Over the weekend we saw a shift in the news around tariffs:
This has implications for geopolitical relationships, supply chains, and prices. While these tariffs are important, the market is responding due to the increased level of uncertainty as opposed to a significant change in the macro regime.
The comments from Trump are focused on The European Union as well which is why the Euro has sold off:
When events like this take place over the weekend, it creates gap risk which can create self-reinforcing cycles that unwind positioning and run stops. In addition, the source of this is highly idiosyncratic (Trump news) that could very easily be reversed by the end of this week.
HOW should we respond to this type of dynamic? My friend at
correctly points out you MUST increase your time horizon in these periods of time.In other words, if your stops are at high and low levels from the previous day then you will almost certainly get stopped out. This means decreasing position sizing marginally and increasing time horizon as ranges expand. If you are trying to understand this idea more, check out the intraday trading primer:
Macro Flows:
The first thing to observe is HOW the curve is moving as a response to this. We are seeing a bull flattening as ZN rallies more than ZT.
This is occurring as ES gapped down and is not making an immediate bid. It is important to remember last week this same thing happened on the DeepSeek move and we rallied as we approach the US open. This time its probably going to be a bit more complicated because that is the recency bias in people’s minds. Watching how we trade through the London open will be critical.
This shock has caused crude to spike up and we have only sold off since this time. Watching this correlation will be critical because we are clearly seeing an unwind in risk assets but the persistence will be determined by the macro regime. HOW do we understand the signals for the macro regime? By watching correlations and how new information gets priced into those correlations.
Watch the Yen here as well because we are already bouncing here as bonds are rallying. If this continues we could see it lead to a shift in a mean reversion bounce of other currencies against the dollar.
Bonds have bounced back higher and are back at this level in ZN. This is an indication that the tariff news is unlikely an immediate inflationary impulse or else we would be seeing stocks and bonds down.
As we move through the next two days, I will be writing the next comprehensive macro report for subscribers providing an updated analysis for WHERE we are in the macro regime and HOW it connects to these developments with Trump’s policy. Keep an eye out for this.
As always, a Pepe for the culture
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There's only a problem. The market still hasn't properly decided if tariffs are inflationary or not, yields so far just getting whipped around with no direction. Plus also still unclear whether Trump will actually put into effect the tariffs or not since now he's expected to talk with both Canada and Mexico today while tariffs should only go into effect tonight. We'll see if it's again a negotiation tool or if he's truly committed.