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Roula Khalaf, editor -in -chief of the FT, selects her favorite stories in this weekly newsletter.
Good morning. President Donald Trump said he does not do The intention to dismiss the president of the Fed Jay Powell yesterday, despite the complaint of Powell's performance during the weekend. In the same good news, the secretary of the Treasury Scott Bessent said Investors that the American commercial dispute is not sustainable and that an agreement will be concluded. It is not known if Bessent really has the president's ear, but the term markets examine the two declarations favorably. It seems that we will see positive market movements today. Send us an email: Robert.armstrong@ft.com And aiden.reiter@ft.com.
Profits season: Look at industrialists
With the scholarship jump and diving in response to new policies, it is easy to forget that sometimes companies provide real live financial information and that this counts. The first trimester results season is there. The first indications are that this quarter may look a little like the last: good results for the period that has just ended, but unpleasantly misty advice on what is following, taking into account the uncertainty of the trade war. THE Big Bank Results From last week, in accordance with this model.
In others words: Good hard data, bad bad data. But it is possible that certain hard facts on the effects of prices can start to pass soon. What can he be and how can stock prices react? An important context, which has not been mentioned before, is that the estimates of Wall Street analysts on this year's earnings do not seem to incorporate a significant impact of the Swingant pricing regime announced on April 2 (and modified since). You will find below two graphics from the strategy team of Scott Chronert and Citigroup. Start with the one on the right, showing the estimates of the S&P 500 for the first quarter and the full year. The first quarter estimates are unchanged; Annual estimates have dropped one percent or two in the past three weeks.
However, this is not the whole story. The left graph shows the percentage of estimate changes that were on the rise; At just over 30%, it is very low in historical terms. Thus, many analysts reduce their estimates – very slowly. UNDED predicts more cuts to come.
In the future, we will pay particularly particular attention to the results of major American industrial companies – for two reasons. They are sensitive to the capital expenditure plans of companies, which in turn reflect the level of uncertainty created by the trade war. And many of them also have global supply chains, and therefore what they say about the impact of the prices of prices will be instructive.
The industry is not already in the form of a fight. Below is the section of new manufacturing orders for the ISM Manufacturers survey; A score of 50 or less indicates the decline. This shows that the American industrial economy has been falling since the beginning of 2022. An emerging recovery at the end of 2024 was smothered:
Here are the actions of a group of industrial companies, both manufacturers of general equipment (Rockwell, Stanley, Parker, Ingersoll) and Aerospace (GE and RTX). They have already been hit hard.
Nicole Deblase de Deutsche Bank underlines that, for example, 50% of Rockwell revenues are linked to capital spending plans, and 15% of Stanley cost inputs come from China. Much of this has been evaluated, but maybe not everything. The Nigel Coe team in Wolfe Research manages a survey of 50 equipment distributors. The March edition of the survey is the most negative since the first days of the coronavirus pandemic. Coe writes that despite low expectations, “we no longer plan an industrial recovery with a short cycle”.
GE and RTX reported yesterday. The market response is visible in the two main lines of the graph above. Income and income were strong in Ge and very solid to RTX. The big difference was the pricing prospects. GE said that he expected a cost of $ 500 million on the rates as currently planned (for the scale, which is equivalent to 6% of the $ 7.6 billion in income tax that the company won last year). The market does not seem surprised by this estimate and the stock has increased. RTX, on the other hand, seemed to surprise analysts with an estimate of the pricing costs of $ 850 million (equivalent to 14% of the $ 6.2 billion in profits before last year). This decomposes as follows: $ 250 million in prices on Canada and Mexico, $ 250 million in China, $ 300 million from the rest of the world and $ 50 million for steel and aluminum. The stock dropped by 10% per day where the wider market increased by 2%.
RTX will not be the last unpleasant surprise for this winning season.
American inflation assets
A clever reader wrote to us to say that we should have examined the two -year expectations, rather than 10 -year expectations, to assess the way the market interpreted the implication of the inflation of the prices of the “Liberation Day”. Absolutely fair: the gap between short -term and long -term inflation expectations has been widened for some time. In the graph below, we use inflation swaps (a liquid financial contract used by covers and speculators) as a proxy for inflation expectations, because inflation of the profitability threshold (nominal treasure yields less inflation) currently have short-term technical problems:
We obtained a series of warmer CPI readings at the start of the year, increasing short -term expectations, while the Fed has maintained stable rates, now the long end. Immediately after the “Liberation Day”, there was an acceleration of this trend: the market seems to expect an inflationary flow of radical prices, especially during the next year, but does not expect the inflationist impacts to last, because the inflationary effect of the prices is transient or because it expects a slowdown in the growth of inflation, or two.
Since Trump's announcement of the 90 -day break on non -Chinese “reciprocal” prices, the three series are a little down. It's a bit surprising. Torsten Slok, chief economist in Apollo, recently noted that 37% of China goods were intermediate goods or goods that enter other American products. Higher prices on China, and a higher effective rate rate, could increase short -term prices significantly, especially for American manufacturers. A growing break with China could also increase inflation in the longer term.
According to GUNET DHINGRA, chief strategist of the United States's rates at BNP Paribas, the recent relevance on the one-year inflation swap could come from the uncertainty of some crucial factors:
Many people think from this moment that there is less (impact of). . . significantly higher (prices) on China; There is not much more inflation inflation. Our point of view is that the way companies in the United States absorb prices will determine how short-term inflation front exchange. . . (The market) will get a better indication in the coming months with the next company's profits reports and the company's profits.
There are also questions around the sequence of economic events. Will growth slow down before inflation reproduced, leading to a drop in the Fed rate? Or will inflation increase first and will it link the hands of the Fed? Like all data, inflation data is a bit difficult to read at the moment and could remain so, because the Trump White House continues to vacillate on its tariff strategy. But the flexible suggests that more inflation is coming, and soon.
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