A lot of important data for April dropped last week. It’s less busy this week, but today we will see the ISM and Markit Services PMIs. The big event is the FOMC meeting this Wednesday, which could prove consequential for markets. One of our analysts made a video about the Fed’s thought process, which you can watch here. As outlined in the video, the Fed is unlikely to take any action just yet, but their commentary could prove to be market moving. We might hear talk of some unconventional policies from the Fed in the coming months (Operation Twist anyone?).

There is one other data point that we will be tracking this week on Tuesday - the Trade Balance. This isn’t typically a series we focus on, but given the current context it likely holds some valuable informational on the state of the economy.

The Macro Week In Review

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The Macro Week Ahead

💬 “We’re Not Talking, We’re Just Talking”

In Season 8 of Seinfeld, George Costanza meets with the rival baseball team, the New York Mets, to secure a deal. However, the Mets only meet with him under the guise of deniability and are just “talking”. As geopolitical rivals, neither President Trump nor President Xi Jinping want to be viewed as the party formally initiating trade talks to retain the upper hand in any bargaining or negotiation. Informally behind the scenes, the U.S. and Chinese seem to be on the verge of “talking” with news Friday that China’s Commerce Ministry is considering trade discussions with the U.S. “The U.S. has recently sent messages to China through relevant parties, hoping to start talks with China. China is currently evaluating this.” Treasury Secretary Bessent continues to take a hardline with China stating they need to deescalate first ahead of significant tariff-related job losses. At the same time, he stated “all aspects of the U.S. government are in contact with China.” 

📈 Yada, Yada, Yada - The S&P Is Unchanged During A Trade War

Liberation Day fallout brought carnage across U.S. financial markets with the S&P 500 down sharply, surprising weakness in the USD, and much higher 10-year treasury yields threatening the plumbing of the global monetary system. Many U.S. financial asset prices have stabilized over the last few weeks on hopes and whispers of progress on trade deals. Despite the world being on the precipice of major changes in trade routes and U.S. consumer sentiment near COVID lows, the S&P 500 is up +0.20% over the last 30 days with the Technology sector ETF (XLK) bouncing to +3.3%. It’s almost as if nothing happened.

However, the 10-year yield continues to be volatile, rising 50 bps in just a couple of trading sessions post-liberation day before setting in at 4.3% as of Friday. Also, the USD has not regained much of its post-Liberation Day losses, as foreign investors contemplate the attractiveness of dollar-denominated assets. 

🌐 The Bizarro World

While the S&P 500 rallied, leading indicators of the economy for April suggest the U.S. is entering a stage of stagflation. Last week, the Conference Board’s consumer expectations for April were shockingly low at 54.4. This was below the lows seen during the pandemic and in line with readings heading into the Global Financial Crisis. Year-ahead inflation expectations from the same survey have gone parabolic from 4.0% in December of 2024 to 6.0% in the last reading. As an example, on Friday we had news that GameStop announced significant price increases for all Xbox related equipment; with the highest end Series X console increasing 20% on May 1^st .

Most U.S. corporations sit on the verge of tariff-related margin compression, and S&P 500 earnings estimates for 2025 continue to decline. At the same time, employment-related data is mixed and shows some flashing signs of caution. Initial Claims are starting to trend upward, and April Payrolls were down sequentially. On the other hand, the unemployment rate held steady for the month at 4.2% and the JOLTs continue to suggest tight labor market conditions. While many business cycle and consumer-related data points are flashing recessionary warnings, it’s currently not as apparent in labor markets and hard data. 

❓ (Trade) War, What Is It Good For?

Wednesday will be the most consequential day of this week with the FOMC Rate Decision at 2:00 pm and the ensuing press conference, where we’ll eagerly await the Fed’s thought-process around monetary policy operations amidst a trade war. Financial markets are only assigning a 3% probability that the Fed cuts interest rates at this meeting. On the one hand, the Fed must consider the impact of tariffs on its inflation mandate. Will it count price increases as “transitory,” and look past 2025 inflation levels well above its 2% mandate? On the other hand, it must balance the trade related hit to the employment market in the near term. As we highlighted above, the Fed doesn’t really have enough dovish labor market data to cut rates at this moment. We’ll be tuned in to see if the Chairman adopts a more forward-looking view on the U.S. jobs market considering trade disruptions.

How large of an increase in unemployment would it take for the Fed to dismiss its inflation mandate and cut rates? With the two components of the Fed’s mandate at odds, and the global economy changing rapidly, uncertainty across financial markets remains elevated. It’s not completely clear how the Fed should steer the ship. In our upcoming research, we’ll resurrect Operation Twist as one potential option for monetary policy. Stay tuned and we’ll catch you all next week. 

Macro Job Board

Global Macro Cross Asset Investment Strategist @ StoneX Group (New York)

Seeking a highly motivated Cross-Asset Macro Strategist to join our fast-paced and dynamic team. This is a sell-side research role designed to support the Chief Market Strategist (CMS) in delivering cutting-edge research and actionable investment strategy across multiple asset classes.

Macro Credit Research Analyst @ KBRA (New York)

Expected to monitor, gather, and analyze macroeconomic and financial markets data. Will assist senior analysts in idea generation and the production of KBRA Strategist research reports, presentation slides, and decks.

Global Macro Research Analyst @ Goldman Sachs (Washington, DC)

This candidate will closely monitor political and policy developments 
and assist economists to publish timely and innovative research on macroeconomic, political, and policy developments and their economic impact. They will also work on economic research projects and publications.

What We Read This Weekend

🚢 U.S. Economy Shrinks In Q1 As Tariffs Unleash Flood Of Imports

✂️ Here's Why Jerome Powell Refuses To Cut Rates

👴 Warren Buffett Says He Plans To Step Down As Head Of Berkshire