Weekly Investment View: How Has Trumponomics Hit the Labour Market?

This Week

• US Macro – Dominique previews payrolls, arguing the print will reveal the initial impact of Trumponomics on the labour market.
• US Rates – Antonio has taken profit on his long SOFR Dec25 at 96.37, having entered at 95.91. He will re-enter if the market becomes too optimistic on growth prospects again.
• EM Macro – Caroline sees risks that South Africa’s revised budget will underwhelm given the required compromises.
• China – Liang stays bearish on the broad equity index CSI 300 to express our cautious view on sentiment and corporate earnings.
• EZ and UK Macro – Henry expects the ECB to cut 25bp to 2.5% this week but does not believe the data justifies cutting to 2% this year.
• G10 FX – Ben reiterates his SEK basket short.
• Canada – Viresh thinks the enforcement of US tariffs on Canada means the BoC will cut to 2.5% by June and the low end of neutral by December.
• Commodities – Viresh has taken profit on long CLJ5CLK5.

Link to Appendix: List of Active Trades

Dominique Dwor-Frecaut – US Macro

Friday’s NFP will offer us an initial assessment of the impact of Trumponomics on the labour market. Below-consensus NFP of 160k with unchanged-to-lower unemployment (4% in January) and above-consensus (30bp) wage growth would signal tighter labour supply most likely caused by the administration’s immigration policies. Below-consensus NFP and wages with above-consensus unemployment would signal weaker labour demand, most likely due to uncertainty around the administration’s policies. The Fed is more likely to respond to the latter than the former.

Antonio Del Favero – US Rates

We have closed our long SOFR Dec25 at 96.37. Entry was 95.91. We captured almost the whole rally in SOFR Dec25. Our economic view remains the same. We still expect the economy to slow down below potential at around 1.5% annualised. Markets expectations were very elevated, now less so. We will re-enter the trade if the market returns too optimistic on growth prospects.

We think Trump’s policies will be negative for growth in the next 3-6 months. Today’s slowdown is due to a combination of recent tightening of financial conditions (FCs) and the incoming effect of announced Trump’s policies.

In the short term we might have reached peak negativity, especially if the jobs report comes in line with consensus expectations, so we take profit, but the theme is likely not over. Given current levels of inflation, pricing of three cuts by end of 2025 means the market has overreacted.

Caroline Grady – Emerging Markets

A difficult budget revision ahead. South Africa’s 12 March budget comes three weeks after the planned budget presentation was scrapped just a few hours ahead of the finance minister’s speech. Coalition disagreement over a 2pp VAT hike was the culprit, leaving increased scrutiny over how South Africa balances ongoing spending needs against insufficient revenue generation.

Temporary revenue sources such as a higher fuel levy are possible, as are higher taxes on alcohol and tobacco. But with significant infrastructure spend needed, alongside a bloated interest bill and greater resources needed for education and healthcare South Africa faces a difficult balancing act.

Commitment to debt stabilization and reduction, alongside preserving the primary surplus are minimum requirements in the budget. But without measures to improve growth and revenue raising potential, any perceived temporary revenue sources could mean a poorly received budget.

Liang Ding – China

Markets are focused on the upcoming National People’s Congress and an escalating US-China Trade War. Most estimates of the elasticity of Chinese export growth to the US tariff are around 0.8-1.2. Assuming an elasticity of 1, a 20-percentage point increase since February could reduce export growth to the US by around 20pp, or total export growth by 3pp. The negative impact is comparable to the fall in exports to the US during the GFC, the early months of COVID-19, and the fading of pent-up demand in Q4 2023 (Chart 1). The negative impact on GDP will be around 0.5%.

So far, speeches by semi-officials have indicated no direct measures to offset the expected decline in external demand of around USD 100 bn (or more after possible further tariff hikes in April). The market consensus for this year’s additional fiscal support (RMB 1.5-2 tn including RMB 500 bn spending on land and housing inventory purchase), has not changed much since the end of last year. Our focus on this week’s NPC is whether the government’s support of the housing market and the commitment to reverse the deflationary pressure will positively surprise the market. We stay bearish on the broad equity index CSI 300 to express our cautious view on sentiment and corporate earnings.

Henry Occleston – Eurozone & UK Macro

I expect the ECB will cut by 25bp to 2.5%, in line with consensus. Forecasts will be updated, but with tariff and fiscal policy uncertainty they should hold little weight.

I think the path for inflation to return to target is less clear now than it was in January, and the hawks will be less convinced that 2.5% deposit rate is restrictive. However, I expect the ECB to hold the line for now and make no changes to the statement on these points just yet.

I expect hawkish pushback will grow ahead with the Deposit Rate at the upper end of neutral, fiscal expansion talk growing and Q1 inflation overshooting. I do not think the data justifies cutting to 2% this year.

I am short ERZ5 (50% weight) in our Model Portfolio at 98.05, targeting 97.8, with a stop at 98.25. I would add to this position on a pullback to 98.15: a risk, given potential negative tariff headlines. I remain paid 10Y EUR swaps, targeting a rise to 3.0%, although so far rates have been resilient to the growing risk of big deficit spend.

Ben Ford – G10 FX

The Swedish krona is at multi-year highs – EUR/SEK is flirting with 11, NOK/SEK is sub-0.95(!), while CHF/SEK is returning to 2024 lows – having recorded a 4.4% appreciation over the past month.

The European stock rally is to blame, with defence stocks leading the charge. Sweden is the world’s seventh-largest arms exporter and has a larger economic concentration than France, commonly seen as Europe’s biggest military producer. However, the appreciation has reached tail extremes. Moreover, previous similar-sized increases have often been followed by a month of consolidation (Chart 6).

We believe strength is unlikely to last. We are short SEK vs EUR, CHF and NOK, targeting a 4% return and risking 1.6%.

Viresh Kanabar – Canada

Following the enforcement of tariffs on Canada (and Mexico), here is what you need to know:

1. BoC policy rate at 2.5% by June. The combination of tariffs (or even just prolonged uncertainty) along with a downwardly revised neutral rate could see a 2.5% base rate by June.
2. BoC to cut to low-end of neutral by December. Given Macklem’s framing of how tariffs will impact the Canadian economy, we believe there is room for the BoC to help the economy adjust to the shock. Whether they go to below neutral or not will depend on the FX change and how Canada’s retaliatory measures feed into domestic prices. This could mean a 2% rate by December.
3. Tariffs will have an outsized impact on the Canadian economy. Exports to the United States account for roughly 25% of national income, meaning the shock would be felt across Canada. The BoC expects that, Canadian growth could be 2.5% lower than otherwise in 2025 – this makes a recession the base case. The impact on inflation will depend on how quickly and how much higher prices are passed on. The impact on 2025 CPI could be anywhere from 0%, to 0.8% ppts higher. This will impact monetary policy.

Viresh Kanabar – Commodities

Yesterday, OPEC+ announced they will proceed with the unwind of their additional voluntary production cuts from April.

This unexpected shift by OPEC is strange given current prices are near $70 and market structure is close to the sweet spot for both buyers and sellers.

The unwind will mean production will now slowly increase over an 18-month period. The initial impact over Q2 is +150k b/d of production added each month. But the actual barrels added may be smaller than this if compensation cuts are carried out as promised. Countries such as Iraq could choose not to increase production right away to compensate for past overproduction.

For now, this cuts the right tail from oil prices given geopolitical risks are seen to be lower currently. One reason for this shift could be upcoming sanctions by the US on Iran. Another could lead to much lower Saudi OSPs to the US to compensate for tariffs on Canada.

We are happy to have taken profit on long CLJ5CLK5 yesterday.

If sanctions on Iran do not work, the risk of lower prices rises sharply which could force OPEC+ to halt or reverse this decision.

Appendix: Current Trades

Table 1: Current Trades
*Total returns using daily close price. Positions are sized such that impact of any one trade on portfolio is no larger than 50 bps.
Asset Class	Date entered	Trade	Rationale	Entry	Stop Loss	Target	Current Price	P&L*
FX	21-Feb-25	Long GBP/JPY	Click here	189.740	186.000	200.000	188.794	-0.5%
	21-Feb-25	Short SEK vs. EUR, CHF, NOK	Click here	100.000	98.400	104.000	99.248	-0.75%
	12-Feb-25	Long BRL/MXN	Click here	3.560	3.400	3.900	3.544	-0.2%
	17-Jan-25	Long USD/CNH 4m 7.5×7.6 call spread	Click here	25 bps	0.0000	120 bps
	10-Jan-25	Short INR/KRW	Click here	17.000	17.200	16.000	16.724	0.9%
	25-Oct-24	Short AUD/NZD	Click here	1.109	1.130	1.060	1.105	0.3%
Rates	03-Mar-25	Short ERZ5 (50%)	Click here	98.050	98.250	97.800	98.090	-2bp
	07-Jan-25	Pay 10y EUR Swap	Click here	2.430%	2.050%	3.000%	2.395%	-4 bps
	10-Dec-24	10y OAT/Bund Widener (50% position)	Click here	0.700%	0.500%	1.000%	0.646%	-3 bp
	13-Nov-24	2s10s Gilt Steepener	Click here	0.000%	-0.300%	0.600%	0.346%	35bp
	13-Nov-24	Long SONIA Z5	Click here	95.900	95.700	96.400	96.150	25 bps
Equity	03-Feb-25	Short Mar 25 FTSE A50	Click here	12900.00	13545.00	11610.00	13006.00	-0.8%
Source: Macro Hive

(The commentary contained in the above article does not constitute an offer, a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)