Author: Pretend to be in Huajie

The recent market concerns about tariff risks on April 2 may be at a critical turning point. If the negative impact of the final tariff measures does not exceed expectations, it is expected that after a brief decline, funds sold out in the early stage due to concerns may re-enter the market, coupled with the positive liquidity outlook for the US dollar, may drive the US stock market and Bitcoin to rebound.

However, although US dollar liquidity may provide some support, it is necessary to look at the actual situation of tariff measures on April 2. The main risks are that tariff measures may exceed expectations, as well as insufficient market hedging, the positive role of US dollar liquidity may be weakened, and the continued sluggish confidence of consumers and investors. In addition, whether corporate profits in the first quarter can exceed expectations that have been continuously reduced is also a key determinant.

1. Tariff pattern on April 2

Expected reciprocal tariffs:

The market generally expects that Trump will announce the implementation of reciprocal tariffs on April 2, 2025, and the target may point to a long-term trade deficit with the United States. Key points affected include Australia, Brazil, Canada, the European Union, India, Japan, Mexico, South Korea, Russia and Vietnam. These tariffs may cover all imported goods, but Trump also said a small number of industries will receive exemptions.

Reasons for imposing these tariffs may include correcting unfair market access, reducing trade deficits, and protecting U.S. manufacturing employment. These potential new tariffs are based on tariffs that have been imposed on Canada and Mexico.

Broad goals and potential commodity ranges indicate that trade tensions may escalate significantly, so that there are "negative effects" or so, but a matter of degree. In addition, the most uncertain thing is that Trump's strategy is clearly used to support tax cuts, which is different from the traditional trade goal, that is, the US fiscal will rely on tariffs to increase revenue for a long time, not just as a bargaining chip to improve US export competitiveness, which increases the possibility of a long-term downward trend in the market.

Industry-specific tariffs and investigations:

In addition to broad reciprocity tariffs, the United States may also target specific and industry under Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962Start an investigation.

It has announced a 25% tariff on imported cars today, which is expected to take effect on April 2 or 3. This tariff may not only affect vehicle imports, but also auto parts. Considering the high integration of North American automobile supply chain, its impact will be very wide.

In addition, investigations on copper and wood/timber imports are also underway, and tariffs may be imposed on industries such as agricultural products, semiconductors and pharmaceuticals in the future.

The early announcement of automotive tariffs and the launch of other industry-specific surveys suggest that the April 2 announcement may not be limited to broad reciprocal tariffs, but may also include targeted measures for key industries that will have a significant impact on related industries.

Especially, automobile tariffs have caused market concerns, and GM, Ford, BMW, Volkswagen, Nissan and Toyota have fallen sharply. Tariffs on imports of Venezuelan oil: Trump's executive order stipulates that from April 2, 2025, a 25% tariff may be imposed on all goods imported from purchasing Venezuelan oil. Potential impacts include the Dominican Republic, the EU, India, Malaysia, Russia, Singapore and Vietnam.

This secondary tariff adds a layer of complexity and potentially negative surprises because it targets specific based on geographic factors rather than pure trade imbalances.

The widespread use of these "all commodities" may lead to an increasing number of retaliatory measures.

The possibility of "exceeding expectations" negative impact cannot be ignored:

According to my observations from the interest rate derivatives market, since there may be some exemptions or agreements have been reached in advance, most people currently believe that the actual tariff measures may not be as severe as they were initially worried. That is, the significant economic chaos, slowdown in growth and intensified inflation that tariffs may cause are not in-depth.

The Federal Reserve has lowered its U.S. economic growth expectations, partly because of the possible impact of tariffs. Although officials may suggest a looser strategy, considering the announced and threatened tariffsThe wide range and historical precedents of Trump's first period, the risk of negative impacts exceeding expectations on April 2 remains high. The initial response of the market after the auto tariff was announced on March 26 also demonstrates the market's sensitivity to such news.

The current cryptocurrency market is underpriced on this, and there is no pricing at all. You can see that the option volatility on April 4 is almost no premium:

The US stocks have some pricing, but they are not high, about 5 percentage points higher than the normal level:

The US stock market has some pricing, but it is not high, about 5 percentage points higher than the normal level:

VIX index is only about 18, indicating that market concerns have risen, but are far below the crisis threshold. In fact, it has been falling since it hits a high of 29 2 weeks ago, which is much calmer than the stock index performance:

2. The good news is that the US dollar liquidity is expected to continue to rebound

1.6 trillion

JPM uses the sum of AUMs of American Commercial Bank deposits and U.S. Money Market Funds (MMFs) to measure the total liquidity, and has increased year-to-date $320 billion, this data can achieve an annual liquidity expansion of $1.6 trillion. Considering the subsequent acceleration and slowing of QT trend of bank loans, this forecast should be reasonable. This is equivalent to a 6.4% liquidity expansion, which is much higher than the potential US nominal GDP growth of 3.5%.

The current outlook for US dollar liquidity is optimistic

The Federal Reserve's early slowdown in quantitative tightening (QT) and signs of acceleration in bank lending in the United States support the strong currency creation observed year-to-date and is expected to drive this rate to continue over the year. QT's pace has slowed from $60 billion a month to $25 billion, which could mean an additional $35 billion a month, with an annual effect of about $420 billion. The increase in loans creates more deposits, and amplifying the money supply through the currency multiplier effect, at the current level, may at least bring an additional increase of hundreds of billions of dollars.

Potential impact on risky assets:

The following figure is US dollar liquidity in the middle, with S&P 500 and BTC above and below, which shows that BTC is more sensitive to changes in US dollar liquidity. The stock market is more dependent on cycles of corporate earnings changes, and the correlation is weaker, but the improvement of liquidity will not be a bad thing anyway.

The opposite of US dollar liquidity: It may be the more hawkish Fed stance (reducing interest rate cuts or potential interest rate hikes) may further strengthen the US dollar, which may aggravate the negative impact of tariffs on corporate earnings and reduce the attractiveness of risky assets. Tariffs, inflation, Fed The interaction with dollar liquidity forms a network of mutual restraints. If tariffs lead to higher inflation, prompting the Fed to take a more hawkish stance, the resulting stronger dollar may not provide a positive liquidity stimulus to risk assets as optimistically expected.

3. Tariff Announcement and Market Reaction

Historical Experience

Historical Experience

Historical Experience

Tariff Announcement" may initially disrupt the market, leading to increased volatility and potential declines.

We count the impact of similar events formally announced around the tariff war on traditional stock markets and cryptocurrency markets. It is divided into changes in the day before and after the official announcement, as well as changes in the next week. It can be seen that they will basically have negative impacts. Bitcoin's reaction to the announcements related to the tariff war is even more intense. However, due to the early pricing of the tariff war, the short-term impact is small and it can basically rise in a few days. Cryptocurrencies have experienced a brief decline in history, the decline will further expand.

However, the longer-term impact is less clear, often depending on the specific details of the tariffs, the reactions of trading partners, and the overall economic environment. Market adaptability and the possibility of reaching a trade solution also play an important role. For example, during the 2018-2019 US-China trade war, the initial tariff announcements resulted in market volatility and sell-offs, but markets tend to rebound as investors gradually adapt or trade negotiations resume. The S&P 500 fell in 2018 but rose sharply in 2019.

Reactions today

The market's response to the 25% auto tariff announced on March 26, 2025 was negative. The three major stock index futures all fell, and corporate stocks fell even more, which shows that although there are already expectations, investors are still sensitive to trade development. Pay attention to the recovery of some of the declines today and tomorrow, which can be used as a preview of the 4.2 comprehensive tariffs. If the auto industry stocks stabilize quickly, there is no need to be too pessimistic about the 4.2 market.

Bitcoin has limited response: Bitcoin, as a risk asset, has a price trend that is often closely related to the overall risk appetite of the market. Recent tariff-related news and broader market sentiment fluctuations have had an impact on Bitcoin’s price. In line with tariff threats and announcements, Bitcoin’s price fell, but soon Bitcoin rebounded back to the 87,000 level before the new market, indicating that Bitcoin has been resilience recently. However, it is also likely to be related to the recent thin trading volume, which yesterday’s trading volume was only 60% of YTD under the stimulus of news, indicating that big players are temporarily waiting and watching and not participating in market pricing.

In addition, the CME premium has continued to decline in the rebound in recent days, indicating that Wall Street funds seem to be leaving the market:

4. The key role of Q1 2025 financial report season

April usually marks the beginning of the financial report season, when listed companies will announce their first quarter financial results. In the current macroeconomic context full of uncertainty, whether companies can surpass the profit expectations that have been continuously reduced will become another key factor in determining the direction of the market.

Reduced earnings expectations: Analysts generally expect earnings from the S&P 500 to achieve year-on-year growth in the first quarter of 2025, but it is worth noting that earnings expectations have been lowered several times since the beginning of the year. This downgrade reflects concerns about slowing economic growth, inflationary pressures, and the possible negative impact of tariffs.

The importance of surpassing expectations: If companies can publish earnings and incomes beyond these reduced expectations, it may inject confidence into the market, alleviate concerns about the economic outlook, and may offset some of the negative sentiment caused by tariffs. On the contrary, if a large number of companies fail to meet expectations, or give pessimistic future guidance, it may intensify market concerns and lead to further sell-offs.

Industry and factors to focus on: Investors will pay close attention to the performance of various industries. For example, the profitability of the technology industry, especially in the field of artificial intelligence, will be paid attention. At the same time, the optional consumer industry may be tested by changes in consumer spending and the impact of tariffs. In addition, comments from corporate management on tariff impacts, supply chain adjustments, and future demand prospects will also be crucial.

Financial Industry: Financial stocks are particularly worthy of attention as one of the best-performing sectors in the US stock market in Q4, as they fell back to the pre-winning price of Trump’s election a week ago. But Goldman Sachs PB data shows that hedge funds have accelerated their purchase of U.S. economically sensitive sector stocks, which last week were the fastest since December last year to buy banks, energy producers and other sector stocks closely related to the economic cycle. So, while tariffs may bring some uncertainty, a stable and even slightly growing economy and ongoing capital market activity may support the sector.

5. Summary

Simply put, focus on the two lines of 5% and 10%:

Because of the reciprocal tariff measures on April 2, institutional surveys generally estimate 9-10%.

But the implicit tax rate for market pricing is lower, the implicit tax rate for inflation derivatives is about half of the institutional forecast, and the foreign exchange market has almost uncounted tariff risks, indicating that investors may underestimate the impact.

To achieve the idea of ​​Trump breaking the fiscal gap in tax reduction through tariffs, the tax rate must reach 4%-7.5%, with an annual income of about US$380 billion.

The US side does not want to "incite revenge" and may set a maximum tax rate to test the bottom line of each country - that is, below 10%.

If the final tax rate is less than 10% (especially close to 5%), it may trigger a rebound in risky assets; conversely, tax increases of more than 10% may impact the global trade chain. The key variables are negotiations with the EU, auto tariff exemptions, agriculture and retaliation from other countries.

In addition, the upcoming first quarter financial report quarter and its results will provide important information for evaluating corporate profitability and overall economic health, thereby further affecting market sentiment and direction.