Good morning. While the financial world has focused on laser on a geopolitical crisis – trade war – two others warm up in Asia. China is causing The Philippines of the Southern China Sea and the tensions between India and Pakistan are high After the kashmir murders. Not classified tends to play the impact of the geopolitical market. But it is, at the very least, very bad timing. Send us an email: robert.armstrong@ft.com and aiden.reiter@ft.com.
We haven't seen anything yet
The difficult thing to grasp, after all volatility and agita of the last three and a half weeks, is the force of the economy at the moment, according to the most fundamental indicators, and the few future problems are a price on the markets. Not a lot of bad things have happened, and the market provides that few bad things will do.
The labor market is stable. The first unemployment complaints reported last week were 220,000, on the bottom of the trend in recent years. Retail sales are on an upward trend in real terms, as is personal income. Yes, the major economic readings are behind, the commercial shock did not have time to appear in the figures, and there are disturbing noises on the edges – for example in accommodation. But the market tells you that bad news is not on the way. The S&P 500? Still in the 10% of its failure of all time in February, the consensus expects the profits to increase by 10% this year, and the price ratio of the index is a dodue and joyful.
For some, the image all this will remind you is Wile E. Coyote: off the edge of a cliff, the legs always turned and suspended in the air as long as it does not look down. I don't think it's the right metaphor, however. The markets are volatile, dispersed and confused. But risk asset assessments speak of a fundamental consensus that the most harmful priced proposals in the Trump administration, including its embargo levels on China, will not be held for long. It may be because, like hope, the administration, other countries will come to the table and transactions will be quickly; Or maybe they will not stay because the administration will stop at market pressure and angry consumers. The market will not care anyway.
This optimistic consensus does not blindly ignore gravity. The administration has already shown a strong propensity to fold: on Chinese electronics, the “reciprocal” non -Chinese prices greater than 10% and on the Fed. It is up to the Trump doomers to tell us why we should expect this model to change.
This analysis is based on macroeconomic data and the observation of the behavior of the White House. But it is worth going from the high abstraction and to look at certain details. In particular, several important consumer companies announced results last week and had interesting things to say about American households.
The CEO of Colgate, who saw unit volumes falling to North America in the first three months of the year, said that “macroeconomic uncertainty and consumers we saw in the first quarter, not only in the United States but also in other countries of the world, has had a negative impact on the growth of volume”, just as we could expect. But the trend was a little better in March and April, and it is optimistic:
Consumers will return. They have exceeded some of their pantry, but these are daily use categories. . . We expect us to integrate our advice that the categories will return in the medium term. . . The first signs that we see in April, at least, give us a certain confidence that the categories will return slowly as consumers settle and that the economic uncertainty that surrounds the markets around the world is improving
Procter & Gamble managed volume growth of 1% in North America, compared to a 4% growth trend in the previous five quarters. The company has put the change both to a lower consumer and to the decline in stocks. Here is the CFO:
The consumer was touched with a lot, and it is a lot to treat. So what we see, I think, is a consumer logical response to a break. And this break is reflected in the drop in retail traffic. It is also reflected in a bit of movement of the chain in the search for the best value, to move online, to move to large-scale retailers and to move to the club of the club in the United States specifically. All this has been brought together means that consumption levels are decreasing in Europe and the United States
The word “break” does a lot of work there and echoes the vision of Colgate that the economic environment “will soon settle”. Other companies faced consumers, have also expressed the idea that consumers would look hard. Kimberly-Clark, which makes paper towels, diapers, etc., spoke of “resilient demand” even if “affordability has become essential”. The CEO of O'Reilly Auto Parts stressed that replacing a part is much cheaper than buying a new car (price):
We believe that we are in a market where consumers attach great value to investments in their existing vehicles and will continue to be motivated to avoid the significant cost and the monthly payment burden which has a new or replacement vehicle. . . Most of this uncertainty (price) was in the headlines and had not yet made its way to all that we would qualify as notable impact on our daily business
Overall, the image sketched by consumer companies is very similar to that visible in macroeconomic and market data. Things are slower, but barely terrible, and should improve when and if madness stands out.
Just fair, but how confident we are confident that madness will, in fact, disappear? Consider this slide from the presentation of Procter & Gamble's benefits, describing the factors excluded from the 2025 objectives of the company:
Not mild NGO. As long as growth resists, currencies stabilize, inflation of raw materials is tamed, there are no political crises, the integrity of the supply chain is maintained and the prices are not increased, everything will probably be fine.
Consumer credit
One of the economic indicators which is well for the moment – but a wobbly shadow on the sidelines – is the volume and quality of credit to consumers. Last year, the Americans borrowed and spent in a robust manner, if not with indulgence. Renewable credit volumes reached a record in October. However, the show began to descend at the end of the year and to occur throughout the first quarter of 2025:
It is difficult to say that the fall shows pressure on households or normalization. Consumers may finally lack their pandemic savings cushions – as the increase in delinquency rates in the youngest and the poorest suggests. Or it is possible that American consumers are starting to step back due to concerns about a recession or a slowdown. We just don't know.
Other series of data do not give any clear response. The proportion of banks that have declared to strengthen loan conditions on businesses and commercial customers increased a bit in the first quarter. But on consumer credit, banks stand out:
Looking at the big banks, the image at this point was slightly more positive. The latest quarter, Bank of America, who is relatively conservative in his loans, has increased in the credit emission and delinquency rates. JPMorgan and Chase had less pink, but always solid results: his loans have decreased slightly and, although he had a modest increase in delinquations in the past 12 months, delinquations were at the same level as this time.
But the prospects of the banks were a more pessimistic touch. In his comments to analysts, Citigroup said that “deterioration in macroeconomic perspectives” could happen; Bofa has morely noted “a changing economy”, which could affect its activities. And Citi and JPMorgan add to their buffer reserves against consumer credit losses.
The most negative indicator we have obtained so far was Fed. Since last week, a record proportion of households only pays the minimum monthly payment on their credit cards (graceful graceful graphic from Torsten Slok to Apollo), suggesting a serious slowdown. But it is possible that, like the other credit quality indicators in recent years, he talks about problems confined to the bottom of the credit spectrum – households with low income and a high rate debt.
It is difficult to read economic tea leaves at the moment. Economists and commentators as have the privilege of waiting for data to speak less equivocious. Investors are not so lucky.
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