What to expect on ‘liberation day’

Good morning. Actions, in particular technological actions, had a ugly morning yesterday, but rallied in the afternoon. Biotechnology stocks, in particular Moderna, Charles River Labs and other vaccine manufacturers, were the hardest affected, after a senior official of the Food and Drug Administration vaccine resigned during the weekend. Send us an email: robert.armstrong@ft.com and aiden.reiter@ft.com.

Release day

Tomorrow is the “liberation day” of President Trump: the moment, we are told, he will announce the substance of his trade policy, especially on the reciprocal rates. Rams of Wall Street Research on the subject was washed in the non -covered reception box, and despite a lot of discussions on uncertainty, a fairly clear set of consensus expectations. There are four points of a wide agreement but barely universal (note that a large part of the research was written before the comment of Trump’s weekend that “essentially all” the American trade partners would be affected by prices):

• The pricing program that Trump announces will leave average statements on American trade partners between 10 and 20%, most commentators placing the number in the lower half of this range. There are a lot of floating graphics by comparing these figures to historic levels. This one comes from David Seif to Nomura:

• Immediate or quasi-animense prices will be announced on the group of countries with the largest commercial imbalances with the United States (China, EU, Mexico, Vietnam, Ireland, Germany, Taiwan, Japan, South Korea, Canada, India, Thailand, Italy, Switzerland and Malaysia). These will be imposed using a form or another form of executive privilege.

• The implementation of sectoral prices, in addition to automotive prices, will be pushed to a later date, pending a more in -depth study by the administration. But semiconductive semiconductors, pharmaceuticals, wood and copper products are all expected.

• Many of Wall Street expect the signaling of a potential softening of prices on Mexico and Canada, perhaps confirming that “compliant” goods as part of the USMCA trade agreement between the three countries will remain without a price.

On the other hand, Wall Street does not know what to think of two essential points. We still do not know which prices “will pile up” on each other and where only the highest price will apply. And the severity of the treatment of non -tariff barriers (quotas, license restrictions, other taxes, etc.), real or imagined, is almost unknown.

With regard to the implications on the pricing market, consensus is very clear that it is negative for the actions (it will decrease the profits) and positive for the dollar (the “rescue valve” for significant changes in relative prices). Many also consider it positive for bond prices. Here is Michael Zezas, head of American political research in Morgan Stanley, summarizing things yesterday:

The result which would be the most beneficial for fixed income securities compared to the shares is that where investors receive great clarity on significant price increases. This could resemble tariff increases that go beyond tariff differentials, to take into account foreign consumption taxes and non-tariff obstacles, as well as a clear indication that the bar is high for negotiations with business partners to mitigate new actions. Here, according to our economists, there are clearly drawbacks to our American growth expectations already under-conscious.

Is all this price already? Most analysts say “no”. The crucial question is that nobody seems to be believed to be what Trump says, but at some point, he will do something and will continue to do so, how obligatory the market will be.

Trump likes uncertainty, because it gives him to negotiate a lever effect by keeping his adversaries unbalanced and keeping attention on himself. It won’t change soon. If we obtain a reduction in the uncertainty of policies on Wednesday, not glued, it expects that it turns out to be temporary.

Rich consumers

The rich are the engine of American consumption. Households of the 10% of the first in the distribution of income represented half of consumer spending last year, according to Moody’s Analytics – a strong increase compared to a few years ago, explains Mark Zandi, his US economist in chief:

Their share of expenses increased regularly over the years, but it has taken off considerably after the pandemic, due to the overvoltage of the values ​​and values ​​of the houses. [Expensive] Houses and stocks belong disproportionately to the rich. This has led to a powerful wealth effect: if people see [the value of] What they have increased in relation to what they owe – in other words, wealth – they tend to be more aggressive expenditure.

If the inflation of assets led to the boom of post-paymic consumption, weaker markets could not cause a crisis? If the rich withdraw, could a slowdown become a recession?

We have received gentle indicators that the rich could facilitate their expenses. The survey of consumer feelings of the University of Michigan has shown it to flow among the upper third of employees faster than other cohorts:

Righter households are also more exposed to the stock market – and, as such, recent correction. According to data from the fourth quarter of the Federal Reserve, 10% of households among the United States represent 87% of all the shares held. The 0.1% higher is 23% alone. Since Donald Trump election week in November, the richest 10% of American households have seen 2.7 TN of their wealth destroyed on the market, compared to $ 656 billion for the lowest 90%. Yesterday we noted that the most recent PCE data showed an increase in personal savings rate and softer than expected consumption. Richer households could explain a large part.

But the impact should not be overestimated. While the correction criticized the wrestling brokerage accounts, it only destroyed a relatively small part of their overall assets: 2.4% for the higher 10% and 3% for the upper 0.1%. And it is after several years of fleeing stocks and appreciation of house prices. According to Samuel Tombs, American chief economist at Pantheon Macroeconomics, even after the correction, the highest 20% of employees still have a lot of liquid assets, compared to previous slowdowns and cohorts of lower gains (graphic of tombs):

We have not seen slowdowns in the restaurant and hotel sectors, two consumption areas transported by the rich. And, historically, large stock market falls have not always caused the most income to withdraw, depending on the tombs:

The highest 20% of households per income continued to increase their expenses in 2001 and 2002, despite [a] A sharp drop in the total yield index for the S&P 500 of 12%and 22%, respectively, as well as more recently in 2022 (-18%).

Righter households also have a higher demand for higher demand and may be able to browse any inflation of Trump prices, as they have done during the 2022 inflationary overvoltage. They are also less likely to be used in sectors that could be the most affected by prices: manufacture, construction of houses and electronics.

A decline by rich consumers would be very worrying for the economy. This can happen if the market takes another big leg downwards. But for the moment, the rich are ready to continue spending.

(Reiter)

Correction

In yesterday’s letter, we said that the Core PCE had increased 4% per month per month. It was a mistake – it was 0.4%, which is always the highest monthly since January 2024. We apologize.

A good reading

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