Bloomberg Surveillance: Tariffs, Energy Prices, and Interest Rates (March 26, 2025)

Small Business Outlook on Tariffs

• 💡 Chris Maher of OceanFirst Financial notes that while direct impacts of tariffs aren't concerning for his clients, the volatility and uncertainty are evident.
• 🧠 Small businesses, having navigated COVID-19, possess a strong understanding of supply chains and are nimble in adjusting sourcing.
• ⚠️ Despite client resilience, a cautious sentiment exists, with some businesses holding back on investment and hiring plans due to uncertainty.
• 📈 While some materials like lumber and steel have seen price increases, the impact varies by specific material and sourcing location.

Global Energy Market Dynamics

• ⚡ Amrita Sen of Energy Aspects believes a true ceasefire between Russia and Ukraine is unlikely soon, with significant noise and minimal shifts expected.
• 🚫 Sanctions have not significantly reduced Russian oil exports, with India and China continuing to purchase; OPEC+ policy is the primary factor affecting supply.
• 🚢 If US sanctions on Russia were lifted without European alignment, it could be bullish for oil as European sanctions would prevent Russian oil flow through Western shipping.
• ⛽ Talk of Nord Stream coming back online is seen as more relevant for European gas than oil, potentially creating a wedge between Europe and the US.
• 📉 Europe has lost significant industrial demand for gas due to high prices, and even with a ceasefire, volumes are unlikely to return to pre-war levels.

Policy Clarity and Tariff Impacts

• 📊 Jeannette Lowe of Strategas Securities highlights that announced tariffs could have a $235 billion impact over 12 months, or 0.7% of GDP.
• 🗣️ There are signs the administration may be walking back some of its aggressive tariff stances due to the surprising economic impact.
• 🚗 Negotiations are ongoing regarding potential sectoral tariffs, such as on autos, and the inclusion of VAT in tariff calculations could significantly increase the impact on the EU.
• 🇨🇦 Discussions around Canada and Mexico involve reciprocal tariffs and potential changes to existing US compliance rules, creating market uncertainty.
• 💰 Copper tariffs are being considered, with a focus on reducing exemptions and potentially using them as a negotiating tool.

Market Sentiment and Bond Outlook

• 📉 While hard economic data remains relatively strong, soft survey-based data indicates souring sentiment, with a typical lag of 3-4 months for this to affect hard data.
• 📊 The Federal Reserve has lowered its growth forecast and increased its inflation outlook, pointing to a stagnating economic environment.
• 📈 Bonds are expected to perform well during equity market corrections, maintaining a negative correlation.
• 🇺🇸 A bullish outlook for US Treasury yields is predicted, with the 10-year potentially reaching 3.75% by year-end, driven by the Fed keeping policy on hold and flatter yield curves.
• 🇪🇺 In contrast, European bond yields are expected to rise due to increased deficit spending from Germany and other European countries.
• ⚖️ A significant narrowing of the spread between US Treasury and German Bund yields is anticipated, with Germany doing more of the work to adjust borrowing costs.