April 14 – Stock futures surged higher overnight, reacting to more tariff-related headlines over the weekend that eased investor concerns. The VIX is trading near 32 at this hour as fear slowly eases on Wall Street, while the dollar index trades near 100.1 after falling to a fresh three-year low on Friday. Yields on 10-year Treasuries are trading near 4.41%, while yields on 2-year Treasuries are trading near 3.92%. Crude oil prices are nearly 1% higher as prices continue to consolidate above the $60 per barrel area, while the grain and oilseed complex pulled back a bit following Friday’s impressive gains.
Stock futures pushed higher overnight responding to President Trump’s weekend announcement that he would carve out a temporary exemption from reciprocal tariffs for key electronics products. That provided a significant lift for the tech sector, although the White House emphasized that the exemption is temporary. President Trump would like to see cell phones, computers, etc. manufactured here in the United States, but there’s a growing reality that the supply chains for the production of these products are deeply engrained in China, and that it will take several years to change that, if at all. I do not expect President Trump to give up on his goal of moving that manufacturing back to the States, or at least away from China, but those efforts are paused for now while the next steps are devised.
Nonetheless, President Trump stated Sunday that he would be announcing the tariff rate on imported semiconductors over the coming week, but he also indicated that there would be flexibility for some companies in the sector. This provides further evidence that the president wants to make sure that his carve-out from reciprocal tariffs for electronics is temporary in nature. He also announced a national security trade probe into the semiconductor sector. Commerce Secretary Howard Lutnick stated Sunday that critical technology products from China would face separate new tariffs along with semiconductors within the next two months, indicating that it would be a “special focus-type of tariff” on smartphones, computers, and other electronics products, to go along with sectoral tariffs targeting semiconductors and pharmaceuticals.
China’s stock market responded positively to the weekend carve-out news, raising hopes that this could provide the open window for face-to-face negotiations between China and the United States. The two sides reached what appeared to be a standoff last week as both sides escalated tariff rates to levels that no longer made a difference due to their high levels, as trade had already been essentially halted at lower levels. But the high levels had escalated tensions to the point where each side was waiting for the other to pick up the phone. An agreement to de-escalate cannot happen until talking occurs, and there is a sliver of hope that this will open the door for those conversations to start happening, at least at low levels. Data released in China today indicates that its exports surged in March as buyers front-loaded demand ahead of the tariffs that were announced on April 2, but imports fell reflecting more ongoing slow consumer buying in China.
The Federal Reserve gives all outward appearances of a “wait and see” attitude as it waits to see how President Trump’s constantly changing tariff policy will impact the economy. But quietly, the Fed is taking action to keep the economy moving by increasing liquidity without any change to its formal policy. Reserve balances increased by $95 billion last week to $3.47 trillion, which is their highest level since January, as the Fed slows quantitative tightening as I forecast that it would do last fall even before the tariff announcements. The Fed further drew down reverse repos, which is a stealth easing consistent with Fed policy as well. Keep in mind what I said last week about the market pricing in a worst-case scenario in the early days of this tariff war, but now it is contemplating a solution somewhere between a worst- and best-case scenario. The next thing that investors need to hear is a major trade agreement reducing tariffs with Japan and/or South Korea to further reassure them that all will be well.
Argentina received a lift from the International Monetary Fund at the end of last week when the IMF approved a 48-month Extended Fund Facility arrangement for Argentina totaling $20 billion, while providing an immediate $12 billion disbursement to help the country meet its immediate obligations. This provides President Milei the flexibility that he needs to continue with his reforms as he restructures Argentina’s economy back to the private sector away from a dependency on government. That should continue to foster growth in Argentina’s agricultural commodity sector going forward. Meanwhile, we saw fund rotation into the grain and oilseeds on Friday, with some profit taking overnight. The thinking among some is that the grain and oilseeds have been under-appreciated in recent years, that they are less likely to see retaliatory tariffs as a food-based commodity by others outside of China, and that they do have some improving fundamentals. That may be good until the next headline, but for now it is.
