March 21 – A weaker tone prevailed on Wall Street overnight, as traders prepare for another weekend when the headlines continue to flow while the markets are closed. The Federal Reserve did little to calm concerns this week over the great deal of uncertainty facing the U.S. and global economies amid new tariffs being applied. Stock futures turned lower again overnight, while many of the commodity markets faced headwinds as well. The VIX is trading near 21 at this hour, while the dollar index firmed to trade near 104.0. Yields on 10-year Treasuries are trading near 4.21%, while yields on 2-year Treasuries are trading near 3.92%. Crude oil prices are modestly weaker as demand concerns re-emerge, while the grain and oilseed sector is mixed to weaker as well.
April 2nd is the date marked on most calendars on Wall Street. It’s the date that we’re expected to learn more about tariffs emerging from the Trump Administration. Most significant to the commodity sector will be President Trump’s decision on what to do with the 25% tariffs on goods coming from Canada and Mexico. Those products covered by the current free trade agreement with our neighboring countries are exempted until April 2nd, when a decision is expected on whether they will then be implemented, or whether we’ll see another delay, or possible lifting of the tariffs. That’s also the date on which we’re expecting the Trump Administration to release a country-by-country list of reciprocal tariffs – tariffs that match what those countries are charging us with the goal of getting them negotiated lower. Tariffs vary by product with most countries, so there is little clarity on how the Trump Administration will handle the myriad of rates versus the large number of countries with who we do business.
Talk of Mexico has gone strangely quiet in recent days and weeks, and I see that as a good sign. Mexico’s President Sheinbaum has done a good job of keeping her discussions with Trump behind closed doors. I interpret that as a sign that the two have established a good working relationship that could help their differences get worked out. I don’t know if it will happen by April 2nd, but I remain cautiously optimistic that it will happen relatively soon. Yet, tensions are rising with Canada, which isn’t a good sign for getting differences worked out, and that could negatively impact Trump’s ability to getting things settled with Mexico as well. Former Prime Minister Justin Trudeau and Trump certainly had their differences, which often played out in front of the media. Things haven’t gone much better between Trump and current Prime Minister Mark Carney. It’s believed that Carney will announce this weekend that he'll call for elections on April 28th to legitimize his government and to take advantage of the nationalism that has spread like wildfire across Canada following Trump’s comments about Canada becoming the “51st state.” I was in Ontario this week, where that nationalism was quite prevalent and obvious.
Typically a trade war most hurts the party that has the greatest trade surplus. China had a $295 billion trade surplus with the United States in 2024, according to the U.S. Census Bureau, while Mexico boasted a trade surplus of $172 billion and Canada $64 billion. Each of those countries also currently have their share of economic challenges that they’re currently facing, further complicating their ability to withstand a trade war. Fentanyl and illegal migration are being used as an excuse for Trump to apply the tariffs. Yes, both are major concerns for Trump, but his concerns go beyond those two issues. I continue to believe the overriding issue is leveraging Canada and Mexico to contain China at a time when it is economically vulnerable, but it’s the fentanyl issue that gives Trump the legal excuse needed to fight this battle. I believe that the end goal is a renegotiated trade agreement that closes loopholes currently being utilized by China to bypass U.S. sanctions to maximize containment of China. That will take time to achieve, although both Canada and Mexico could choose to implement those measures on their own to appease Trump if they so choose. China already took action against Canada to intimidate it against cooperating with the United States, putting it between the proverbial rock and hard place.
Meanwhile, Trump appears to also be leveraging his relationship with Russian President Putin to increase pressure on China. Putin wants safety assurances that he will not be attacked from the West, and Trump appears to understand that. As such, he’s offering a peace plan that he hopes will cause Putin to back down, while providing some security assurances for a non-aggressive Ukraine. Putin stated that he and Trump have a mutual respect for one another, which puts fear in the heart of China’s President Xi Jinping, who fears that peace in Ukraine could cause Putin to pivot toward Trump, further isolating Xi. There’s a lot of “ifs, ands, and buts” in the above that continues to create uncertainty for the markets. Add on top of this Trumps proposed port fee for ships built by China that currently is making it challenging for customers to find shippers willing to land at U.S. ports until more is known. Now add in USDA’s quarterly stocks reports and planting intentions report – due on March 31 – and you create an environment where traders are reluctant to build ownership until more is known over the next couple of weeks.
