Fin-X Pulse 10th April 2025

President Trump's pause on reciprocal tariffs prompted an enormous relief rally in the market. However, the fundamental outlook is still materially worse than at the start of the year and the rebound seems unlikely to be sustained.

• Last night, President Trump announced a 90-day pause on some of the reciprocal tariffs that were announced on 2nd April. But a baseline 10% tariff will remain on all imports.

• This implies that the position has not changed for goods imported directly from Australia. However, the position of trading partners has improved, excluding China.

• Tariffs on Chinese imports were raised from 104% to 125%, effective immediately, in response to Chinese retaliation which saw a tariff of 84% applied to American goods exported to China.

• As of today, the following tariffs announced in 2025 remain in place on American imports:

  • Baseline 10% Tariffs: A universal 10% tariff continues to apply to all imported goods. This baseline tariff was implemented on April 5th and remains active during the suspension period.

  • Canada and Mexico: Goods imported from Canada and Mexico are exempt from the universal 10% tariff but still face a 25% tariff. This exemption does not extend to specific sectoral tariffs.

  • Steel, Aluminium, and Automobile Tariffs: Tariffs of 25% on steel and aluminium remain in effect, as do tariffs on automobiles and auto parts. These tariffs were not included in the pause and will continue unchanged.

  • Exemptions for Specific Sectors: Tariffs on lumber, semiconductors, essential minerals, oil, gas, and other energy products remain exempt from broader tariff policies but may be subject to future investigations for potential levies.

• The president attributed the pause to ongoing negotiations with 75 countries. However, a disappointing auction of $58 billion in 3yr Treasuries on Tuesday may have had an impact. Last night a $39 billion was well-bid in comparison, with the 10yr yield falling to 4.38%, down from 4.47% just before the 1pm auction which took place a few minutes before the tariff announcement. Tonight, the US Treasury will auction $22 billion in 30yr bonds.

• S&P500 5,456 +9.5%, Nasdaq Comp. 17,125 +12.2%, S&P/ASX200 7,787 +5.6%,

• US 2yr 3.89% +16bps, US 10yr 4.34% +2bps

• US dollar (DXY) index 102.9 -0.1%, AUDUSD 0.6140 +3.0%, Gold US$/oz 3,092 +3.0%

Fin-X Wealth View

• Despite the sharp rebound in the market sentiment, the trade and inflation situation remains materially worse than at the start of the year.

• In particular, tariffs on Chinese imports have the most significant flow on effects into inflation. Even after a fall in the oil price and likely lower shelter contributions, inflation is still likely to rise. Moreover, a resumption of reciprocal tariffs in 90 days’ time adds to the inflation risks.

• The latest pause also creates a problem for the Federal Reserve. The FOMC could have looked through a one-off price shock and continued to ease monetary policy. However, the backwards and forwards tariff announcements and higher inflation volatility extends the period of increases over several months. This leads to a much greater risk that inflation expectations move durably higher and limits the Fed’s ability to respond. Interest rate cuts have become less likely, although the market is still pricing -0.75% of cuts this year to 3.50%-3.75%.

• Consequently, and after factoring in some degree of fiscal tightening, US economic growth is likely to be substantially lower this year. Recession risks remain elevated, although it might take several months to show up in earnings as inventories are run down. However, we expect new orders and employment surveys to provide a reasonable signal of where the economy is heading.

• After last night's bounce, the S&P 500 Index is still trading on 20.3x forward earnings that are assumed to grow by +9.4% over the next twelve months, according to Bloomberg. It seems highly likely the earnings forecasts will be cut and that the market will derate, meaning that share prices would continue to move lower.

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