Many waking up today to tales the trade and capital war are over and the pro-growth admin everyone hoped for is now here.

Markets are pricing in near certainty of this path when there are plenty of signs the admin's negative-growth policies are still firmly in place.

Thread. Market expectations of growth ahead surged following the tariff "delay" announcement yesterday bringing stock vs bond pricing to levels on par with just before the election and reversing all the tariff-related pain from the last few weeks.

US treasury market dynamics shifted abruptly the morning of April 4th, coinciding with China's retaliatory tariffs.

While no one knows for sure if Chinese efforts are driving the shift, escalation from a trade war to a capital war would have devastating consequences.

Thread. For much of the this bear market treasuries have been trading a little soggy relative to equity market moves, but the overall trajectory looked pretty normal for a growth shock. Most negative equity days saw treasury yields come down.

But that dynamic changed last Fri.

While the recent moves have been dramatic, equity markets are still far from pricing in a recession.

Thread. Many folks are laser focused on the recent drawdown from peak as an indication that a substantial risk of a recession is priced in.

Even with this most extreme measure (given equity levels coming in) shows a substantially shallower move than meaningful recessions in the past.

There are no signs the new administration is willing to scale back their tariff efforts.

Typically a near immediate 20% decline in equity markets would cause policymakers to rethink their actions, but the new admin has shown no indications of any give yet.

Thread. One of the most challenging things about this environment is that the recent market moves are largely a function of policy choice rather than a consequence of external macroeconomic pressures.

That suggests any shift away from these policies could create a significant whipsaw.

US trade partners initially measured responses to the raft of duty hikes earlier this week suggests most believe the tariffs are a transitory negotiating tool.

If these tariffs stick, it wouldn't take much retaliation to create a meaningful drag on US exporters.

Thread. While the announcements on Liberation Day were extremely large, there remains a substantial risk that retaliation efforts significantly deepens the global trade war.

With US exports to non-USMCA countries running at roughly 5% of US GDP, even modest tariff rises would be a hit.

Yesterday was further confirmation of the Wrecking Ball mix of negative-growth policies and a slow moving Fed.

This should be good for bonds vs risky/growth assets like stocks, bad for the USD, and drive curve flattening. Similar to the market action since.

Thread. I outlined the shape of the Wrecking Ball policy environment a couple of weeks ago and its market implications. Most importantly it's driven by a federal government that pursues negative-growth policies and is comfortable with equity market weakness.

https://x.com/BobEUnlimited/status/1899407950923419913

The broad consensus is whatever tariff policy gets implemented today just wont stick around for long.

By viewing the policies as a transitory bluff, markets are largely looking past their growth drag. While that's possible, the risk is clearly skewed to the downside.

Thread. The biggest challenge reflecting tariffs in the outlook is having a concrete sense of how long they will last.

Whatever gets announced today doesn't really matter if it just gets reversed just a couple days later. And the track record (w/ CAN & MEX) certainly suggests it will.

For years Western investors have expected a big China reacceleration and yet nothing has changed.

While the pro-growth rhetoric keeps coming, there have been very minimal actual policy efforts so far. Until that changes, expect the same malaise.

Thread. The latest manufacturing PMI shows basically nothing is changing, running at roughly the same level as the last couple years. Similar story with the NBS read as well.

The promise of "big and simple" tariffs from the admin this weekend is creating a negative growth shock across markets.

The trouble is that at current levels, US assets are still pricing in continued strength ahead, far from the weakening implied by this policy mix.

Thread. US stocks are pushing nearby lows.

There are increasing signs the new admin is committed to cutting 25-35% of the federal workforce, totaling as much as 800k job losses ahead.

These cuts would add 50bps to the unemployment rate even before considering knock-on consequences + contractor/consultant cuts.

Thread. The federal government workforce ex post office is about 2.5mln workers or about 1.5% of total employment. Notably that share of the workforce as been stable for decades now outside of census periods.

If the new admin follows through on its tariff ambitions, the policy mix and likely trade partner retaliation will drive the US economy into recession.

Financial markets hardly reflect this reality, implicitly making a huge bet that Trump's policies are a bluff.

Thread. The announcement of broad based 25% auto tariffs on non-US content yesterday were largely in line with what had been floated previously. The main difference from previous was in the likelihood that they would come and also in the claim they would be "permanent."

Most US markets have simply reversed post-election euphoria, but do not reflect the new admin's ramp up of negative growth policies and more cautious Fed response.

This suggests more significant repricing is needed to reflect the coming downshift in growth ahead.

Thread. Most major US markets have now largely reversed expectations of extraordinary US economic conditions that got priced in following the election.

US equities are back to pre-election levels.

While household and business sentiment has deteriorated rapidly in recent weeks, the timeliest hard data remains pretty stable.

Thread. One of the big questions right now is whether the weak survey data that we are seeing is actually flowing through to shifts in economic activity. One of the best ways to examine that is by looking at a broad range of weekly economic data. The WEI suggests little shift:

The BoJ is back to a wait and see approach, with little urgency to tighten quickly.

The fading inflation shock from rice & food prices, tepid consumer demand, and a burgeoning global trade war create risks to the downside and all align with gradual shifts ahead.

Thread. Inflation data released overnight further reinforced that there is little sign of inflation entrenchment through the economy. Goods prices fell 50bps on a m/m basis and services price growth continued to decelerate. A very different mix from other major DW countries.

The BoE is hamstrung by a UK labor market that is tight enough to keep wages and service inflation elevated, but too weak to drive an acceptable pace of overall growth.

Data released today shows anemic job growth, but wage growth that's far too high for cuts ahead.

Thread. Most of the developed world faces inflation that has become (moderately) entrenched as services inflation remains too high relative to what's needed to meet inflation targets.

And labor markets haven't softened enough to slow wage growth enough to stop the pressure.

Central bankers are settling into a do little approach for as far as the eye can see, handcuffed by conditions limiting any urgency for policy shifts ahead.

Usually a BoJ, Fed, BOE week would be big, but this week nothing is happening. Something to get used to.

Thread. The week of central bank announcements kicks off with the BoJ tonight, which is largely expected to do nothing. With target rates at 50bps and 2yrs at 80bps, there is little expectation of big rate movements any time soon.

One of the bull cases with the new admin was that their pro-biz stance would ignite a wave CEO confidence leading to much greater activity and investment.

While a surge in confidence came initially, there are increasing signs of a sharp reversal in recent weeks.

Thread. One of the most prominent examples of this surge in confidence came from the Conference Board survey which was taken in late Jan / early Feb for the 1Q report (previous read was pre-election). After several years of languishing it showed a surge in confidence.

There are signs that inflation is starting to perk up again as the new admin policies are digested thru the economy.

Businesses are indicating a desire to raise prices and consumers expect higher inflation ahead even as backward looking measured inflation moderates.

Thread. Inflation data today is backward looking and not that useful since it doesn't reflect expected shifts in policy ahead.

Given that surveys are likely a better read into what's to come, and many are showing an uptick. ISM manufacturing prices paid perking up to highest in years.

The new admin has increasingly signaled comfort with pain in financial markets in recent days.

This "Wrecking Ball" approach combined with a slow moving Fed suggests the policy put so critical to the BTFD bid is struck far below what most expect.

Thread. While many argue that the policy mix from the new admin will create necessary fiscal and economic adjustments over the long-term, the impact of restricting immigration, cutting federal spending, and raising tariffs is unambiguously growth-negative in the near term.

A broad scan of labor market data is starting to show some signs of weakening even before the impact of the fiscal tightening efforts hit.

For an economy so reliant on income growth & HH spending, any further weakening risks creating a negative feedback loop ahead.

Thread. While we wait for the biggest job report of our lives, lets take a quick scan across various job market data we already have. ADP private employment (which is based on real payrolls), suggested some slowing in Feb, producing one of the weaker reports of the last couple years.

The new admin is betting on a surge in domestic investment and production in response to tariff policies.

While announcements so far make for splashy headlines, the efforts indicated so far look more modest in reality and are unlikely to move the needle on growth.

Thread. A surge in non residential business fixed investment to $4tln was an important unexpected driver supporting US growth in the last couple years, reaching peak levels last year not seen since the tech boom and adding nearly 2% to nominal growth at its post-covid peak contribution.