- Supreme Court rules against Trump tariffs
- US Q4 advance GDP +1.4% vs +3.0% expected
- US December PCE inflation +2.9% vs +2.8% expected
- Trump says he will invoke 10% Section 122 global tariff
- Atlanta Fed GDP now growth estimate for the 1st quarter 3.1%
- University of Michigan sentiment index 56.6 versus 57.3 estimate
- Manufacturing PMI for February 51.2 vs 52.6 estimate
- Canada retail sales for December -0.4% versus -0.5% expected
- Fed's Logan: There is now more inflation uncertainty due to tariff decision
Markets:
- Gold up $87 to $5085
- WTI crude oil flat at $66.39
- US 10-year yields up 0.8 bps to 4.08%
- S&P 500 up 0.5%
- AUD leads, CAD lags
It was a news-filled day that started with a big miss on GDP. You could sniff that downside surprise out (and we did) after yesterday's trade data miss and this morning's comments from Trump lamenting the drag from the government shutdown. The dollar was choppy afterwards, in part because the lower GDP came with higher PCE inflation numbers, leaving the Fed in a tough predicament that argues for more time on the sidelines.
As a result, the July Fed meeting has now fallen below 100% pricing.
Late came the tariff decision and the kneejerk reaction saw the US dollar sell off as it reopens the window to firm up the dollar-based system. It also leaves Europe less vulnerable to a trade escalation. The euro rose above 1.1800 but failed to stay there in large part because of great confusion about Trump would do next.
We got a sense of that when he announced Section 122 global tariffs of 10%. That statute has never been used before an will invite fresh court challenges. In any case, it's limited to 150 days and in that time the Trump admin will start other trade investigations that generally take six months.
For now, the market is struggling to take it all in and figure out what it means. The Fed's Logan argued the tariff removal should be dovish but we're all going to wait and see what comes next.
And not just on tariffs but eyes remain on Iran with a $6-7 premium in the oil market around a potential attack. I would bet against it occurring during the Olympics but they end on Sunday so that will change things.
Finally, Treasuries are a consensus loser on the fiscal side on the tariff decision as it looks like somewhere around $200b in payments will need to be eventually refunded, though that timelines is uncertain. However that impulse could be blunted if tariffs fall and that opens the window for the FOMC to cut rates.
Have a great weekend.
