatened anyone in the Arctic
• There is possibility of cooperation in Arctic, including with Western states.
• Russia has to boost a fleet of icebreakers
• Russia will increase capability of northern ports

It is no secret that Pres. Trump wants to annex Greenland for national security concerns. Not surprisingly Russia is concerned about the US intentions for the Arctic territory.

Second lady Usha Vance—accompanied by Trump’s national security adviser— will travel travel to the Arctic territory this week.

The visit comes amid escalating rhetoric from Vice President JD Vance, who accused Denmark of failing as a NATO ally and suggested increased U.S. “territorial interest” in Greenland for national security.

Greenlandic leaders, including current PM Múte B. Egede and likely successor Jens-Frederik Nielsen, expressed concern and frustration, warning of “American aggression” and viewing the visit as a demonstration of power rather than a cultural outreach.

Tensions stem from Trump’s long-standing interest in Greenland, bolstered by its strategic military base, rare-earth resources, and geographic position in the Arctic.

This article was written by Greg Michalowski at www.forexlive.com.

Major European indices are closing the day mostly lower. Spain’s Ibex little changed but down. Italy’s FTSE MIB up marginally.

• German DAX -0.77%
• France’s CAC -0.51%
• UK’s FTSE 100 -0.27%
• Spain’s Ibex -0.07%
• Italy’s FTSE MIB +0.10%.

As London/European traders look toward the exits, US stock indices are trading lower in what has been an up and down trading session:

• Dow industrial average -103 pointer -0.24% at 42352.23.
• S&P index -4.44 points or -0.08% at 5707.01
• NASDAQ index -16.39 points or -0.09% at 17882.95.

US yields are trading higher with a steeper yield curve:

• 2-year yield 4.008%, unchanged
• 5-year yield 4.106%, +1.5 basis points
• 10 year yield 4.375%, +3.7 basis points
• 30 year yield 4.733%, +5.0 basis points.

Looking at other markets.

• Crude oil futures are trading near unchanged at $69.64
• Silver is trading up $0.66 at $34.27.
• Gold is sharply higher by $31.02 or 1.03% at $3050.15 intraday, the price reached a new all-time high of $3059.77. The high closing level is at $3048.88. The price is on pace for a new record high close.
• Bitcoin is trading your unchanged at $87,000

This article was written by Greg Michalowski at www.forexlive.com.

Barclays today highlighted that finished automobile exports are 5% of Mexico’s GDP. Yet with 25% tariffs announced yesterday, the peso is only down 0.8% and it’s still above when Trump was re-elected.

The market thinks it’s all a bluff.

Now, Canada’s Globe & Mail reports that Ontario “expects the US administration to significantly ease the impact of auto tariffs on Canada” after a call yesterday between Ontario Premiere Doug Ford and US Commerce Secretary Howard Lutnick.

Lutnick callard Ford right after Trump’s announcement, the report said.

“The source said the changes likely won’t eliminate the impact of tariffs
but will give Canadian and Ontario automakers a very significant
relative advantage against the rest of the world.”

The announcement could come April 2 or later, the report says.

This article was written by Adam Button at www.forexlive.com.

With tears taking center stage, the Russian/Ukraine war is more on the back burner once again. There was supposed to be a cease-fire at least on infrastructure/energy targets. Ukraine Pres. Zelenskyy is saying that is not the case:

• Ukraine will give US evidence of Russia violating cease-fire.
• Expects reaction from Washington as promised.

My guess is that Washington will jump. Focus was supposed shift toward tariffs. Nevertheless, the US may increase sanctions to continue to squeeze toward some sort of a long-range peace objective.

PS… Bloomberg is reporting that the US is reportedly seeking to control infrastructure investment in Ukraine, and all investment in Ukraine resources.

This article was written by Greg Michalowski at www.forexlive.com.

If find some of the discourse around tariffs to be downright funny.

You have some supposedly-smart people saying they think tariffs will be ‘lower-than-expected’ and then you ask them what is expected and they have no idea, they don’t even have a concept of an idea. It’s all vibes.

I get this, because it’s so hard to even guess at what’s expected. You also have the White House today that reiterated some of the messaging that’s been leaking out with Leavitt saying about Trump:

“He thinks that some of these numbers would be more conservative than many people are expecting.”

Ok, that’s all cute but when the announcement comes and it’s a different number for virtually every country, how are you going to interpret it?

Some might look at average rates across all countries but that’s nonsense as you need to weight it by trade. With that, you will want to focus on the top-10 countries in terms of US imports:

So what’s expected?

Now, I’ve dug into some informed surveys of investors from Goldman Sachs and Deutsche Bank and they fall in the 9-10% range on the effective tariff rate of all goods (though Goldman’s desk thinks it could be 18%). However inflation pricing would argue for something lower and FX pricing lower yet.

Another option is to take Trump’s ‘reciprocal’ promise at fair value. That gets you to a sub-5% level but it depends on whether or not you include agriculture, which the US and everyone else protects. There is good reason to do that given the latest leaks saying non-tariff barriers will be ignored.

I find that compelling — and that’s where I think it will come down — but I don’t have a lot of confidence that’s the number that’s ‘expected’. I think that kind of number will lead to a big risk rally.

Finally, I saw an interesting exercise today from Richard Pricher who looked at it from the revenue side via some Goldman Sachs research. The thinking is that Trump’s ultimate aim is to raise more revenue in order to fund a tax cut.

He notes that duties in 2024, the US raised about $80 billion in tariff revenues with an effective tariff rate of 2.2%. Given steel, aluminum and other tariffs already announced (not autos though), that rate would go to 4.6%. Add in autos, critical minerals and you get to about 6%.

Now you’re raising about $220 billion, annually via tariffs.

They guess they US is looking to raise around $380 billion annually in tariffs. That would mean reciprocal tariffs would have to be set at the 4% level.

Of course, that all assumes there is no substitution and import levels remain static. It also assumes the auto tariffs would remain but that would bankrupt the big-3. So that’s not going to happen on a couple fronts but it’s a fair indication of where it could land. I also think that would point to a relief rally.

If you assume auto tariffs on Mexico/Canada, come down or go away, I think you can put the effective tariff rate at 6%, and you can adjust that to 7.5% to account for easy substitutions.

I think that’s a fair estimate of where the market is right now, though many would still argue it’s 10%.

The next question is where that falls:

Now if you cross-reference this gains the charts above on ‘reciprocal’ tariffs vs goods imports, you struggle to get to even 5%, let alone 7.5%. Again, that argues for a low number April 2 but it still doesn’t tell you what’s expected.

Another strategy: Whatever they can get away with

I think a final way to create an expectation of tariffs is to listen to what the latest leaks say. They highlight tariff rates that are ‘lower than expected’ but also indicate that the US will announce higher tariff threat levels if other countries retaliate.

To me, that indicates that the real strategy isn’t reciprocal or raising revenue explicitly it’s: The USA will set tariff rates as high as it thinks it can without triggering retaliation.

Now that’s far more art than science and requires calculating political considerations in many other countries. In Canada, for instance, an election is ongoing right now and a trade war has kicked off one of the most-unlikely political comebacks I’ve ever seen.

The governing Liberal party has gone from a near-wipeout to a potential majority government. Do you think it’s in their interest to roll over and accept a 5-10% tariff without retaliation?

Is the US doing that kind of calculus on every country? If so, it’s a wild game of brinksmanship and mistakes will surely be made.

To summarize:

1. Surveys of market participants show 9-10% on the world and 50% on China (about 20% more on China)
2. Market-based inflation numbers show about half globally
3. FX-market based numbers barely show any tariffs
4. Budget-related estimates land in the 4-7.5% range
5. True reciprocal levels land below 5% (ex agriculture)

As Deutche Bank writes:

“So
what is the market pricing on tariffs? It is very hard to tell”

This article was written by Adam Button at www.forexlive.com.

US consumer confidence is plunging but spending isn’t.

The latest spending data from Bank of America shows overall spending up year-over-year despite an 8-9% decline in gasoline prices. There are some worrisome signs with spending on lodging, airlines and entertainment dropping but overall the consumer is holding up, with the latest numbers show an acceleration in restaurant/bar restaurant trending higher.

Overall, I don’t see a great consumer here but it remains solid.

h/t

@neilksethi

This article was written by Adam Button at www.forexlive.com.

• Prior was -4.6%
• Year over year transactions -3.6% vs -5.2% prior
• Index at 72.0 vs 70.6 prior (was at a series low)

“Despite the modest monthly increase, contract signings remain well
below normal historical levels,” said NAR Chief Economist Lawrence Yun.
“A meaningful decline in mortgage rates would help both demand and
supply – demand by boosting affordability, and supply by lessening the
power of the mortgage rate lock-in effect.”

“Considering the Federal Reserve’s recent forecast for slower economic
growth, we expect mortgage rates to slide moderately lower,” said Yun.
“But the current high national debt will prevent mortgage rates from
falling drastically – and certainly not to the 4%-to-5% range seen
during President Trump’s first term.”

NAR forecasts mortgage rates will average 6.4% in 2025 and 6.1% in 2026.

This article was written by Adam Button at www.forexlive.com.

• We are going to give a response after April 2
• Within a free trade agreement, there should not be tariffs
• The door is open to talk with the US
• We will do what is best for Mexico
• Economy minister Ebrard: We are at a negotiating table with US Commerce Secretary to protect autoparts made in Mexico

This has been her strategy from the start so it’s had to gauge how hard Mexico will hit back.

This article was written by Adam Button at www.forexlive.com.

Press Secretary Karoline Leavitt reiterated some of the things that have been coming out of the White House:

“He thinks that some of these numbers would be more conservative than many people are expecting,” she said today.

So what is actually expected? Here is a Deutsche Bank survey:

This article was written by Adam Button at www.forexlive.com.

• Prior was +0.8
• Retail inventories ex auto +0.1% vs +0.5% prior

This article was written by Giuseppe Dellamotta at www.forexlive.com.