Morning from Copenhagen. 

There is a slightly improved mood in markets again, as Trump stated that the US would be “kind” on tariffs on Liberation Day.

However, there is nothing kind about the Liberation Day prospects if VAT is included—as we’ve been told it will be. VAT inclusion would be far more significant than anything that has been tariffed so far.

If they walk back on including VAT, we could see a meaningful relief rally. But so far, it has generally paid off to take the administration at face value, so we continue to expect VAT to be included, pushing tariffs to 15–20% more or less globally.

On the macro side, bond yields are falling in USD markets, while the ECB shook up EUR markets by hinting—via strategic leaks—that April is a close call for a rate cut. That runs against the market’s clear base-case of a cut, and has led to some repricing across European assets.

All in all, bond yields appear to be falling on, while commodities are rising—keeping markets anchored in a stagflation narrative, but the Liberation Day holds the potential to alter a lot of recent trends, including in Copper, Gold, Equties and FX markets.

This week is shaping up to be one of the most important of 2025—if not the most important so far—as we rapidly approach Liberation Day and the long-awaited reciprocal tariffs. It’s been nothing short of a rollercoaster ride.

You might recall our phrase, “bringing chopsticks to a gunfight,” from back when we digested China’s stimulus package last fall. This time, however, Trump may have brought a full-blown Uzi to a fistfight—threatening just about every ally on the planet with tariffs. While many of these threats have been walked back hours later, Trump’s weekend remarks confirm that exemptions will be few and far between, as he explicitly stated that all countries would be affected by reciprocal tariffs. To top it off, he now appears to be clashing with Putin, and is even considering secondary tariffs on Russian oil.

Trump continues to deliver growth-negative headlines—exactly what we’ve been calling for via our U.S. nowcast, which has been trending south for some time. This week brings the ultimate test with ISM Manufacturing, ISM Services, and multiple employment indicators ahead of Friday’s March NFP report. The big question: Is the U.S. economy actually weakening, or was the recent slump just a soft data growth shock?

Our base case is that hard data will start to disappoint as well, following a string of abysmal forward-looking surveys. It makes sense to lean long U.S. fixed income and short the USD again this week, particularly as real-rate spreads continue to point lower for the dollar. We’ve just hit fresh lows in our USDJPY fair value model, making a re-entry into this trade look increasingly compelling.

We’re not ready to re-enter broad equities just yet—but Liberation Day could be the turning point in the U.S. vs. RoW equity narrative. If tariffs are rolled out at full size, European and Chinese equities will likely feel the brunt of the damage more than their U.S. counterparts.

Chart 1a: Macro Surprises Will Turn Deeply Negative Again