Introduction: Hope of targeted approach to Trump’s ‘Liberation Day’
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
A new week begins with some familiar worries, as global markets brace for the US to intensify its trade war next month.
US President Donald Trump has declared April 2 will be “Liberation Day” for the US, when he will unveil so-called “reciprocal tariffs” on other countries who he perceives to be giving the US a bad deal on trade.
This has the potential to significantly widen the scope of the tariffs which Trump has been imposing on allies and rivals alike since returning to the White House.
But, hopes are building that the scope of Liberation Day be narrower than has been feared.
Late last week, Trump hinted that he could take a flexible approach. Speaking the Oval Office, he said:
“I don’t change. But the word flexibility is an important word. Sometimes it’s flexibility. So there’ll be flexibility, but basically it’s reciprocal.”
That has created some ambiguity, which optimistic investors may cling to.
White House offficials have told Bloomberg that some nations or blocs will be spared these reciprocal tariffs, and that – currently – Trump is not planning to announce separate, sectoral-specific tariffs at the Liberation Day event.
This could also cheer markets today, where stocks have been hurt in recent weeks by the threat of trade conflict, and fears of a US recession.
Last week, Treasury Secretary Scott Bessent said Trump’s reciprocal tariffs will focus on particular nations deemed most responsible for unfair commercial practices. He dubbed them the “dirty 15”, because these 15% of countries account for “a huge amount of our trading volume.”
Those practices could include non-tariff barriers including domestic-content production rules, testing regulations, or value-added tax (VAT) on sales to consumers.
Kathleen Brooks, research director at XTB, say the latest news regarding reciprocal tariffs is “mildly positive for risk sentiment” today.
She explains:
US and European equity futures are pointing to a stronger open as traders react to news that reciprocal tariffs will not be implemented all at once. The tariffs for April 2nd are now likely to be less sprawling and not a fully global event. They are also expected to exclude sector-specific tariffs on autos, pharma, and chip makers, which may spur some relief rallies later on Monday.
But is a delay to tariff announcements merely kicking the can down the road, rather than a softening in Trump’s approach to tariffs? There have been comments from officials this weekend, which suggests that tariffs will not be as bad as some expect, and they will only target countries that run large trade surpluses with the US.
We’ll also get the latest surveys of purchasing managers from across the US, the UK and the eurozone today, which may show the impact of tariff fears…
The agenda
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9am GMT: Flash Eurozone PMI report for March
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9.30am GMT: UK PMI report for March
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12.30pm: United States Chicago Fed National Activity Index
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1.45pm GMT: US PMI report for March
Key events
Eurozone manufacturing returns to growth
Happy news: the eurozone’s factory sector has returned to growth this month, perhaps thanks to a rush to beat new US tariffs.
S&P Global’s poll of purchasing managers from across Europe’s private sector has found that manufacturing production has increased for the first time in two years, even though new orders fell again.
Here’s the details (where any reading over 50 shows growth):
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HCOB Flash Eurozone Composite PMI Output Index at 50.4 (February: 50.2). 7-month high.
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HCOB Flash Eurozone Services PMI Business Activity Index at 50.4 (February: 50.6). 4-month low.
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HCOB Flash Eurozone Manufacturing PMI Output Index at 50.7 (February: 48.9). 34-month high.
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HCOB Flash Eurozone Manufacturing PMI at 48.7 (February: 47.6). 26-month high
Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, says:
“Just in time with the beginning of spring we may see the first green shoots in manufacturing. While we should not be carried away by a single data point, it is noteworthy that manufacturers expanded their output for the first time since March 2023. It’s also encouraging, that the index output has risen for three months straight. This is complemented by a much softer fall in new orders and employment.
One could pour some cold water on this development arguing that it’s the temporary tariff-related import boom from the US which has driven the improvement in manufacturing. However, given the will of Europe, to invest heavily in defense and infrastructure – in Germany a corresponding historical fiscal package has been approved only last week – hope for a more sustained recovery seems well founded.
The price development in the services sector, which is very much under scrutiny of the ECB, will be well received by the doves of the monetary authority. Both input costs and selling prices are rising at a slower pace compared to recent months.
Lower input cost inflation points to less pressure from wages which are a key ingredient of input costs in the labour intensive services sector. Meanwhile, in manufacturing, price increases for both selling and purchasing remain moderate, helped along by declining energy costs.
