This week was holiday shortened but was packed with catalysts. Coming out of the long weekend there were positive developments on both of last week’s pain points and a jump in consumer confidence from the depths of the tariff turmoil which helped major US indices rally >2% recouping most of last week’s losses. In the most recent twist in the long and winding road of tariffs and trade negotiations, over the weekend President Trump walked back last Friday’s threat to increase EU tariffs to 50% after a productive call with EC President von der Leyen to allow more time for negotiations.
The other development helping to push equities higher on Tuesday was a rally in sovereign bonds. In Japan, the ministry of finance reportedly sent a questionnaire to primary brokers, ahead of a June 20th meeting, asking for their views on issuance which raised speculation that it would scale back supply of long duration paper. This sent local yields in the 20-40yr duration down 15-25bps reversing all of last week’s move higher which ultimately bled into Treasury markets. Last week we downplayed the importance of the US 20yr auction and before moving on wanted to highlight that the 2, 5 and 7 year auctions this week have been very strong with indirect bids coming in ahead of recent auctions suggesting there is strong foreign participation quieting some of the recent concern about overseas demand.
Since I’m talking about bonds we can’t move on with at least mentioning comments from JPM’s CEO Jamie Dimon, who earlier today said, “You are going to see a crack in the bond market. It is going to happen.” He did say he didn’t know when but said, “I’m hoping that we change both the trajectory of the debt and the ability of market makers to make markets,” referring to the hope that regulators will reform the Supplementary Leverage Ratio (SLR) for banks.
Trade and tariffs was the big story of the week. On Wednesday evening the Court of International Trade ruled that the tariffs instituted under the International Emergency Economic Powers Act (IEEPA) were illegal. The ruling covers the 10% baseline tariff, the reciprocal tariffs announced in the Rose Garden and the fentanyl-related tariffs put on China/Mexico/Canada. The sectoral tariffs on autos, steel and aluminum (and likely pharmaceuticals, lumber, chips if/when announced), which fall under Section 232, will remain in place. The court noted that, “we do not read IEEPA to delegate an unbounded tariff authority to the President.”
The Justice Department quickly filed with the U.S. Court of Appeals for the Federal Circuit, asking to put the Trade court’s ruling on hold and just as quickly the Supreme Court provided an emergency stay. In a separate case a Federal Court, blocked the US government from collecting tariffs from two toy importers, though the decision is on hold to allow the government to appeal. This covers only those companies involved in the case.
The NYSE MAC Desk is now actively tracking US tariff law experts on social media, who seem to be the same experts in infectious disease, industrial manufacturing and logistics, strangely. As trade negotiations seemed to be progressing investors had gotten comfortable with the direction policy was taking which increasingly seemed transactional in nature. For the administration this is at least a bump in the aforementioned long and winding road but probably doesn’t completely upend the agenda, though they will now have to pivot. It is unclear how long the appeals process will take but this will likely extend the period of time we’ll be in trade purgatory.
The administration can turn to other trade law (Section 122 of U.S. trade law, Section 301 and Section 338 of the Trade Act of 1930 are being cited for those who’d like to do some more reading). However, those tend to be more restrictive, can require an act of Congress or require a formal investigation which will take some time. For the time being officials continue to say that counterparties are still at the negotiating table.
China relations were back in focus again and continue to be the outlier. Throughout the week there were press reports that the administration would tighten restrictions on technology exports and student visas. For the second Friday in a row President Trump took to Truth Social ahead of the open saying "China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!" China’s Liu Pengyu, responded by saying, “China has repeatedly raised concerns with the US regarding its abuse of export control measures in the semiconductor sector and other related practices.” This afternoon during his press conference with Elon Musk President Trump’s tone wasn’t quite as harsh as his post saying he still hopes to speak with President Xi something that Treasury Secretary Bessent suggested would be necessary to break the gridlock in the “stalled” negotiations late yesterday.