Tariffs, Liquidity, and Market Shockwaves

resident Trump's announcement of tariffs on Canada, Mexico, and China sent shockwaves through financial markets.

But while Mexico and Canada initially responded with retaliatory tariffs, Mexico has already folded - after a "very friendly" conversation with Trump, tariffs on Mexico are now paused for a month.

It's likely Trudeau will follow suit and reach an agreement as well.

So far, Trump has secured a pledge from Mexico to tighten border security and crack down on fentanyl smuggling.

Meanwhile, the DXY surged to multi-month highs before pulling back on this relief news.

Trump plans to speak with China in the next 24 hours, stating:
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"If we can't make a deal with China, the tariffs will be substantial."

A strong dollar isn't ideal for Trump, but he might leverage it to secure a major trade deal with China.

If such a deal is made, expect room for the dollar to weaken - especially given how crowded the long-dollar trade has become.

At the same time, Federal Reserve net liquidity continues to decline, further tightening monetary conditions.

The combination of a rising dollar, an increasing TGA, and RRP balances is pressuring risk assets.

Scott Bessent was sworn in last week as Treasury Secretary, and his first QRA on the 5th will outline his plans for the Treasury.

While still using extraordinary measures, the TGA currently sits at $825B - which could start being drawn down after the QRA.

The Bigger Picture

Despite the panic you hear on CT, conditions aren’t as bad as they seem - even after a huge liquidation event as the one that took place today.

Powell is sticking to his monetary policy, but Trump and Scott Bessent are playing by different rules.

Trump made it clear that he's preparing a fiscal dominance push.

He said he would implement tariffs, didn't he? Don't fade the Orange King's words.

These shifts underscore the fragility of the current economic landscape and the need for close monitoring of liquidity trends and policy moves.

Our Short-Term RoC Indicator clearly highlighted last week's liquidity decline - and Bitcoin followed.

Our Global Liquidity Index fell by $581.6B this week, marking a -0.45% decrease.

Momentum remains weak, with the 3-month change still trailing the 12-month change.

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