Weekly Research Briefing: Cracks Widening

WASHINGTON—President Trump has for months privately discussed firing Federal Reserve Chair Jerome Powell, according to people familiar with the matter, but he hasn’t made a final decision about whether to try to oust him before his term ends next year.

In meetings at the president’s private Florida club, Mar-a-Lago, Trump has spoken with Kevin Warsh, a former Fed governor, about potentially firing Powell before his term ends and possibly selecting Warsh to be his replacement, the people said.

Warsh has advised against firing Powell and has argued that he should let the Fed chair complete his term without interference, according to the people. The conversations with Warsh carried into February, while others close to the president have spoken to Trump about firing Powell as recently as early March, the people said.

At a meeting in the Oval Office on Thursday, Trump expressed confidence that he had the authority to oust Powell. “If I want him out, he’ll be out of there real fast, believe me,” Trump said. The president added that he is “not happy” with Powell and accused him of “playing politics” with interest rates.

@RenMacLLC: "Second, forget the legal obstacles to fire Powell. Getting rid of him in such a dramatic fashion would upset the bond market. Risk premiums would rise sharply as investors question the central bank’s independence and longer-term interest rates would surge. I don’t think Trump will go there."

Evercore ISI: Trump firing Powell “would lead to a surge in stagflation trades, with longer term yields soaring on inflation risk in a sharp curve steepening, a plunge in the dollar and an across-the-board increase in risk premia including the equity risk premium, likely guaranteeing recession.”

For all the criticism it deserves, the Fed is consistent and markets generally know where they are with it. Its institutional stability is one of the cornerstones of the US financial system, and by extension, given the dollar’s reserve status, of world finance (which explains why foreign governments don’t want Powell to go). If the president does this, responsibility for rates will move to him. Will the market transfer its trust in the current Fed to a new regime headed by Donald Trump?...

Trust in the dollar has been shaken in recent weeks. It’s not yet broken. In this febrile setting, firing Powell might finish the job — the mere threat of it was enough to force another leg down for the greenback in early Monday trading:

Many of the significant trade barriers that countries have in place are there for a reason — to protect a key local industry, for example, or because of differing views over health and safety standards than in the U.S., like in food products. Hammering out those differences while navigating the different political and cultural nuances of each country will require back-and-forth discussions that could take months and involved dozens of officials across the federal government.

“Trade negotiations can be brutal, and they can take years,” said Warren Maruyama, who worked on trade deals during the George W. Bush administration as general counsel for the Office of the U.S. Trade Representative. “I don’t think this is going to be anywhere near as easy as some people are spinning it.”

Given the timeline, Maruyama and other former trade negotiators said it is unlikely the U.S. will make any major overhauls on trade, especially from its largest trading partners, like Japan and the European Union. Rather, the U.S. is more likely to be able to get some percentage decreases from countries on the tariff rate for certain U.S. exports — or agreements from countries to purchase a certain amount of U.S. products.

The European Union and the US made little progress bridging trade differences this week as officials from President Donald Trump’s administration indicated that the bulk of the US tariffs imposed on the bloc will not be removed.

The EU’s trade chief, Maros Sefcovic, is said to have left Monday’s meeting in Washington with little clarity on the American stance. US officials indicated that the 20% “reciprocal” tariffs—which Trump reduced to 10%—as well as other tariffs targeting sectors including cars and metals would not be removed outright. The uncertainty around Trump’s chaotic tactics, replete with delays, retreats, new threats and sudden exceptions and trial balloons, hasn’t helped. The legality of his entire trade war is also the subject of litigation.

The EU has offered that both sides remove all tariffs on industrial goods, including cars, but Trump has so far rejected the proposal.

Japan won’t just keep conceding to US demands to reach a deal over tariffs, Prime Minister Shigeru Ishiba said, in some of his most combative remarks since President Donald Trump launched a push for more access to Tokyo’s sensitive auto and agricultural sectors as part of his global trade war.

“If Japan concedes everything, we won’t be able to secure our national interest,” Ishiba said in parliament on Monday...

Senior US officials have also highlighted tariffs on agricultural imports into Japan, including rice, as examples of unfair trade barriers.

The stakes are high for Ishiba. Cars are Japan’s most lucrative export industry and the nation’s farmers are an important support base for his ruling Liberal Democratic Party, which faces a national election in July and is struggling with low public support ratings.

BEIJING (AP) — China on Monday warned other countries against making trade deals with the United States to China’s detriment... “China firmly opposes any party reaching a deal at the expense of China’s interests,” China’s Commerce Ministry said in a statement. “If this happens, China will never accept it and will resolutely take countermeasures in a reciprocal manner. China is determined and capable of safeguarding its own rights and interests.”

US President Donald Trump’s tariff war has reignited a long-standing debate in Switzerland: whether it should inch closer to the EU, its largest trading partner.

Swiss president Karin Keller-Sutter will on Friday join EU finance ministers meeting in Warsaw, the first time the Alpine nation has done so. Keller-Sutter, who is also the country’s finance minister, told local press this week that Switzerland wanted to “stabilise, deepen relations with the EU”.

The British chancellor, Rachel Reeves, is also set to attend and call on the UK and EU to work closely together on defence financing to provide greater economic and national security.

Export-oriented Switzerland was shocked to find itself among the countries facing the highest “reciprocal tariffs” announced by President Donald Trump this month — 31 per cent, nearly as much as China at 34 per cent.

Switzerland’s rate compared with 20 per cent for the neighbouring EU and 10 per cent for the UK, even though the country had abolished industrial tariffs last year.

“This idea that you can break trade, and not break the capital flow side, is a fantasy,” said Steven Blitz, chief U.S. economist at GlobalData TS Lombard...

Foreigners have said they are unsettled by the prospect of a far more transactional approach to trade and currency policy, together with a preference for lower interest rates and higher budget deficits.

“The tariffs are the tip of the iceberg,” said Ludovic Subran, chief economist and chief investment officer at Allianz, the German insurance giant. “If the dollar depreciates by 30%, what is the return on your investment in the U.S.? Everybody is doing the math.”

In a call with analysts earlier this month, BlackRock Chief Executive Larry Fink said the U.S. could face stiffer competition after benefitting from years of “over-allocation” and pointed to Europe as a potential better destination for foreign capital. “It’s a good question to be raising,” Fink said.

“The US has benefited from reserve currency status for 100 years. It’s taken less than 100 days to unwind it,” says Gregory Peters, co-chief investment officer at PGIM Fixed Income. “It’s a very big deal.”

The US is a sovereign nation and free to destroy its part in the global economic rules-based system it created. But in setting high tariffs and flip-flopping on them, spreading fear among immigrants and undermining the effectiveness of the US government, the policies will hit hardest at home.

The stagflationary shock of generating huge business uncertainties and higher imported goods prices puts the Federal Reserve in a bind. It is struggling to articulate whether to worry more about higher unemployment or rising prices. But the inflationary effects of Trump’s tariffs hit mostly in the US. Other countries facing a demand shock can simply offset this with looser policy.

Of course, there will be some collateral damage. Countries with high export shares in GDP and with the US as a very large trading partner — think Canada and Mexico — are more vulnerable. Smaller economies that export food and basic goods such as T-shirts to America are also likely to be hit hard.

But when economists calibrate their models and look at the underlying realities, it is the US that looks weak. Consensus Economics, which collates private-sector forecasts, shows that economists on average expect the US economy to grow almost a percentage point less in 2025 than at the time of Trump’s inauguration, and 2026 does not look much better. Eurozone and Chinese GDP forecasts have been trimmed by far less.

@bespokeinvest: This is the 14th week of President Trump's 2nd term. Across 45 country stock market ETFs, the US $SPY ranks 4th worst during Trump 2.0 and is one of five countries down 10%+. The average country ETF is up 4.1%, so the US is underperforming by 16 percentage points.

The effects of President Trump’s new tariffs are starting to be felt across the world, preliminary South Korean trade data suggest, as Seoul prepares to begin negotiations with Washington.

Exports from Asia’s fourth-largest economy fell 5.2% from a year earlier in the first 20 days of April, according to data from South Korea’s customs office released Monday ahead of full monthly trade figures due next week. Imports plunged 12%, leading to a trade deficit, the preliminary numbers showed.

The early indicators from South Korea, a bellwether for the health of global trade, suggest that U.S. tariffs are beginning to hurt international commerce, with their impact now felt in the country and beyond, ING senior economist Min Joo Kang said in a note.

“We assess that the U.S.-China tariff war is negatively affecting Asia’s export trends in general,” Kang said.

While South Korean exports to Europe continued to grow in the first few weeks of April, those to the U.S. and China declined.

@paulcerro: Booking volumes from the last week of March to first week of April across global and U.S. trade lanes plummeted. There were sharp decreases in bookings across several categories, including apparel & accessories; and wool, fabrics & textiles, both down over 50%. Major product categories from China that are moved in containers include apparel, toys, furniture, and sports equipment, all of which are subject to steep tariffs.

“To maintain the high-quality service commitment of DHL Express to its customers, starting Monday, April 21 2025, and until further notice, DHL Express will temporarily suspend [business-to-consumer] shipments to private individuals in the US whose declared value exceeds $800,” the company said in a statement.

Germany’s DHL is the first major commercial logistics company to take action as a result of new US tariffs, many of which came into effect on April 5.

John Manners Bell, chief executive of consultancy TI Insight, said it “could be a sign that the global trading system is starting to break”.

“This could become a major trend as postal offices and commercial carriers struggle to cope with the weight of tariffs and bureaucratic burdens placed on them,” he said. “The changes will have real implications for the international ecommerce industry, affecting many millions of parcels that flow every day to US importers, inevitably raising costs for US consumers.”...

DHL is one of the world’s biggest courier companies, delivering 1.5bn parcels a year. It employs nearly 600,000 people and operates in 220 countries. Last year, its sales exceeded €84bn.

Mack Trucks will lay off between 250 and 350 workers at its Lehigh Valley Operations center outside Allentown over the next three months, due to economic uncertainty caused by U.S. tariffs, a company spokesperson said Thursday.

“Heavy-duty truck orders continue to be negatively affected by market uncertainty about freight rates and demand, possible regulatory changes, and the impact of tariffs,” spokesperson Kimberly Pupillo said.

“Today we informed our employees that this unfortunately means we’ll have to lay off 250-350 people at LVO over the next 90 days,” Pupillo said. “We regret having to take this action, but we need to align production with reduced demand for our vehicles.”

Union leaders announced the company had confirmed layoffs Thursday afternoon. The plant in Macungie employs around 3,050 workers.

President Trump’s trade war comes as cotton farmers endure tough economics that aren’t expected to improve–leaving growers of the American staple crop with few choices.

Low commodity prices, high costs for supplies and an unpredictable world have cotton growers across the country on the ropes.

“The last two years have been, from an economic standpoint, as tough as I’ve ever seen,” said Lee Cromley, who farms 2,300 acres of cotton and peanuts in Brooklet, Ga...

Cotton is uniquely exposed to the effects of tariffs in a way other U.S. crops like corn and soybeans are not. Buying new clothes is a discretionary expense, and it would be among the first costs that consumers would cut back on during an economic downturn.

Like for most farmers, costs for supplies like seeds and fertilizer remain high and are expected to rise as new tariffs set in. But for cotton farmers, costs for specialized machinery are becoming unmanageable–prices for a new cotton-picking machine now well above $1 million. These machines can’t be used to work on more standard row crops like corn or soybeans, making it hard for cotton farmers to simply pivot to other more-lucrative crops.

So many cotton farmers are grappling with realities of money-losing acres, and the outdated Farm Bill–which was extended through September 2025 but uses crop-insurance figures that were formulated when the bill was passed in 2018–means the safety net for cotton farmers is especially weak.

“We’ve gone beyond just losing money; we’ve got growers losing the farm,” said Gary Adams, President and CEO of the National Cotton Council.

"My family has been farmers for nine generations, going back to 1808 when my great-great-great-great-great-great-grandfather cut down trees to build a cabin and barns for livestock, and planted the food they needed to survive.

I can see their gravestones from my home here in Magnolia, Kentucky. My father and grandfather taught me to farm and now I’m paying it forward to my three sons, ages 14, 12, and 9.

In the 1980s, farmers in my area shifted from dairy and tobacco to soybeans as new technology changed the market and made it possible to farm rougher terrain and use pesticides to kill weeds without killing crops. But now, because of the trade war with China, I’m worried we could be out of business by 2027. All that history, heritage, blood, sweat, and toil could vanish with the stroke of a pen.

Soybeans are one of the most versatile crops in the world. They have thousands of uses: They can feed cattle, be turned into biofuel and rubber, and be mined for the seed oils that are used throughout the food industry. Last year, soybeans were the number one row crop in my home state of Kentucky. But as I’m planting seeds this spring, I’m facing fear and uncertainty about who will buy my crops come harvest time in October."

‪@knowledge_vital: Alcoa explains why it will continue to import from Canada despite Trump's tariffs: "It takes many years to build a new smelter, and at least five to six smelters would be required to address the U.S. demand for primary aluminum. These new smelters would require additional energy production equivalent to almost seven new nuclear reactors or more than 10 Hoover dams. Until additional smelting capacity is built in the U.S., the most efficient aluminum supply chain is Canadian aluminum going into the U.S."

‪The Philadelphia Fed manufacturing index decreased by 38.9pt to -26.4 in April, well below expectations and the lowest reading since April 2023 and the second-lowest level outside of recessions. The composition of the report was weak, as the employment (-19.5pt to +0.2), shipments (-11.1pt to -9.1), and new orders (-42.9pt to -34.2) components all decreased. The prices paid (+2.7pt to +51.0, highest since July 2022) and prices received (+0.9pt to +30.7) measures both increased. The delivery time component fell below zero (-6.7pt to -2.6), indicating that delivery times shortened on net. The 6 months-ahead business conditions index ticked up by 1.3pt to +6.9 after declining by 22pt in March.

‪@LizAnnSonders: Per @NewYorkFed Services Index, 6-month capex expectations fell to -21.7…lowest since the pandemic

The existing system is focused on delivering stuff to satisfy consumer wants, and let jobs fall where they will, even if that is outside the U.S., rather than delivering jobs and supplying only the stuff that ends up being produced. Markets are trying to figure out the implications of upending this system. Here are four:

• More expensive stuff, and less choice of stuff. Increasing saving means reducing consumption. The tariffs amount to the largest tax increase in decades, which counts as government “saving”—as well as pushing up the price for almost everything imported.
• Higher interest rates. The capital inflows that offset the trade deficit help fund a big chunk of federal government borrowing. Slash the trade deficit and the net inflow of foreign money dries up. Bond yields will need to rise to attract domestic savers to buy Treasurys instead of stocks or corporate bonds, which will hit share prices and raise the cost of borrowing for companies.
• Lower stock prices. Only a small chunk of foreign investments goes into building factories. If there were more foreign direct investment, it could finance at least some of the reconstruction of manufacturing. But we’ve assumed Trump succeeds in shrinking the trade and current-account deficits, so there will be less foreign money coming in (remember: balance). So more foreign factory building means less foreign buying of stocks and bonds, so lower stock prices.
• A weaker dollar. In economic theory the dollar is the variable that moves when savings and investment don’t balance. If the U.S. saves too little to cover its investment, the dollar should weaken to make U.S. investments more attractive to foreigners... The dollar should also be weaker because the U.S. economy should be weaker. America spent a century at the forefront of technology, gradually abandoning low-wage, low-productivity industries in favor of increasingly complex production and high-value-added services such as chip design. Bringing back those low-productivity jobs is possible if tariffs are high enough, but will reduce America’s economic lead over the rest of the world. Does America really want to bring back sewing jobs from Bangladesh or Cambodia? It looks like it, with the “reciprocal” tariffs set for those nations at 37% and 49%, respectively. Lower productivity, though, should mean a weaker currency, all else equal.

“Policy uncertainty is having a negative impact on home builders, making it difficult for them to accurately price homes and make critical business decisions,” said NAHB Chief Economist Robert Dietz. “The April HMI data indicates that the tariff cost effect is already taking hold, with the majority of builders reporting cost increases on building materials due to tariffs.”

When asked about the impact of tariffs on their business, 60% of builders reported their suppliers have already increased or announced increases of material prices due to tariffs. On average, suppliers have increased their prices by 6.3% in response to announced, enacted, or expected tariffs. This means builders estimate a typical cost effect from recent tariff actions at $10,900 per home.

@knowledge_vital: Ecolab Inc. announced today a 5% trade surcharge on all of its solutions and services in the United States, effective May 1, 2025. This surcharge is intended to mitigate the impact of rising raw material costs due to recent changes in international trade policies.

A typical diamond is flown around the world many times before it ends up in a customer’s hand — between producer countries such as Botswana, trading hubs including Dubai and polishing centres in India.

The only part of the supply chain that is in the US is the certification process. The world’s largest certifying agency, the Gemological Institute of America, is based in California and employs 3,200 people.

The normal process of flying diamonds in and out of the US for certification is now under threat.

Pritesh Patel, chief operating officer at the GIA, said it was bolstering its services overseas across its eight international offices because of the tariffs.

“We are extending services, specifically in Dubai and Hong Kong, to accommodate some of the impact,” said Patel. “The tariff brings a lot of uncertainty to this entire supply chain end-to-end.”

He added that the GIA was studying whether diamonds brought into the US purely for certification could get an exemption from tariffs through a temporary import bond or a free-trade zone.

@TheTranscript_: Hermès plans US only price increase to fully offset new import tariffs. "The price increase that we’re going to implement will be just for the U.S. since it’s aimed at offsetting the tariffs that only apply to the American market, so there won’t be price increases in the other regions" - EVP Finance

Assuming a 50%/25%/25% retailer/supplier/consumer tariff burden split, our work suggests that incremental tariffs could drive a +1% price increase & -3% volume decline in ‘25e across our coverage, on average. As a result of incremental tariffs, we estimate ‘25e consensus estimates may need to be reduced materially across our coverage – specifically, 1) -2% lower sales, 2) -245 bps worse gross margin, & 3) -35% smaller EBIT/EPS, on average.

Chinese officials told domestic airlines not to place new orders for Boeing jets and are requiring carriers to seek approval before taking delivery of already-ordered aircraft, according to people familiar with the matter.

The tariff turmoil keeps getting worse for America’s largest exporter: Boeing’s vast and fragile supply chain is grappling with the end of its decadeslong duty-free status. Boeing faces retaliatory tariffs from other countries. And airlines are bracing for a drop in demand for air travel.

The developments add new pressure to the struggling jet maker, which burned through $14 billion last year and had aimed to be cash-flow positive by the end of this year. In the long run, the new tariff landscape could give a leg up to Boeing’s European rival, Airbus.

President Trump has said his tariff blitz is intended to boost U.S. manufacturing. But the trade war is hurting—not helping—one of the few major companies manufacturing high-tech products here, said Bank of America analyst Ron Epstein.

Even if China signs off on Boeing deliveries, airlines could opt for delays to avoid hefty duties. China is forecast to be Boeing’s largest market over the next two decades. Boeing would take a $1.2 billion hit if China halted all deliveries this year, according to an estimate by equity research firm Bernstein. The jet maker reported $67 billion in revenue last year.

Ryanair boss Michael O’Leary has warned that Europe’s largest low-cost airline could delay deliveries of Boeing aircraft if they become more expensive, setting up a battle between manufacturers and airlines over who will shoulder the costs from Donald Trump’s trade war.

“If tariffs are imposed on those aircraft, there’s every likelihood we may delay the delivery,” O’Leary told the Financial Times. Ryanair is due to receive another 25 aircraft from Boeing from August, but does not need the planes until “kind of March, April 2026”, he added. “We might delay them and hope that common sense will prevail.”

His comments highlight how Trump’s tariffs are already hitting the aerospace industry, putting billions of dollars’ worth of aircraft deliveries at risk and straining supply chains.

The tariff uncertainty is unusual in a sector that — apart from an 18-month period of levies imposed as part of the dispute over subsidies for Boeing and Airbus — has largely operated without trade barriers since 1979.

Colleges and universities are among America’s most competitive international exporters. In dollar terms, last year, the United States sold more educational services to the rest of the world than it sold in natural gas and coal combined.

We also run a huge trade surplus in this sector, meaning that foreigners buy much more education from the United States than Americans buy from other countries. In the 2022-2023 school year, more than three times as many international students were enrolled in the United States as there were American students studying abroad. Translated to cash: Our education-services trade surplus is larger than the trade surplus in the entire completed civilian aircraft sector...

Our ability to attract international academic talent is a huge boon for other, non-trade-related reasons, too.

The international students we enroll are more likely to pay full freight. This means their tuition dollars cross-subsidize financial aid for lower- or middle-income American students (such as, say, Vice President JD Vance, who attended Yale University.). International students have also served as a powerful weapon in building American soft power: Those who train here learn not only our rigorous scientific procedures but also American values. They bring those values — respect for civil liberties, due process, democracy — back to their home countries.

Overall, 12% of the companies in the S&P 500 have reported actual results for Q1 2025 to date. Of these companies, 71% have reported actual EPS above estimates, which is below the 5-year average of 77% and below the 10-year average of 75%. In aggregate, companies are reporting earnings that are 6.1% above estimates, which is below the 5-year average of 8.8% and below the 10-year average of 6.9%. Historical averages reflect actual results from all 500 companies, not the actual results from the percentage of companies that have reported through this point in time.

UnitedHealth Group Inc. cut its annual forecast and reported its first earnings miss in more than a decade, in a foreboding sign that weighed on other insurance stocks.

The company said it was blindsided by rising medical costs as the first quarter closed, upending a forecast it had affirmed just three months ago...

The company’s performance “was frankly unusual and unacceptable,” UnitedHealth Chief Executive Officer Andrew Witty said on a call with analysts.

UnitedHealth, the largest seller of Medicare Advantage health plans, saw patients seeking care at a far higher rate than expected, the company said in a statement Thursday. It also cited “unanticipated changes” in its Optum Health care delivery business that are affecting reimbursements.

@nickgerli1: Zillow is now forecasting home values to drop in every large US metro over the next year. US national forecast: -1.7%. Biggest drop forecast in San Francisco at -5.2%.

Becoming Katharine Graham tells the story of a painfully shy woman's accidental rise to power and how it changed history. After a family tragedy, Kay evolved from a "doormat wife" into a legendary newspaper publisher. Nixon's nemesis during Watergate, she fought for truth, broke barriers in a sexist world, and won a Pulitzer Prize, inspiring generations with her courage and resilience.