Morning from Copenhagen.

The 50% steel and aluminum tariffs take effect today, signaling that Trump will likely shift toward other—and more easily scored—political victories now that his country-based tariff toolbox has been constrained. We continue to expect additional sector-specific tariffs in the coming weeks—on copper, uranium, and the like—which are already starting to break higher.

While broad-based country tariffs are effectively paused, Trump continues to play chicken with China, announcing a call with Xi this week only to follow it up by claiming Xi is “extremely hard to make a deal with.” Markets aren’t reacting to these headlines anymore; instead, they’ve pivoted back to the state of the business cycle, where a number of components are now turning reflationary:

1. Trade flows are improving following months of bottlenecks. 
2. Employment data looks resilient despite structural headwinds (e.g., immigration and a shrinking workforce). 

This is all happening while fund managers remain net short or underweight risk assets. Historically, this type of late-cycle-to-early-cycle transition tends to offer solid forward-looking returns for risk assets and importantly cyclical inputs like copper, oil, and other industrial commodities.

Broad U.S. credit spreads have also dipped back below the bullish 100bps threshold—a range in which equities typically don’t underperform—reinforcing the case for continued upside in risk assets.

Chart 1a: Credit spreads are back in the bullish equity range