Real yield watch/For Powell, May '26 can't come soon enough/US$ action/Other good stuff

I'm sure you'll be seeing these stats all day but will mention it here just in case. In 2024, the US imported about $413b worth of goods from Canada, $505b from Mexico and $440b from China, including iphones. From what I've seen so far, in terms of retaliation against the US, it looks like the American farmer has been specifically targeted again with tariffs on US soybeans, sorghum, pork, beef, chicken, wheat, corn and cotton too by China. The US farmer by the way also imports about 85% of their potash needs from Canada which just got 25% more expensive. They were targeted too in the Trump 1.0 tariffs in 2018 and 2019 that led to a financial package given to them. As the US consumer still has PTSD from the 2022 inflation spike, even higher food prices are going to come quickly as they are VERY short cycle items. In three weeks, Canadian tariffs will come on its imports of US cars, trucks, steel and aluminum.

I'm hopeful, as we all are, that these Canadian and Mexico tariffs are quickly removed in some sort of announced 'deal.'

The interest rate drop across the yield curve is, I believe, a stagflationary response to the tariffs and the expected slowing growth. And with regards to the Fed and the about 2 ½ 25 bps of rate cuts now priced in this year, how can they have any confidence on anything? Imagine if they start cutting but then tariffs are taken off right after? What happens if they start cutting as the tariffs stay on and the dollar weakens in response and no longer becomes a mitigating factor for US importers? What happens if they do nothing and economic growth continues to weaken? Will we just see a repeat of 2019 when they starting cutting rates because inflation was then tame? Jay Powell, I'm sure May 2026 can't come soon enough for you.

Real 10 yr TIPS yield pointing to a stagflationary belief

Now with respect to the dollar, which is now even more important to watch, especially against the countries we slap tariffs on. In the academic textbook, the country putting on the tariffs should see a stronger currency (on the belief that its trade deficit will shrink) that would offset the cost of the tariff which importers are logistically paying to the Customs Bureau. What happens if the dollar, after its post election rally, now starts to weaken because foreigners decide to take their money home? What if foreign ownership of the Mag 7 shrinks and that money is taken home, something I mentioned a few weeks ago? Then we end up eating more of the tariffs in terms of higher costs.

The US dollar index, heavy with euro and yen which regions have yet to be tariffed, is today trading at its weakest level since December 9^th 2024. The Canadian dollar is still trading near its lowest level since the March 2020 Covid shutdowns however and 2016 before that but keep a watch on it from here as it's up today. The peso is weaker today at the lowest level since August 2022 vs the US dollar. The offshore Chinese yuan is stronger today by .4% and obviously something to watch too.

DXY

Canadian $ (higher is weaker CAD)

Mexican Peso (higher is weaker peso)

Offshore Yuan

US vehicle sales in February totaled 16mm at a seasonally adjusted annualized rate. The estimate was 16.14mm and that compares with 15.81mm in February 2024 (which had the extra Leap Yr day) and vs 16.56mm in February 2020. That we are still selling less cars than 5 years ago I'll argue will continue to keep used car prices elevated.