The Fire Jerome Powell Market Rout Investors render a verdict on tariffs and politicizing the Fed.
The WSJ Editorial Board:
If the White House wanted a test of how firing Jerome Powell would go over in the markets, it succeeded on Monday. U.S. stocks and the dollar plunged while yields on long-term Treasurys climbed after President Trump renewed his attacks on the Federal Reserve Chairman. (…)
Mr. Trump is furious that Mr. Powell has said publicly that tariffs will likely lead to higher inflation and slower growth. Mr. Trump conceded the growth point on Monday, lambasting Mr. Powell: “There can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW.” (…)
The Powell Fed’s policy is hardly tight in any case. He’s in the process of ending quantitative tightening by no longer shrinking the Fed balance sheet, which amounts to easing. His public message is that the tariffs make fulfilling the Fed’s twin mandates more difficult. That’s undeniably true.
The tariffs will cause at least a one-time increase in the price of tariffed goods, which may become more entrenched if the Fed accommodates them by cutting rates. Meanwhile, they are increasing uncertainty for businesses and consumers, which will slow the economy and hiring. (…)
Mr. Trump thinks he can bully everyone into submission, but he can’t bully Adam Smith, who deals in reality. Markets know tariffs are taxes, and taxes are anti-growth. The Trump tariffs are the biggest economic policy mistake in decades, and extending the 2017 tax reform and deregulation may not compensate for all the damage. (…)
There are also fears that if tariffs fail to reorder the global trading system, Mr. Trump might impose a fee on Treasury debt as chief White House economist Stephen Miran has proposed. This would amount to a partial U.S. default since it would cut the rate of return. Think Treasury yields are rising now? Watch what happens if a Miran fee is imposed.
All of this is tempting economic fate and contributing to a global “sell America” narrative in financial markets. That’s why the dollar is under pressure. Smart Presidents pay attention to market signals and adapt. The adaptation now would be to negotiate a quick end to the tariff barrage. Claim some trade-deal victories, and call it a day.
But markets are spooked because they don’t know if Mr. Trump listens to anyone but his own impulses.
The WSJ Editorial Board, often sympathetic to Trump’s policies, has turned clearly negative. Somebody might be looking for ways to fire them all.
- Trump Is Laying the Groundwork to Blame Powell for Any Downturn
In the real world:
Why It’s So Difficult for Robots to Make Your Nike Sneakers Trump sees tariffs as a way to boost U.S. manufacturing, but Nike’s struggle to move production from Asia is a cautionary tale
President Trump is betting that the threat of stiff tariffs on low-cost countries in Asia and elsewhere will pressure American companies to bring manufacturing—and jobs—back to the U.S.
Commerce Secretary Howard Lutnick has said the administration wants labor-intensive industries to return to the U.S. There will be an “army of millions and millions of people screwing in little, little screws to make iPhones,” he said in a recent interview with CBS.
But high U.S. labor costs mean companies would have to find ways to replace human workers with machines. For some industries, that has proved surprisingly difficult. (…)
Flex and Nike wound up the project by early 2019. By then, Under Armour had stopped mentioning to investors its “Project Glory” mission to make shoes in the U.S. That year Adidas, which had also faced challenges producing complex shoes with robots, said it would close down production in Atlanta and Germany. It shipped its “speedfactory” technology to suppliers in Asia.
The three shoemakers stuck with their original offshore locations—Vietnam, China, and Indonesia. (…)
- Just after the Trump administration raised tariffs on Chinese goods to 145% this month, a truck full of fake eyelashes came to a screeching halt in Mexico, just shy of the U.S. border. “If we pay 145% tariffs we would lose a significant amount of money on every product we send in,” she said. Zeng has two to three months of inventory in the U.S. that she can continue selling. “I think we’re trying to hold out for at least one more month to see what happens. But then we’ll have to make some hard choices,” she said.
- Many are reluctant to make big changes if the new rules are just going to get overturned by a tweet. “When they make a decision, they change their mind, and when they change their mind, they change it again,” said Clifton Broumand, whose company, Man & Machine, assembles waterproof keyboards and mice in Maryland, from Asian and domestic components. He is considering moving that assembly to Malaysia to escape some of the tariff burden, but the uncertainty makes it hard to plan.
- “Basically, what we’re doing is eating our inventory and hoping that it will last us until this gets settled,” he said. “If it doesn’t, we’ll be out of business.”
- Some shipping companies are so concerned about U.S. importers abandoning their cargo and declining to pay shipping fees that they are asking for full payment upfront.
- The [Japan] Ministry of Finance survey was conducted from April 9-15 with 518 companies including those in the auto, steel and service sectors, according to Tuesday’s release. Auto companies said some orders have already been canceled and one firm cut hours for factory workers, while those in the tourism sector said they are concerned that a stronger yen would weigh on inbound visitors, the survey showed.
How Long Will Big U.S. Banks Continue to Lead the World? The trade war threatens the global dominance and growth of America’s megabanks
(…) “We will be in the crosshairs. That’s what’s going to happen,” JPMorgan Chase Chief Executive Jamie Dimon acknowledged on the bank’s first-quarter earnings call. “And it’s OK. We’re deeply embedded in these other countries, people like us,” he added. “But I do think some clients or some countries will feel differently about American banks, and we’ll just have to deal with that.” (…)
“Foreign firms don’t generally have to use the global arms of U.S. banks for high-fee transactions,” said Brad Setser, senior fellow at the Council on Foreign Relations. Amid trade tensions and other cross-border spats, “there could be a chilling effect—in much the same way as Canadians are reconsidering whether they want to take a vacation in the U.S.” (…)
- “The geopolitical power structure is being reorganized under our eyes,” Jens Weidmann, the chairman of Commerzbank AG and previously the head of Germany’s central bank, told a London audience last week. The “exorbitant privilege of the US,” he said — using a phrase coined in Europe more than half a century ago to describe the dominance of the dollar — “may not be carved in stone.” (Bloomberg)
Wider Federal Workforce May Shrink by 1.2 Million, Fed Estimate Shows
The broader US federal workforce could shrink by more than 1 million, according to an analysis from the Federal Reserve Bank of Atlanta, largely reflecting an estimated reduction in those indirectly employed by the government through contracts and grants. (…)
Pitts found those cuts, along with a hiring freeze, buyouts and early retirement options could shrink the size of the full federal workforce, which includes contract and grant employees, by as much as 1.2 million.
More than 2.4 million people were directly employed by the federal government at the end of 2024, before these programs went into effect, the research notes. But more than 8 million people were estimated to be employed either directly or indirectly by the federal government through contracts and grants in February 2025, which greatly expands the pool of workers who could be affected by the cuts, according to the analysis.
Pitts cited estimates from the website layoffs.fyi that show there have been 136,621 “exits from the federal workforce” as of April 1 and another 170,214 in planned staff reductions.
If the employment impact of workers supported through government contracts and grants is proportional to that of those directly employed by the federal government, Pitts said that would suggest a reduction of about 900,000 additional jobs for a total of 1.2 million separations.
The Atlanta Fed estimate is on the high end of similar projections. A separate analysis by Bloomberg Economics published at the end of February found that the total direct and indirect job losses from efforts from the Department of Government Efficiency (DOGE), could reach 535,000 by the end of this year.
Whatever the outcome, it’s likely to take a while for the full scope of the federal cutbacks to be reflected in government employment data. Pitts noted many federal workers are currently on administrative leave, while others selected deferred retirements.
European travellers cancel US visits as Trump’s policies threaten tourism
Source: Financial Times
China Warns Against Trade Deal With U.S. at Beijing’s Expense Beijing’s warning comes as trade talks between the U.S. and several countries get underway
The Wall Street Journal reported earlier this month that the Trump administration planned to use trade talks with other countries to isolate China.
“I am telling you, these countries are calling us up, kissing my ass,” Trump referring to foreign leaders seeking to negotiate trade deals and secure relief from newly imposed U.S. tariffs. He went on to imitate foreign leaders as saying, “Please, please sir, make a deal. I’ll do anything sir”
The Art of the Deal!
China has warned countries against making trade deals with the U.S. that could hurt Beijing’s interests.
“China firmly opposes any party reaching a deal at the expense of China’s interests,” the Ministry of Commerce said Monday, adding that it would respond “resolutely” with reciprocal countermeasures should such a situation arise.
The ministry also said China is willing to strengthen solidarity and coordination with all parties, work together to respond to challenges, and oppose unilateral bullying. (…)
According to reports from The Wall Street Journal, Reuters, and other outlets, the administration is using ongoing tariff negotiations with more than 70 countries to pressure U.S. trading partners to limit their economic dealings with China. This includes asking countries to:
-
Disallow China from shipping goods through their territories
-
Prevent Chinese firms from establishing operations in their countries to circumvent U.S. tariffs
-
Refrain from integrating low-cost Chinese industrial goods into their markets
The goal, as described by administration officials and confirmed by White House sources, is to marginalize China’s economy in exchange for easing U.S. tariffs and trade restrictions. The underlying strategy is to disrupt China’s supply chains and cut it off from global markets, thereby increasing pressure on Beijing to negotiate on U.S. terms.
Trump aides suggest the US can settle its trade differences with allies first — and use the prospect of tariff relief for those countries as leverage to create a united front against China. But there are signs in both Europe and Asia that many governments have revived interest in reaching out to Beijing, rather than ganging up on it alongside Trump. (Bloomberg)
Foreigners have been selling US corporate bonds
Source: BofA Global Research
Foreigners own $19 trillion of US equities, $7 trillion of Treasuries and $5 trillion of US corporate bonds, accounting for about 20% to 30% of the total market, according to Torsten Slok of Apollo Management. The unwinding of those holdings could cause substantial pain.
(…) Private institutions, including banks and pension funds, sold $17.5bn of long-dated foreign bonds in the week to April 4 and another $3.6bn over the next seven days, according to preliminary data from Japan’s Ministry of Finance. J
apan holds $1.1tn in US Treasuries across the public and private sectors — the biggest international stockpile in the world — so its transactions are closely monitored and considered a proxy for buying or selling of US government debt.
The recent sell-off marks one of the biggest outflows over any two-week period since records began in 2005. (…)
According to several investors, the fall in US equities would have knocked Japanese pension funds’ allocations to international debt and equity out of balance. As a result, the funds would have been under pressure to sell Treasuries and other US government-backed debt to bring their portfolios back into alignment, they said.
DAMAGE ASSESSMENT:
On a ytd basis, the 10.2% decline in the S&P 500 has been led by a 21.9% drop in the Magnificent-7. The S&P 493 is down just 5.2% so far.
The forward P/E of the Magnificent-7 plunged about 10ppts since the end of last year from roughly 32 to 22 currently. Over this period, the forward P/E of the S&P 500 has dropped about 4ppts from 22 to 18.
The US Dollar Index has dropped roughly 10% since the start of this year. It is likely to test and find support at the uptrend line that started in 2011.
American Exceptionalism has been most apparent in the global outperformance of the Magnificent-7 stocks in recent years. Foreign investors rushed into them and bolstered the Dollar Index. So far this year, the bear market in the Magnificent-7 may be the main reason for the weakness in the dollar. They are both overdue for rallies.
Understand that Ed’s P/E charts are on forward earnings. Known unknowns.
Especially with this:
US CEO sentiment has deteriorated sharply since January, with April showing the lowest expectations for profit, CapEx, and hiring over the next 12 months.
The share of firms anticipating declines now outpaces those expecting gains across all three categories, signaling rising caution amid growing economic uncertainty.
China’s CATL says it has overtaken BYD on 5-minute EV charging time
CATL has unveiled upgraded battery cells it claims can offer faster charging for electric vehicles than its rival BYD, putting the two Chinese groups ahead of competitors in the race to overcome a major barrier to the shift away from petrol vehicles.
The world’s biggest electric vehicle battery maker said on Monday that a new version of its flagship Shenxing battery cell could offer a 520km range from just five minutes of charging time.
Last month, BYD shocked the industry by unveiling a charging system that could add about 470km in range to its batteries in about the same time. (…)
At present, Tesla vehicles can be charged up to 200 miles (321km) in added range in 15 minutes, while Germany’s Mercedes-Benz recently launched its all-electric CLA compact sedan, which can be charged for up to 325km within 10 minutes using a fast-charging station. (…)
The second generation of the Shenxing battery, which boasts a range of 800km on one charge, can achieve a peak charging speed of 2.5km per second, the company said at a media event ahead of this week’s Shanghai auto show. (…)
CATL also unveiled its new sodium-ion battery, which it said would go into mass production in December. The battery brand called Naxtra is able to give a range of about 200km for a hybrid vehicle and 500km for an electric vehicle, according to Huan. Sodium-ion batteries are seen as a cheaper and safer alternative to the lithium-based batteries widely used for energy storage, because they work better at both very high and low temperatures.
But the amount of energy they can produce relative to their size has long lagged behind lithium batteries, making sodium cells impractical until now. (…)
At the event, Huan claimed the new sodium-ion battery would enable the industry’s shift from “single resource dependence” to “energy freedom” and reshape the global energy landscape.
This is China vs China.