Trade Wars to Start Registering Tangible Pain in Global Macro Event Risk

Trade Wars to Start Registering Tangible Pain in Global Macro Event Risk

The tariff and trade war headlines have eased but now the data showing its effects are starting to cross the wires. What course is the global economy on with protectionist policies firmly in place? We will find out over the coming week.

 

Key Talking Points:

• While trade war related headlines will remain a lurking risk for market volatility, the focus this week may be the tangible consequences of tariffs
• The IMF’s WEO and GFSR reports will offer a uniform global growth outlook along with an overview of financial risks
• Tesla earnings will offer the first of the Mag 7’s updates while business sentiment surveys will be the highlight the second half of the week

Volatility Settles and Market Looks for Trend with ‘Recession’ Taking Over for ‘Tariff’

The week ahead will have a few structural headwinds working against both excessive levels of volatility or readily developing a strong trend – whether bullish or bearish. The extended holiday weekend between Good Friday for much the western world and extended bank holiday through Monday will lead to a natural lull in liquidity. Historically, the 17th week of the calendar year in which we are entering, the S&P 500 has averaged a Spring lull from volatility via the VIX, though volume has historically risen through the period. The biggest factor that can contribute to curbing activity and conviction though is the shift in the tenor of the trade war headlines.

What was the most effective source of surprise and volatility the market has seen since the singular concentration on the pandemic five years ago finds the market acclimating to the new degree of uncertainty and nature of the headlines cooling off. That allows us to turn our focus back on scheduled and traditional updates. And, on that front, we have plenty to chew on through the coming week. What’s more, many of the highlights may find their own impact bolstered by the fact that they can readily relate back to the simmering of trade relations.

Calendar of Top Global Macro Event Risk

Source: John Kicklighter

Full Calendar

 

The IMF Will Provide a Uniform Measure of the Concerning Growth Outlook

When it comes to measuring the impact of the trade actions that were touched off by the White House two months ago in February, we have only started to see the effects in the traditional monthly and quarterly macro updates. There are a few reasons the data may not fully demonstrate what could eventually prove to be severe consequences such as the fact that the major data series tend to be lagging and the most significant developments didn’t come into view until the close of March / beginning of April. It will take time for the data and damage to accumulate, but forecasts will take the temperature almost as quickly as the news shifts. We have had numerous outlooks released recently that have painted a picture ranging from troubled to outright threatening.

Chart of US 10-Year to 3-Month Treasury Yield Differential with US Recessions (Weekly)

Source: John Kicklighter, TradingView, NBER Recession Index

 

The Atlanta and New York Federal Reserve growth forecasts, World Trade Organization’s growth outlook and Peterson Institution for International Economics have all presented significant downgrades. For a wider picture and more consistency in methodology, the IMF’s World Economic Outlook (WEO) update on Tuesday will offer an important benchmark. Director Georgieva this past week clearly warned the outlook had darkened due to tariffs, though she believed a recession would be avoided. The entire table will be of interest; but the forecasts for the United States and China will be absolute top of mind. Another report coming out of the IMF’s Spring meetings to be mindful of is the Global Financial Stability Report (GFSR). There are no specific numbers to operate off of for this overview, but it will direct the focus of the concerned.

Table of Global Growth Forecasts from IMF January Update

Source: IMF World Economic Outlook January 2025

 

Tesla the First Mag 7 Earnings Report with Distinct Tariff Exposure

Another channel through which we can monitor the effect of trade wars is the earnings season. There are some noteworthy US corporations due to report their results over the week including Boeing, Intel, Pepsi Co, Freeport and some major defense companies. Yet the true weight of the week revolves around Tesla’s quarterly figures. Generally, CEO Elon Musk’s participation in the Trump Administration draws more than normal interest around the auto manufacturer’s performance, but there isn’t strong evidence of activist investor activity that could see divestment in protest of his activity with the DOGE efforts in government.

On the other hand, Tesla is at the center of a number of factors playing out with regards to trade and policy. Among the various considerations, we have to consider potential reflection of President Trump’s signalled his interest in ending EV tax breaks, targeted tariffs on imported autos and higher costs for critical raw materials in the production of the vehicles. Beyond all of that, there is also the fact that Tesla will be the first of the Magnificent 7 to report performance for the quarter. The massive market cap and largely tech group has been guiding the enthusiasm of investors for years, but it has also led the retreat over the past month. What is the next nudge TSLA and the others will offer the broader market?

Chart Tesla Overlaid with Nasdaq 100 QQQ ETF (Daily)

Source: John Kicklighter, TradingView

 

Business Confidence Surveys Across the World

For scheduled event risk, the back half of the coming week doesn’t carry much in the way of singularly-influential indicators or events. In other words, there isn’t a FOMC rate decision or other highlight that can trigger a broader global macro volatility and potentially touch off a new trend. That doesn’t mean that we will just be relegated to scanning the headline for the final 48 hours without insight on deeper fundamental considerations. US durable goods orders, existing home sales, Canadian and UK retail sales, and other measures are dotted through the period, However, there is a general theme across data that can more directly reflect on the impact of tariffs: business confidence. Thursday, we have listed business sentiment updates from South Korea, Turkey, Germany and the United Kingdom. The following day, France’s corporate confidence reading doesn’t carry as much weight as Hong Kong’s 2Q outlook. What we are looking for is the scale of focus on trade wars as a headwind.

Chart of NFIB US Small Business Optimism Index (Monthly)

Source: NFIB Small Business Optimism Index

 

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---- Written by John Kicklighter, Global Head of Content