Week Ahead: Liberation Day to hit markets

Waiting for Godot is a famous play, a tragicomedy, which among many things, symbolises how suffering increases with the passage of time. It has sometimes felt like this as markets have waited for “Liberation Day”, President Trump’s name for April 2^nd, when he unveils the full package of trade policies and tariffs to be unleashed on global trade partners. This increase in government interference in business and commerce could ultimately have an untold impact for the economy, financial markets, supply chains, inflation and job security for millions. Most economists believe no-one wins and that is probably why protectionism of this kind hasn’t really been seen since the 1930s, and hundreds of years before that.

The flip side to this, as supporters of trade levies would argue, is that a potential US tariff of 25% on goods from Europe is not arbitrary or a negotiating tactic. They simply and logically address inherent differences between tariff and European VAT systems. This all just really highlights the sheer complexities of the potentials policies which could be announced, and why a two-step process is likely, of “substantial” tariffs on the so-called biggest (country) abusers while continuing with probes into trade practices of other countries. That ulitmately means more uncertainty for risk assets and markets.

Ultimately, big tariffs should mean a stronger dollar, though that is not what we saw with last week’s shock announcement of 25% auto tariffs. That either means markets don’t think this trade war will be prolonged, or tariffs are already priced in. Levies are a fresh tax on consumers and businesses and so key is whether the Fed looks through this as a one-off increase and is more concerned about a hit to growth amid a stagflationary environment.

Friday’s NFP employment data will therefore be timely as February’s spike in layoffs was a cautionary signal, while there could be more uncertainty going forward sparked by DOGE and the Federal government’s cost-cutting measures. Weak payrolls would feed the theme in markets that Trump’s policy negatives will weigh on the economy, at least until tax cuts or deregulation are announced. But will the damage have been done by then?

In Brief: major data releases of the week

Tuesday, 1 April 2025

– RBA Meeting: The cash rate is very likely to be kept unchanged at 4.1% after a first cut since 2020 at the previous meeting. Elevated inflation, consensus-beating GDP and tariff risks will deter the RBA from back-to-back moves. 

– Eurozone CPI: Expectations are for the headline to remain at 2.3% and the core to ease one-tenth to 2.5%. Upcoming reciprocal tariffs could mean a lot more focus is on data released after this month. There is currently a very high chance of an April ECB rate cut.

– US ISM Manufacturing: Consensus expects the March figure to stay steady at 50.3. The prior print saw the prices paid gauge jump to a near three-year high. Recent PMI data dipped below 50 for the first time since December.  

Wednesday, 2 April 2025

– US Trade Policy and Tariffs: After much speculation and chaotic tariff headlines, “Liberation Day” could be more lenient than reciprocal, according to recent Trump remarks. A targeted, or two-step approach is also possible.

Thursday, 3 April 2025

– US ISM Services: February non-manufacturing ISM is seen falling to 53.0 from 53.5. Services activity has remained in expansionary territory since July 2024. Rising price pressures could be worsened by a trade war.

Friday, 4 April 2025

– US Non-Farm Payrolls: Consensus sees 128k jobs added, down from the prior 151k. The twelve-month average pace is 162k. The unemployment rate is predicted to tick up one-tenth to 4.2%. Wage growth is seen steady at 0.3% m/m.

– Canada Jobs: There is no estimate, but tariffs are obviously front and centre – only the impact of steel and aluminium levies might be seen in this data. Previously, the jobless rate held at 6.6%.

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