What to expect in “Liberation Day”

Good morning. Yesterday the rallies, especially technological actions, had an ugly morning, but rallied in the afternoon. Biotechnology stocks, in particular Moderna, Charles River Labs and other vaccine manufacturers, were injured after the official food vaccine vaccine and medication vaccine fell On weekends. Write us: robert.armstrong@ft.com and Aiden.reiter@ft.com.

Liberation Day

Tomorrow’s “Liberation Day” of President Trump: At the moment, we are told, he will announce the essence of his trade policy, especially against mutual tariffs. In general, studies on Wall -Strate on this topic were washed out in the mailbox, and despite much talk about uncertainty, it has a fairly clear set of consensus opinions. There are four points wide, but unlikely a universal agreement (note that most of the research has been written before Trump’s comments over the weekend that “in essence all” US trades will be reached):

• The tariff program that Trump announces will leave average for US trading partners at 10-20 percent, and most commentators have placed the number in the lower half of this range. Near the charts that float around these figures with historical levels. This is derived from David safe in Nomura:

• Immediate or almost non -notorious tariffs will be announced in a group of countries with the largest trade imbalances from the United States (China, EU, Mexico, Vietnam, Ireland, Germany, Taiwan, Japan, South Korea, Canada, India, Thailand, Italy, Switzerland and Malaysia). They will be imposed using a particular form of the executive privilege.

• The introduction of industry tariffs, except for automotive tariffs, will be repelled by the later date before further study of the administration. But in the end, industry tariffs on semiconductors, pharmaceuticals, lumber and copper are expected.

• Many at Wall -Rate are waiting for an alarm on the potential softening of the tariffs on Mexico and Canada, perhaps in the form of confirmation that the goods that “match” under the USMCA trade agreement between the three countries will be left without tariffs.

On the other hand, Wall -Story does not know what to think about two important points. It remains unclear what tariffs will “make” each other, and where only the highest tariff will be applied. And the severity of treatment of unverified barriers (quotas, licensed restrictions, other taxes, etc.), real or imaginaryEverything but unknown.

As for the market consequences of the tariffs, consensus is very clear that it is negative for stocks (this reduces profits) and positive than the dollar (“aid valve” for great changes in relative prices). Many also consider it as positive for bond prices. Here is Michael Zesas, the head of the US policy in Morgan Stanley, summarizing things yesterday:

The result that would be most profitable for fixed income compared to stock is the one where investors get great clarity for significant tariff hiking. This may look like an increase in tariffs that go beyond tariff differentials to consider foreign consumption 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 shortage of our already lower US growth expectations.

Is it all the price? Most analysts say “no”. An important question is that no one seems to believe in what Trump says, but at some point he will actually do something and continues to do it, and at that moment the market will be forced to appreciate it.

Trump loves uncertainty because it gives him negotiations on impact, keeping his opponents without balancing and keeping his attention. This will not change soon. If on Wednesday we get a decrease in the uncertainty of politics, minor expects it to be temporary.

Wealthy consumers

Rich is the US consumption engine. According to Moody’s Analytics, the households in the top -10 percent of the income distribution made up half the consumer expenses, – said Mark Zandy, Chief American Economist:

Their spending share is steadily rising over the years, but after the pandemic it has soaked from the growth of the values ​​and values ​​of the house. (Expensive) houses and shares disproportionately belong to the good. This led to a powerful wealth effect: when people see (value) that they possess in relation to what they owe – in other words, wealth – they are usually more aggressive.

If the asset inflation made the post -trap consumer boom, couldn’t weaker markets lead to a decline? If the rich is distracted back, maybe the inheritance will be a recession?

We have received some soft indicators that wealthy can ease their costs. A survey of Michigan University’s consumers showed that he fell among the first -thirds of extension faster than other cohorts:

Wealthy households are also more subjected to the stock market – and thus a recent correction. According to the Q4 Federal Reserve, the top -10 percent of households in the US is 87 percent of all shares. Top -0.1 percent only 23 percent. Since Donald Trump’s election week, the top -10 percent of the richest US households noted that the market was destroyed $ 2.7 TN, compared to $ 656 billion per 90 percent. Yesterday we noted The fact that the most recent PCE data showed the basis of personal savings speed and softer than expected. Wealthy households could explain it a lot.

But the impact should not be overstated. While the correction twisted the brokerage accounts of good execution, it destroyed a relatively small part of their total assets: 2.4 percent for the best 10 percent and 3 percent for the top 0.1 percent. And this is after a few years of escape in the stock market and housing prices. According to Samuel Mogilev, the US chief economist in Pantheon Macroeconomics, even after remedy the highest 20 percent salaries by -still have many liquid assets, compared to previous slowdown and lower wages (graves):

We did not see the downturn in the restaurant sector and hotels, two areas of consumption that are carried. And historically, the fall of the large stock market did not always make consumers with the highest income level, according to the graves:

Top 20 percent of household households continued to increase their expenses in 2001 and 2002, despite (a) a sharp drop in the total return index for the S&P 500 with 12 percent and 22 percent respectively, as well as recently in 2022 (-18 percent).

Wealthy households also have a higher demand price, and may be able to view any inflation from Trump tariffs, as they did during the 2022 inflation. They also have less likelihood of sectors that can affect tariffs: production, home construction and household electronics.

The retreat of wealthy consumers will concern the economy. This can happen if the market lowers another big leg. But for the time being a rich look to continue to waste.

(Reiter)

Correction

Yesterday’s letter we said the main PCE grew 4 percent a month a month. It was a mistake – it was 0.4 percent, which was still the highest monthly growth since January 2024. We apologize.

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