President Trump Pauses Tariffs

Tariff pause spurs market euphoria. Markets were relatively quiet today until President Trump announced a 90-day reciprocal tariff pause for all countries excluding China. Investors quickly flooded into riskier assets, and the short end of the yield curve soared as a result. The 2-year yield climbed to an intraday peak of 4.02%, nearly 40 bps above session lows before closing at 3.91% (+18 bps). Price action at the long end of the curve was nearly the opposite: longer-term yields climbed to intraday highs overnight and closed 15-27 bps below those levels. Meanwhile, equities had their best day in over a decade on the tariff news: the NASDAQ climbed over 12%, its largest 1-day gain since 2001 and its second-best day ever, while the S&P 500 rose over 9.5%.

President Trump pauses tariffs on many nations, but leaves China hanging. Soon after posting that today “was a great time to buy” on social media, President Trump announced a 90-day pause on additional reciprocal tariffs on a number of countries, even after saying that rumors of a tariff-pause were false just days ago. Looking ahead, the President still left 10% blanket tariffs in effect and didn’t budge on Chinese tariffs. Tariffs on China have now increased to 125%, and neither side seems willing to negotiate after China said it will “fight until the end.” Tomorrow, an additional 84% Chinese tariff on all imports from the U.S. will go into effect in retaliation to U.S. tariffs. However, President Trump attempted to ease fears of an ever-escalating trade war between the two nations, noting that he “can’t imagine” further increases in tariffs on China and stating that Xi Jinping is “one of the smart people of the world.”

CPI on deck. Tomorrow’s consumer inflation data could provide a jolt of volatility alongside further tariff developments, especially after Chair Powell’s hawkish comments last week. Powell argued that “it is now becoming clear that the tariff increases will be significantly larger than expected… the same is likely to be true of… higher inflation and slower growth.” Core CPI is expected to rise to 0.3% MoM in March from 0.2% previously while core YoY CPI is forecast to slow 0.1% to 3.0%. The YoY decline would be a welcomed sign and the lowest rate of price growth since April 2021.