⚡Let the Negotiations Begin

April 3, 2025

Morning everyone,

Markets were quiet and generally drifted higher yesterday. But none of that really matters as the White House released its sweeping tariff program after markets closed.

Since then, at the time of this writing soon after markets closed, equity futures dropped 3.5%, crude dropped 2.25%, copper dropped 2.3%.

Expectations for a rate cut in June have jumped to 70%.

So things are about to get ugly.

I’m sure most of you were already scrolling the news on this, but I’ll include some pieces I found particularly informative.

~Doug​

What's in this issue:

• Energy Market Recap

• Let the Negotiations Begin

• Headlines

Energy Markets

🛢️WTI rose .72% yesterday as markets continued to wait for details of the tariff regime from the White House.

As I noted above, at the time of this writing oil prices were already down 3% on tariff news.

Oh ya, the EIA reported inventories today - a build of 6.2 million barrels.

WTI Spreads

May/June: +0.48
Jun/Dec: +3.48
Dec5/Dec6: +2.55

🔥 Natural gas caught a bounce, ending higher by 2.63%. Natgasweather.com pegs weather-driven demand at moderate as some parts of the US are still feeling a lingering winter.

Additionally, as tariffs are rolled out, the new, international nature of natural gas markets will become more evident.

“For those nations looking to narrow their trade surplus with the U.S. or avoid being hit with future tariffs, commitments to scale up purchases of U.S. LNG are an effective means of speedily rebalancing the trade ledger in favour of the U.S.”

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Let the Negotiations Begin

The White House announced a broad array of tariffs after the market closed.

While the facts of them are simple enough (which I’ll highlight below), what has caught my eye is this interpretation on the theme.

Adam Hetts, global head of multi-asset at Janus Henderson, put it this way:

"Eye-watering tariffs on a country-by-country basis scream 'negotiation tactic,' which will keep markets on edge for the foreseeable future. Fortunately, this means there's substantial room for lower tariffs from here, albeit with a 10% baseline in place."

Treasury Secretary Bessent confirmed this thought, stating:

“This is the number barring retaliation. This is the ceiling, and then we can see if there’s a different floor.”

What’s NOT Included

Oil imports are exempt, not just from Canada and Mexico but from any country.

Speaking of Canada and Mexico, there were no further tariffs on those countries, although the disruptive auto tariffs are still in place.

Items already exempted under the USMCA trade deal, formerly NAFTA, will not have any additional tariffs.

"This means USMCA (U.S.-Mexico-Canada Agreement) compliant goods will continue to see a 0% tariff, non-USMCA compliant goods will see a 25% tariff, and non-USMCA compliant energy and potash will see a 10% tariff. In the event the existing fentanyl/migration ... orders are terminated, USMCA compliant goods would continue to receive preferential treatment, while non-USMCA compliant goods would be subject to a 12% reciprocal tariff."

Exemptions are included for copper, pharmaceuticals, semiconductors, lumber.

Also missing from the list, any tariffs on Russia. Granted, trade between the US and Russia has already fallen from $35 billion to $3.5 billion as a result of sanctions due to Russia’s invasion of Ukraine.

What’ Included

A 10% across the board tariff on all imports. Auto tariffs are in effect as of last night.

Country by country reciprocal tariffs. Asian countries are particularly hard hit, including those like Vietnam that were popular markets for developing non-China manufacturing.

The twittershpere is taking these calculations to task as the WH has confirmed its methodology which is actually based on the trade deficit, not actual tariffs.

Headlines

“The leader, who enjoys approval ratings over 80%, has won plaudits for her handling of Trump and has steered clear of the war-of-words approach taken by Canadian leaders.”
+Mexico will not go tit-for-tat on tariffs with US, Sheinbaum says - Reuters

“After 154 years of digging at Morenci, all the easily recoverable copper has been mined. Left behind are towering piles of waste rock that hold nearly 10 million tons of the metal seen as critical to global electrification.”
+An American Mine Still Has Millions of Tons of Copper, If Companies Can Get to It - Bloomberg

“A sharper and sustained fall in the oil price would require a deeper retrenchment in government spending to contain the size of the shortfall and the building in government debt,”"
+Weak oil price adds to strain on Saudi mega-projects - FT

Economic Calendar

Monday -
Tuesday - PMI, ISM
Wednesday - ADP Employment, Factory Orders, Crude Oil Storage Report,
Thursday - Initial Jobless Claims, Natural Gas Storage Report
Friday - US Employment