Consumer demand overall looks steady even as sentiment has plunged.

Every timely read of spending data indicates no downshift in total household consumption in Apr, suggesting that the March numbers we see today for PCE are a decent proxy for the read on spot demand.

Thread. Today's GDP report is going to be a mess as a surge in imports will likely create distortions in the top read.

As a result its much better to focus on the end demand numbers particularly from households. And further focus on the more timely personal income and spending report.

Tariffs lead to higher prices for consumers and businesses.

Despite the admin's claims to the contrary, the flood of tariff-driven price increases is now starting. While biz are holding off as long as they can, if tariffs remain in place more price hikes are coming.

Thread. As the tariff policies spun up the admin made the case that tariffs would be largely be paid for by foreign producers rather than domestic wholesalers and consumers. With the largest tariff hike since Smoot-Hawley (even with the pause) that view is being put to the test.

Chinese policymakers continue to take a tough stance on extreme US tariffs.

Refusing to negotiate, official accounts openly mocking the US, and today publishing a revisit of Mao's "On Protracted War" all point to little desire to give in anytime soon.

Thread. The US extreme tariff regime has all but created a trade embargo on Chinese goods coming into the US at this point.

While China has moderately reduced its reliance on exports to the US, at 400-500bln, its still 2-3% of Chinese GDP, creating a notable economic hit.

Despite all the hope from US-based investors that the trade war will soon be over, foreign investors aren't so sure.

While the relief rally in US stocks is the focus, its notable that there has been little signs of a pickup in foreign demand for US assets.

Thread. Last week I outlined the US wrecking ball portfolio - one which reflects the combination of expectations of reduced foreign demand for US assets and weaker US growth pricing ahead.

https://x.com/BobEUnlimited/status/1912832399555051884

There are increasing signs that the Embargo by the new admin is starting to have real economic consequences.

Container bookings have collapsed, ports are seeing reduced activity, trucking is decelerating, and retailers say in a few weeks store shelves will be empty.

Thread. Regular readers know that one of the interesting dynamics in the last couple of months has been that despite a historic collapse in various soft data measures, most hard data has been relatively stable or if anything has picked up in the last few months.

The US built up an unsustainable reliance on foreign capital over the last few decades and as that flow now reverses, US assets will inevitably reprice lower.

While many say this is like a typical EM BoP crisis, there are important differences on what's likely to come.

Thread. Since the 90s the US has has had a boom in foreign capital flows into its financial markets which helped support asset prices and finance economic activity.

First with the rise of reserve purchases and then with a boom in equity liabilities as the world bet on the US post-GFC.

While this earnings season has brought a pickup in downward revisions ahead, the cuts have been tweaky suggesting economic weakness is hardly expected.

'25 earnings growth is still 10% and 12m fwd earnings are still at highs. Not close to what happens in a recession.

Thread. With 12% reporting, the season has been roughly on par with expectations. The 7.2% expected earnings growth expected coming into 1Q hasn't changed, pretty much across the board. This is a little weaker than normal since usually there is a bit of a surprise to the upside.

Another weekend of dashed hopes for constructive policy shifts from the admin leading to a Monday where the current policy Wrecking Ball is taking aim at global markets.

Gold surging, the dollar declining, and US stocks falling - all signs this is far from priced in.

Thread. The long weekend brought mostly bad news from a policy standpoint.
- Japan trade delegation left, indicating a deal would not be done quickly.
- Chinese officials saying they wont take well to US trade isolation efforts
- Continued admin efforts to find a way to oust Powell.

The US Wrecking Ball policy stance still has a long ways to go to before its reflected in asset markets.

Moves so far mostly have mostly just reversed the euphoria around the election of the new admin. It'll take much larger moves to reflect today's policy reality.

Thread. For a months I've described the combination of the series of negative-growth federal government policies with a Fed that will be behind the curve in response as a Wrecking Ball.

That's because that mix is not only terrible for asset markets, but it is bad for the economy.

Most investors would be far better off allocating to global macro strategies than trying to time macro market moves themselves.

Global Macro index alpha has a history as one of the most diversifying strategies for 60/40 portfolios, often shining in times of turbulence.

Thread. These managers typically take long and short positions across major liquid currency, commodity, fixed income, equity index, and credit markets, looking for the biggest opportunities agnostic to geography or asset class.

Business and consumer confidence has collapsed across the economy.

This is likely to have more far reaching impacts on the economy and markets than all this flip-flopping on tariff policy.

Thread. In most economic cycles business and consumer confidence is a outcome of the macroeconomic dynamics rather than a driver itself.

That's because in most cases businesses and households operate within the constraints of their incomes & cashflows rather than their hope or fear.

While the admin & the Fed have a lot of power to create a bond put struck not too far from here, they have almost no ability to control dollar depreciation.

With 15 years of US exceptionalism bets built up, the unwind we've seen in recent days is just getting started.

Thread. This week the admin (kinda) blinked on tariff policy in part b/c the long end of the bond curve started to rise pretty rapidly.

The result is that many folks now are holding that there is a "Trump put" on the US bond market which will put a lid on rises much higher than 5%.

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.