Report tipping a milder Trump tariff regime on April 2 lifts US stock futures

The so-called Trump put option may not be completely dead after a report that US tariff announcements next week would be narrower in scope than the US President has threatened.

Will he raise tariffs or won’t he? The market is collectively holding its breath about Donald Trump’s next move. Picture: AFP

Just as it seemed as though Donald Trump no longer cared about the stock market, a report that his so-called “Liberation Day” tariff announcements on April 2 would be narrower in scope than previously threatened, sparked a positive reaction from US stock index futures.

It may have just been a flash in the pan, but S&P 500 futures rose about 0.7 per cent on Monday after Bloomberg said the upcoming wave of tariffs would be “more targeted”.

Trump will announce widespread reciprocal tariffs on nations or blocs but is set to exclude some, and – as of now – the administration is not planning separate, sector-specific tariffs to be unveiled at the same event as Trump had once teased, the report said.

There was some good news for Australia in particular; countries which don’t have tariffs against US imports, and with whom the US has a trade surplus, will not be tariffed under the plan, an official said.

But the local bourse tracked sideways after bouncing to a two-week high last week.

A rebound in stocks could indicate that markets have passed a point of peak uncertainty on US trade policy after recent falls of about 10 per cent in the US and Australia.

Stocks volatility does seem to have peaked. The VIX index has fallen back to its long-term average around 19.3 per cent after spiking to almost 30 per cent last week.

Based on the price action early this week, short-term “buy-on-fact” reaction to the tariff announcements a week from now is possible, and perhaps more so if US purchasing managers data on Monday or US core PCE inflation data on Friday spark a renewed sell-off.

As with the positive reaction to an essentially “neutral” outcome from Australia’s Federal Reserve meeting last week, Monday’s rise in US futures – while notoriously fickle in APAC trading – could indicate that the trading community is substantially “short” and prone to a short covering on US stocks.

After all, Bloomberg’s report was only positive in terms of its guidance on the scope of tariffs.

The report said Mr Trump was “looking for immediate impact with his tariffs, planning announced rates that would take effect right away”. That would suggest he wants to use the International Emergency Economic Powers Act for rapid implementation, giving little room for negotiation.

Exactly how much of that is brinkmanship remains to be seen.

So far Mr Trump has implemented only a fraction of the tariffs he had talked about.

He’s put a global 25 per cent tariff on steel and aluminium, and boosted China tariffs from 10 per cent to 30 per cent, but has not implemented the 50-60 per cent “day one” tariffs he threatened.

Mr Trump has suspended 25 per cent levies on most goods coming from Canada and Mexico.

He’s threatened, but not implemented, a 200 per cent tax on European wine and Champagne.

But with the impact of US policy shifts on the real economy and corporate earnings yet to play out, it’s hard to see US stocks hitting new record highs any time soon without a major pivot by the President.

According to JPMorgan head of global market strategy Dubravko Lakos-Bujas, the recent fall in “momentum” stocks – including US tech giants – was “one of the fastest unwinds in 40 years, erasing the past two years of gains in just three weeks.

“We have also observed a sharp reversal in our crowding metric from extremes,” he said.

“As a result, the risk of another violent unwind should be low in the short term.”

Crowding was predominantly in mega-cap tech stocks like the so-called “Magnificent 7”. An average fall of 17 per cent in these stocks has led to significant declines in major market-cap weighted indices.

Peak to trough, America’s S&P 500 experienced $5.8 trillion of market cap erosion, with 40 per cent of this directly due to the sharp sell-off in the 50 stocks with strongest price performance in the index.

A build-up of extreme crowding and narrowing leadership over the past two years was supported by expectations of high-for-longer rates, US exceptionalism and AI, and a pro-growth election outcome.

“All these market narratives have come under pressure with concerns of a growth slowdown, the DeepSeek reveal, and rising US policy uncertainty … ,” Mr Lakos-Bujas said.

“After forced liquidations including factor crashes, losses in long-short books, deleveraging of systematic strategies and leveraged ETFs and a rapid spike in scepticism across consumers, investors, and corporations, momentum is rotating from quality growth to low volatility/defensive stocks.

He cautioned that if there were to be a “structural regime change” from expectations of higher-for-longer interest rates to business cycle contraction, “the unwind in the momentum factor would have much further to go, especially with our crowding indicator still elevated”.

“Based on our estimate, if this were to turn into a structural momentum unwind, which is not our base case, we are only one-third complete,” Mr Lakos-Bujas said.

Meanwhile, Morgan Stanley said the “real slowdown has yet to show up in the hard data” and corporate earnings forecasts could be downgraded by analysts.

“We think there is more bad news to come for the US economy as substantial shifts in policy wend their way through the economy,” Morgan Stanley chief global economist Seth Carpenter said.

“Tariffs have come sooner and more broadly, with April 2 now front and centre.

“Fiscal policy is no longer the roughly neutral force in 2025 that we previously thought; the suspension of some outlays and spreading lay-offs mean fiscal policy is now contractionary.

“The past weeks have not brought any new information on the other two policies, but we still think immigration is an underappreciated drag on the economy, and markets substantially over-estimate both the likely speed of deregulation and its ability to push growth.

“While the market may have overreacted to some of the economic data – both soft and hard – the administration has also begun to argue that a recession may be coming.

“But we still have huge uncertainty as we look forward.”

Originally published as Report tipping a milder Trump tariff regime on April 2 lifts US stock futures