Update (1415ET): It’s official, President Trump is exempting automakers from newly imposed tariffs on Mexico and Canada for one month, the White House said Wednesday.

“We are going to give a one month exemption on any autos coming through USMCA,” said WH spox Caroline Leavitt, referring to the trade deal negotiated with Canada and Mexico in Trump’s first term.

“Reciprocal tariffs will still go into effect on April, 2, but at the request of the companies associated with USMCA, the president is giving them an exemption for one month so they are not at an economic disadvantage.”

As noted below, the announcement came after administration officials met Tuesday to discuss the matter with the heads of Ford, GM and Stellantis.

Trump and Trudeau Have It Out

As the Epoch Times noted earlier, following a phone call with Prime Minister Justin Trudeau to discuss recently imposed tariffs, President Donald Trump said he told the Canadian leader there hasn’t been enough done to stem the flow of fentanyl.

Trump also accused Trudeau of using the tariff issue to “stay in power.”

Trump discussed his phone call with Trudeau in two posts made on his Truth Social platform on the afternoon of March 5.

“Justin Trudeau, of Canada, called me to ask what could be done about Tariffs,” Trump wrote. “I told him that many people have died from Fentanyl that came through the Borders of Canada and Mexico, and nothing has convinced me that it has stopped.”

Trump also wrote that the call ended in a “’somewhat’ friendly manner,” while also accusing Trudeau of using the tariff issue to hold onto power in his final days in office.

“He was unable to tell me when the Canadian Election is taking place, which made me curious, like, what’s going on here? I then realized he is trying to use this issue to stay in power,” Trump said.

Trump’s social media posts came amid comments earlier that day from U.S. Commerce Secretary Howard Lutnick, who said he would announce a change to the tariffs policy.

“He’s going to come up with a plan this afternoon, we’re going to announce that plan,” Lutnick told Bloomberg on March 5.

Repeating comments made the previous day, Lutnick mentioned finding some “middle” ground on tariffs with Canada and Mexico.

“There’s going to be 25 percent tariffs,” Lutnick clarified. “It’s not the ’middle’ as in a number. I think it’s a middle in terms of USMCA [or] not USMCA,” suggesting items covered by the free trade deal between the countries would receive a different tariff treatment.

Canada responded to the U.S. tariffs by announcing an initial CA$30 billion surtax on a variety of U.S. goods from orange juice to motorcycles. The plan is for an additional CA$125 billion of goods to be slapped with a 25 percent surtax three weeks later if U.S. tariffs remain in place.

Trump imposed 25 percent tariffs on Canadian goods and 10 percent on its energy imports on March 4, after a 30-day pause expired. The pause had been applied for the Trump administration to assess measures taken by Canada to strengthen border security and counter fentanyl trafficking.
Trump said on March 3 there was “no room left” for Canada and Mexico to avoid tariffs and that “vast amounts of fentanyl” is entering the United States from the bordering countries.

In reaction to the U.S. tariffs on March 4, Trudeau said he doubts fentanyl is the issue, and instead suggested Trump is using them to cause the collapse of the Canadian economy to facilitate “annexation.”

Trudeau and his ministers have said that a very small amount of fentanyl from Canada crosses into the United States and that, nonetheless, the Canadian government has stepped up measures to combat the problem. Ottawa has also stressed that both countries’ economies are intricately linked and that consumers and businesses on both sides will lose in the trade war.

“They’ve chosen to launch a trade war that will, first and foremost, harm American families,” Trudeau said. “They’ve chosen to sabotage their own agenda that was supposed to usher in a new golden age for the United States and they’ve chosen to undermine the incredible work we’ve done together to tackle the scourge that is fentanyl, a drug that must be wiped from the face of the earth.”

Lutnick was asked by reporters on March 4 to respond to Trudeau’s comments about annexation made earlier that day, and noted the prime minister is in his last days in office.

“Justin Trudeau is running the end of his term and I don’t really want to think about the ridiculous things he said the last couple of days,” he said. “It’s sad, it’s time for him to go and let’s move on, have a new government in Canada.”

Along with the border and fentanyl-related tariffs, Canada is facing the threat of 25 percent tariffs on steel and aluminum, which Trump said would be levied against every country on March 12.

A broader U.S. trade action is slated for April 2, with details about reciprocal tariffs expected to be announced. The Trump administration has already said it considers Canada’s federal sales tax (GST), its Digital Services Tax aimed at tech giants, and its supply management system for goods like poultry and dairy as trade barriers acting as tariffs against the United States.

Trump and Lutnick have also spoken about bringing car manufacturing back to the United States, which could have a significant impact for the Canadian auto industry which is deeply integrated across the border.

*  *  *

Update (1216ET): The Trump administration is considering giving automakers a one-month reprieve from newly imposed tariffs on Mexico and Canada, after administration officials met Tuesday to discuss the matter with the heads of Ford, GM and Stellantis, Bloomberg reports, citing anonymous officials.

The major Detroit automakers have aggressively sought to halt or revise Trump’s tariffs over concerns that they would have potentially catastrophic effects. (so, make your cars in the US?)

According to carmakers and experts cited, a rise in costs from the 25% tariffs imposed on US neighbors this week could send car prices skyrocketing by thousands of dollars almost immediately – and seize up supply chains.

In recent days, Commerce Secretary Howard Lutnick has hinted that there may be some carve-out exceptions to the initial tariffs – telling BBG television that the changes could be announced on Wednesday, including a potential reprieve for the auto sector in order to buy time to come up with plans to move both investments and production to the US.

The move sent both stocks and the Peso higher in mid-day trade.

*  *  *

President Trump reiterated his focus on reciprocal tariffs in a speech overnight to a joint session of Congress, noting that there would be a “little disturbance” but that we are “ok with that.”

Global equity markets braced for a potential trade decision with Canada and Mexico overnight and into the US morning. This follows Trump imposing a 25% tariff on imported goods from Mexico and Canada on Tuesday and increased tariffs on Chinese goods to 20%, up from 10%. 

On Tuesday afternoon, US Commerce Secretary Howard Lutnick stated on Fox Business, “I think the president is going to work something out with them,” adding, “It’s not going to be a pause, none of that pause stuff, but I think he’s going to figure out, you do more, and I’ll meet you in the middle some way, and we’re going to probably be announcing that tomorrow.”

Lutnick, speaking on Bloomberg on Wednesday morning, also reiterated that he expects a decision regarding Canada and Mexico this afternoon.

Latest trade headlines (courtesy of Bloomberg): 

• LUTNICK: TRUMP CANADA, MEXICO DECISION EXPECTED THIS AFTERNOON

• LUTNICK: TRUMP MAYBE, MAYBE WILL CONSIDER GIVING RELIEF

• LUTNICK: AIMING FOR ‘SOMEWHERE IN THE MIDDLE’ ON CANADA, MEXICO

Ahead of the potential trade decision with America’s neighbors to the north and south, Goldman’s Brooke Roach, Kate McShane, and others outlined to clients late Tuesday companies within their coverage universe that have sourcing exposure to Mexico and Canada. They pointed out that clothing company Kontoor Brands has the most exposure to Mexico, while Canada Goose has the most exposure to… you guessed it: Canada

Roach and McShane noted that in their hardline stock universe coverage, many companies have either not disclosed their sourcing from Mexico and Canada or have a moderate level of exposure. 

The analysts also identified which companies in their softlines coverage universe are most heavily exposed to the escalating trade war with China.

Hardlines coverage…

Comments on tariff headwind and mitigation commentary on softline coverage.

Comments on tariff headwind and mitigation commentary on hardline coverage.

Canada Goose shares in New York have been battered by same-store sales, weak wholesale orders, fierce competition, and a sluggish Chinese market. Also weighing on shares have been trade war concerns, as it sources 80% of its products from Canada. Shares are trading at a five-year low, with 22.5% of the float sold short.

The question remains for GOOS: Will positive US-Canada trade headlines be enough to ignite a squeeze? 

Authored by Jeremy Portnoy via RealClearInvestigations,

Topline: The Biden administration gave Canadian electric bus maker The Lion Electric Company $160 million in subsidies to manufacture 435 buses for schools around the U.S. The company is nearing bankruptcy and laid off almost half its employees, but $95 million of the buses have still not been provided, according to the Washington Free Beacon. 

Some of the $65 million worth of buses that were delivered are not without problems. The Environmental Protection Agency is investigating Lion Electric for fraud after the buses it sent to Winthrop Public Schools in Maine were unusable for a year and a half due to faulty parts.

Key facts: Lion Electric received the third most money of all manufacturers subsidized by President Biden’s $5 billion Clean School Bus program, yet there are still 55 school districts waiting for their buses, the Free Beacon reported.

Meanwhile, Lion Electric’s stock has fallen to $.08 per share compared to $33.48 in January 2021. The company has also allegedly faced issues with properly disclosing its finances. A group of investors sued the company last year for its allegedly “grossly unrealistic financial projections,” and the Securities and Exchange Commission issued a warning last August over inaccurate numbers 

The issues were already clear when the government awarded its grant to Lion Electric in October 2022. The company had reported $17.2 million in losses in the previous three months, the Free Beacon reported. 

Winthrop Public Schools in Maine is in a particularly tough spot. The school is required to either use the EV buses or pay back the federal grant used to buy them. Many of the buses are out of commission, and the school says Lion Electric has not provided support.

Lion Electric is required to pay Winthrop back for any time the buses spend off the road, but the school told Central Maine they don’t expect to get the $57,000 they are owed.

The company nearly received another $50 million subsidy from the State of Illinois, but it failed to keep the required number of employees on staff.

Search all federal, state and local government salaries and vendor spending with the AI search bot, Benjamin, at OpenTheBooks.com. 

Summary: Americans deserve investments in companies that are fully vetted and do what they promise to do.

The #WasteOfTheDay is brought to you by the forensic auditors at OpenTheBooks.com

Authored by Katabella Roberts via RealInvestmentAdvice.com,

Comments made by President Donald Trump on Tuesday night are being used in a lawsuit challenging the legality of his administration’s Department of Government Efficiency (DOGE).

In a filing with the U.S. Court for the District of Columbia, the National Security Counselors, a public interest law group, highlighted remarks made by Trump during his speech to a joint session of Congress.

“To further combat inflation, we will not only be reducing the cost of energy, but will be ending the flagrant waste of taxpayer dollars,” Trump told lawmakers in attendance.

“And to that end, I have created the brand-new Department of Government Efficiency, DOGE. Perhaps you’ve heard of it.”

Trump said DOGE, which is not an official government department, “is headed by Elon Musk, who is in the gallery tonight.” 

He then went on to thank the billionaire businessman for “working very hard.”

“He didn’t need this,” Trump said of Musk. 

He added that he was sure that lawmakers from the Democratic Party also appreciated Musk’s efforts to slash wasteful government spending but “don’t want to admit that.”

Formally, the White House last week announced that Amy Gleason is the acting administrator of DOGE.

A recent court filing from the Office of Administration states that Musk is a senior adviser to the president, has no authority to make government decisions, and is not an employee of DOGE.

In their filing with the court, the National Security Counselors said Trump’s remark “conclusively demonstrates that expedited discovery is urgently needed” to “ascertain the nature of the Department of Government Efficiency and its relationship to the United States DOGE Service.”

The filing is part of a lawsuit the National Security Counselors filed against Musk, Trump, and others in January.

It argues that DOGE is operating as a federal advisory committee, putting it in violation of the Federal Advisory Committee Act (FACA) which governs the establishment, operation, and termination of advisory committees within the executive branch of the federal government.

Lawsuit Argues DOGE Lacks Transparency

According to the lawsuit, FACA dictates that federal advisory committees must be “fairly balanced in terms of the points of view represented and the functions to be performed by the advisory committee.”

Such committees should also maintain “fairly balanced” membership, hold public meetings, keep detailed minutes of meetings, and file a charter, it states.

The lawsuit argues that “due to DOGE’s lack of transparency, little is publicly known about its structure or membership,” putting it in violation of the act.

It further contends that DOGE is in violation of FACA because “not a single member of DOGE is a federal employee or represents the perspective of federal employees, despite the evidence that DOGE intends to provide recommendations regarding federal employment practices and ways to reduce the size of the federal workforce.”

Plaintiffs are seeking an injunction barring DOGE from operating until it complies with FACA.

They have also asked the court to declare that DOGE is “not properly constituted” and that any report or recommendation made by the advisory body “does not reflect the views of a lawfully constituted advisory committee.”

Jerald Lentini, an attorney for National Security Counselors and elected official in Manchester, Connecticut, and Joshua Erlich, an employment lawyer, are listed as co-plaintiffs in the lawsuit.

Both men sent in applications to be hired by DOGE but have yet to hear back, according to the lawsuit.

“Plaintiffs conclude that, upon information and belief, neither Lentini nor Erlich, nor anyone similarly situated who would represent the perspectives of federal employees (including national security employees), unions, or accountability and transparency advocates, will be selected for DOGE,” the lawsuit states.

The Epoch Times has contacted the White House for comment.

Last month, the Trump administration released receipts of federal contracts that DOGE identified in its efforts to downsize government spending.

On Feb. 12, White House press secretary Karoline Leavitt said, “We have contracts upon contracts that we can send and provide this information to you. Let me be very clear, we are not trying to hide anything. We have been incredibly transparent, and we will continue to be.”

The United States and Israel have quickly rejected a new Gaza peace and reconstruction plan proposed by the Arab League under Egypt’s leadership, which was unveiled Tuesday.

A counterproposal to Trump’s provocative Gaza ‘takeover’ plan which advocates the removal of the Palestinian population to neighboring Arab states, the Egyptian plan would of course allow its roughly two million inhabitants to remain.

The $53 billion plan approved by the Arab League aims to rebuild the destroyed Gaza Strip by 2030, while setting up hundreds of thousands of temporary housing units so that Palestinians won’t have to leave. Arab leaders have blasted Trump’s prior proposals as but greenlighting an Israeli ethnic cleansing campaign, and Jordan and Egypt in particular have vehemently rejected the possibility of resettling Palestinians in their territories.

It calls on UN Security Council to deploy an international peacekeeping force in Gaza and the occupied West Bank, which would establish security while reconstruction takes place – and foresees the recycling of rubble to expand Gaza’s coastline and even “sustainable, green and walkable” housing and urban areas, also utilizing renewable energy.

Further, according to the Associated Press, “The communique said Egypt will host an international conference in cooperation with the United Nations for Gaza’s reconstruction, and a World Bank-overseen trust fund will be established to receive pledges to implement the early recovery and reconstruction plan.”

Hamas has welcomed the plan, despite that it says the West Bank-based Palestinian Authority (PA) would eventually take over governance and management of the Gaza Strip.

“We welcome the Gaza reconstruction plan adopted in the summit’s final statement and call for ensuring all necessary resources for its success,” the group said. The Islamist militant group further expressed support for “the formation of the Community Support Committee to oversee relief efforts, reconstruction and governance in Gaza.”

An Israeli government statement said the Arab League’s plan ultimately “fails to address the realities of the situation following October 7th, 2023, remaining rooted in outdated perspectives.” It also blasted the Arab body for failing to condemn the Hamas Oct.7 terror attack in its statement announcing the plan.

Instead, the Israeli Foreign Ministry said, “Now, with President Trump’s idea, there is an opportunity for the Gazans to have free choice based on their free will. This should be encouraged! Instead, Arab states have rejected this opportunity, without giving it a fair chance, and continue to level baseless accusations against Israel.”

If this article is to be believed, Israel is gearing up to re-invade and occupy Gaza even more ruthlessly than they did before, empowered by the backing of Trump, whose Gaza takeover plan they are taking very “seriously” — not just as some vague “negotiating” feint pic.twitter.com/Y1FFRDv6tm

— Michael Tracey (@mtracey) February 28, 2025

The White House also responded negatively, with White House National Security Council spokesman Brian Hughes asserting that the Arab plan did “not address the reality that Gaza is currently uninhabitable and residents cannot humanely live in a territory covered in debris and unexploded ordnance.”

“President Trump stands by his vision to rebuild Gaza free from Hamas. We look forward to further talks to bring peace and prosperity to the region,” he added.

Novo Nordisk is adopting a strategy similar to that of its rival Eli Lilly & Co., preparing to offer its blockbuster weight-loss drug directly to obese US consumers at a discounted rate. 

Bloomberg reports that Novo’s Wegovy will be offered directly to cash-paying consumers for $499 per month—significantly lower than the uninsured cost of about $1,350 per month.

Lilly began selling its obesity drug Zepbound directly to patients last year. At the same time, Wegovy’s limited supply drove some customers to compounded versions sold by telehealth companies like Hims & Hers Health Inc., which locked overweight Americans into a monthly subscription model. 

The introduction of Novo’s new direct-to-consumer model for Wegovy sent shares in Copenhagen up nearly 4% on Wednesday. Shares are still locked in a vicious bear market, down 40% since peaking in late June 2024.

The Danish pharmaceutical giant has been losing ground to Eli Lilly’s Zepbound. At the same time, its next-generation anti-obesity drug, CagriSema, recently fell short of the market’s expectations in a closely watched clinical trial. 

Shares of Hims & Hers fell 6% on the news. HIMS shares have nearly halved since peaking on Feb. 19, following the resolution of shortages for Novo and Lilly’s drugs. This development prompted the US Food and Drug Administration to instruct pharmacies to stop compounding those medications.

More broadly, Goldman’s GLP-1 Exposed basket has largely underperformed the GLP-1 At-Risk basket over the last year. This is mainly because the market sees President Trump and RFK Jr. as unfriendly to big pharma. 

As for buying the Novo dip, Goldman’s mega-bull on Novo, James Quigley, outlined his key takeaways for clients from a recent meeting with executives from the Danish pharma giant—offering potential clues on whether the dip is a buying opportunity or if investors should wait for lower levels.

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Many believe Winston Churchill coined the phrase: “Never let a good crisis go to waste.” Others think it was President Obama’s Chief of Staff, Rahm Emanual, who said, “You never want to let a serious crisis go to waste” during the financial crisis. Regardless of who first spoke those words and whether the crisis is “good” or “serious,” the Fed may be planning on heeding their crisis advice.

On February 19, 2025, the Fed made a confounding statement about QT, aka balance sheet reduction. Per its latest FOMC minutes: “several participants suggest halting or slowing balance sheet reduction pending debt ceiling resolution.”

If the government were to stop issuing debt because of a debt ceiling impasse, financial liquidity would increase as the Treasury would spend down its roughly $800 billion piggy bank known as the Treasury General Account (TGA). Due to its positive impact on liquidity, some people call a potential TGA withdrawal “Not QE, QE.”

Thus, if a government shutdown results in additional, albeit temporary, liquidity to the financial system, why halt or slow QT, which drains liquidity?

The timing of the Fed’s confounding statement aligns with an essential gauge of excess liquidity. Might the Fed be offering investors a liquidity warning cloaked as a reaction to a fiscal crisis?

To help answer the question, we review two popular liquidity gauges. In the postscript, following our summary, we share some measures of liquidity and reserves the Federal Reserve monitors.

What Is Water?

Before progressing, it is worth emphasizing how vital and underappreciated liquidity is to the financial markets. We lean on Chris Cole at Artemis Capital to help you appreciate liquidity.

In his piece, What Is Water In The Markets, Cole uses a commencement speech by David Foster Wallace to make an analogy between liquidity in the financial markets and water for a fish. Likely, fish don’t pay attention to the water that surrounds them. Similarly, how often do we think about the air we breathe? 

Financial markets, like fish and humans, exist in a medium that sustains its being. Yet, despite the grave importance of liquidity, the market medium, few investors pay much attention to it. Without water, a fish will die. When liquidity fades, volatility often spikes, and market fragilities are exposed. Thus, measuring liquidity, the medium investors struggle to quantify and rarely discuss, is warranted.

The Roots Of The Current Liquidity Omen

In the pandemic crisis of March 2020, the Federal Reserve and the government opened the liquidity floodgates to combat the shuttering of the global economy. As we share in the first graph below, courtesy of Longtermtrends, in 2020, the percentage growth of M2 money supply (black) grew at a higher rate than at any time in history. The second graph shows that deficit spending as a percentage of GDP was 15% in 2020. The only time since 1930 it was higher was during World War II.

The covid crisis shut down the global economy and sent financial markets plummeting. Liquidity fled the markets, and significant volatility ensued. Consequently, the Fed and government did everything possible to restore economic and market liquidity.

What is now most important to grasp is how much of that extra liquidity still exists. One big clue is the Fed’s Reverse Repurchase Program (RRP).

Reverse Repurchase Program (RRP)

Had the Fed not managed excess liquidity, its monetary policy in 2020 and 2021 would have sent short-term interest rates well into negative territory. The Fed’s RRP was employed to soak up the extra liquidity.

The program allows banks and money markets to lend money to the Fed, and in exchange, the Fed provides them with risk-free Treasury collateral. The “risk-free” money market surrogate effectively met the massive demand for short-term investments and kept rates positive.

We should consider the RRP balance as the financial market’s excess liquidity. The liquidity warning we allude to in the opening is the current negligible RRP balance. As shown below, the once $2.55 trillion storer of excess liquidity has dwindled to near zero. While liquidity may not be an issue today, there is no longer a massive bank of liquidity for the market to draw on.

With RRP largely evaporated, tracking liquidity becomes much more critical.

Market Monitors of Liquidity

One of the more straightforward gauges of liquidity is the sum of the RRP balances and bank reserves held at the Fed. Bank reserves approximate the potential liquidity banks could provide.

As the data below shows, liquidity, using this measure, is steadily declining. However, it is still well above pre-pandemic levels. The question worth asking but lacking an answer is how much more liquidity our economy and markets require today than before the pandemic.

We use a similar liquidity model that takes the size of the Fed’s balance sheet and subtracts the total of the RRP balances and the Treasury General Account (TGA). The graph below shows that the amount of liquidity (gray), using this measure, has been constant for the last two years. The liquidity from declining RRP balances have thus far offset the Fed’s QT liquidity removal.

With little excess liquidity remaining in the RRP program, this measure of liquidity should start to decline as QT will no longer be offset. However, liquidity could temporarily rise if the Treasury drains its TGA account to help fund the government. Such an increase would be relatively short-lived, thus postponing, not canceling, the eventual decline of liquidity due to QT.  

Summary

We surmise the Fed follows the gauges we share and profoundly understands that the potential for a liquidity shortfall will increase as the RRP disappears. Consequently, they may not let the debt ceiling “crisis” go to waste and could use it as an excuse to stop QT.

They need a reasonable justification to end QT because of the term premium embedded in bond yields. Without such a “crisis”, bond investors might assume that ending QT is dovish, thus inflationary, and push yields higher.

Before concluding, it is imperative to state that there is no perfect liquidity gauge. It is incredibly complex and goes beyond the identifiable data we share in this article.

*  *  *

Postscript: Fed Measures of Reserves

If you want to learn more about the banking system and liquidity generation, the following postscript summarizes a recent white paper from the New York Fed.

Bank reserves are the funds a bank keeps on hand, either in its vaults or deposited with the Fed, to meet withdrawal demands and comply with regulatory requirements. Simply, the amount of reserves a bank has corresponds directly with its ability to lend money. Thus, the amount of liquidity they can provide.  

In late 2024, Roberto Perli of the New York Fed outlined five measures of bank reserves. They are worth a quick scan to appreciate the state of banking reserves.

The following quotes and graphs are from Perli’s speech entitled Balance Sheet Normalization: Monitoring Reserve Conditions And Understanding Repo Market Pressures. Our comments are added.

Fed Funds vs. Rate On Reserve Balances

A good starting point is to look at the spread between the effective federal funds rate (EFFR) and the interest rate on reserve balances (IORB). When reserves become less abundant, the cost to borrow federal funds tends to increase relative to IORB.

As the graph below shows, there is nothing to worry about with this metric.

The Sensitivity of Fed Funds To Changes In Reserves

When reserves are abundant, the demand curve is flat, meaning the federal funds rate is insensitive to short term changes in reserve supply. When reserves approach the ample level, that curve should start gently sloping down, and the federal funds rate will start to show some sensitivity to changes in reserves.

Like the first graph, nothing here warrants concern about the level of reserves in the banking system.

Domestic Bank Borrowing In The Fed Funds Market

We also carefully monitor the share of domestic bank borrowing in the federal funds market. Because domestic banks tend to borrow federal funds when they need liquidity, increased activity on their part would be a sign of reserves becoming less abundant.

The percentage of domestic bank borrowing is declining. Therefore, this, too, provides little reason for concern.

Late Interbank Payments

The timing of interbank payments is another useful metric. When reserves, which are the settlement instrument for these payments, are less abundant, banks will tend to tactically delay payments to keep their balance from dropping to uncomfortably low levels in the middle of the day. Therefore, late payment activity may be a useful indicator of the ampleness of reserve supply.

The chart below doesn’t point to any financial stress.

Average Intraday Overdrafts

Daylight overdrafts occur when short-term shifts in payment activity result in a temporarily negative balance in a bank’s reserve account. Higher average overdrafts are an indication that reserves are harder to come by in amounts needed to facilitate payments without intraday credit from the Federal Reserve. While peak intraday overdraft activity has occasionally spiked, average overdrafts have remained low and actually have declined in recent months.

The average remains near ten-year lows, thus denoting little to no stress.

Repo Market Pressure

Three of Perli’s gauges are focused on the Fed Funds rate. Accordingly, it’s important to monitor factors that may impact that rate. This next gauge indicates that the Fed Funds gauges could start causing those measures to change.

Because repo is collateralized, it should generally trade at or below the uncollateralized IORB rate. Thus, if many transactions occur at a premium to IORB, there could be a problem. That is the case, as the graph below shows. But Perli helps explain why this is occurring and why it may not be problematic.

In recent years, there has obviously been a large increase in securities issued by the Treasury. And while there is no lack of demand for those securities, many investors need financing to acquire them. The ongoing shrinking of the Federal Reserve’s SOMA portfolio also contributes to the higher demand for repo financing because it results in private investors absorbing (and potentially financing) more Treasury securities. But it also contributes to a diminished supply of repo financing because a smaller SOMA portfolio implies that less overall liquidity is available to the financial system.

There appears to be also a second important cause for higher repo rates—namely, frictions that have developed in the market that are interfering with the liquidity redistribution process….In other words, repo supply can be limited by counterparty risk limits.

2018-2019

In the graphs above, reserves started to show stress in 2018 and 2019. If you recall, in September 2019, liquidity dried up, and the repo market essentially broke. Despite stable financial markets and a solid economy, the Fed had to provide liquidity/reserves to the banking system via lower rates and QE.

The current situation does not show the same slow degradation in liquidity conditions as we saw in 2018 and 2019. We share the graph below summarizing the Fed gauges to highlight the difference further. The closer to the center of the circle represents the most abundant reserve conditions. Conversely, as you move out, reserves become scarce.

Comparing the current conditions (blue) to those in September 2019 (gold) highlights that reserves are abundant today. But will that change rapidly with the RRP balances no longer providing a ballast?

Last night, Democrats completely lost the plot during Trump’s address to Congress.

For starters, Rep. Al Green (D-TX) was ejected for an ‘old man shakes cane’ stunt shortly after Trump began.

An old man waving a cane and booing is a good rebranding for the Dems.

— Mary Katharine Ham (@mkhammer) March 5, 2025

Meanwhile, Democrats were wearing pink shirts for feminism or some such malarkey – the day after they voted to block a bill that prevents transgender dudes from smoking actual females in sports (concussions, new records, dreams broken, etc).

They were of course fuming when President Trump said that schools that allow a “man” to join the “girls’ team, the school will lose all federal funding – simple!”

17/ TRUMP: BANNING TRANSGENDER ATHLETES FROM WOMEN’S SPORTS

“If a man joins the girls’ team, the school will lose all federal funding—simple!” pic.twitter.com/fKvBkTBGc8

— Mario Nawfal (@MarioNawfal) March 5, 2025

They also held up stupid signs reading ‘Elon Steals.’

But the most egregious part of Democrats’ Tuesday night tantrum was their refusal to stand, or clap, for a 13-year-old kid who survived brain cancer, and became an honorary Secret Service agent.

Watch this clip of President Trump honoring DJ and naming him as a secret service agent, and try not to tear up when this kid realizes what just happened. pic.twitter.com/m6ww7AVnpv

— Jason Rantz on KTTH Radio (@jasonrantz) March 5, 2025

They even refused to clap for this brave young man with brain cancer. I was taken aback by their ghastly behavior. pic.twitter.com/o9s82p07IE

— Swig 🇺🇸 (@OldRowSwig) March 5, 2025

“If you can’t stand up and cheer for a kid with brain cancer being made an honorary member of the Secret Service, then you might be a deeply disturbed and fucked up person!!!” posted Donald Trump Jr. on X.

If you can’t stand up and cheer for a kid with brain cancer being made an honorary member of the Secret Service, then you might be a deeply disturbed and fucked up person!!!

— Donald Trump Jr. (@DonaldJTrumpJr) March 5, 2025

“They could not even clap for a child battling cancer, or mothers who lost their children,” said White House Press Secretary Karoline Leavitt on X, adding “Tonight, President Trump absolutely owned the moment. He showed the world why the American people overwhelmingly re-elected him to serve in the highest office in the land… President Trump is restoring common sense. The renewal of the American Dream is well underway, and we are just getting started!”

13-year-old DJ Daniel: “I had 13 brain surgeries and that’s how many times my personality has changed.”

“That’s something that you don’t hear from a terminally ill child.”

“I’m gonna keep on going into my gas tank runs out. And that’s when God calls you home. You never know… pic.twitter.com/aAipcIrxaq

— Collin Rugg (@CollinRugg) March 5, 2025

The Trump White House slammed Democrats following the speech, saying in a statement “Democrats Showed Whose Side They’re On — And it’s Not the American People.”

Overall, Trump gave an entertaining yet fairly restrained speech. He stuck mostly to his talking points – and when he did stray, it was to crack a joke that landed well, such as calling Liz Warren ‘Pocahontas’ because she wants to be in Ukraine for another five years.

asdf

Oil prices extended their losses overnight to the lowest in almost six months as traders wrestle with conflicting signals on the longevity and effects of US tariffs on the country’s two largest external crude suppliers.

A mixed bag from API last night did not help but all eyes on the official data this morning for any signs of life.

API

• Crude -1.5mm

• Cushing +1.6mm

• Gasoline -1.2mm

• Distillates +1.1mm

DOE

• Crude +3.614mm

• Cushing +1.124mm

• Gasoline -1.433mm

• Distillates -1.318mm

US crude inventories rose for the 5th week in the last 6, with stocks at the crucial Cushing Hub rising for the 4th straight week. On the product side, both gasoline and distillates saw drawdowns…

Source: Bloomberg

For the third week in a row, the Trump administration did not add to the SPR…

Source: Bloomberg

US crude production remained near record higher as Trump’s ‘drill baby drill’ plan prompted a jump in the rig count…

Source: Bloomberg

WTI traded back near 6-month lows on the surprise crude build…

Crude has trended lower since mid-January as Trump’s policies raise fears of multiple trade wars potentially hitting energy demand.

“Trump acknowledges that there will be an adjustment period for the tariffs,” said Arne Lohmann Rasmussen, chief analyst at A/S Global Risk Management. 

“This points to continued volatility and uncertainty in the economy and in financial markets over the coming months.”

Brent crude just broke below the Sept 2024 lows to its lowest since Dec 2021…

Oil options traders are the most bearish in five months amid concerns about the fallout from tariffs and OPEC+’s plans to revive halted production, while volumes of bearish put contracts surged Tuesday.

By Benjamin Picton of Rabobank

Some Room Left?

President Trump’s tariffs on Canada and Mexico, and an additional 10% tariff on imports from China took effect yesterday. Trump had said on Monday that there was “no room left” for those countries to negotiate on trade, but Commerce Secretary Howard Lutnick walked back the hawkishness late on Tuesday by suggesting that some wiggle room may exist to reduce duties on goods covered by the USMCA trade agreement. Earlier in the week Mexico floated a proposition to apply 25% tariffs to imports from China as a quid-pro-quo for continued US market access. Could we see a united trade front against China on the table as the Trump Administration’s price for watering down duties on Canada and Mexico?

Lutnick said that Trump is considering lowering the 25% tariff rate if USMCA rules are followed, but threw a jab at the USA’s northern neighbours by saying that Canadians “like to cheat”. Similar accusations of foul play have previously been levelled by trade advisor Peter Navarro against Australia, specifically in relation to aluminium exports that were granted exemptions to trade restrictions during the first Trump term through a handshake agreement that Australian exports of aluminium to the USA would be informally restricted.

Canada and China have been swift to retaliate to the new tariff measures, in defiance of the orthodox economic prescription that tariffs are entirely self-defeating. Canadian Prime Minister Trudeau addressed Trump directly, saying that “even though you’re a very smart guy, this is a very dumb thing to do”, a comment that perhaps holds some irony given that Trudeau was in the process of confirming tariff measures of his own when he made it. Trudeau went even further to suggest that President Trump is attempting to crash the Canadian economy as a precursor to annexation(!).

China announced tariffs of 15% on US exports of chicken, wheat, corn and cotton, and 10% tariffs on soybeans, sorghum, beef, fish, fruit, vegetables and dairy. China’s Ministry of Commerce also said that it had added an additional 15 US companies to an export control list, and that additional US firms had been added to the ‘unreliable entity’ list that effectively serves as a sanctions registry for entities perceived to pose a threat to China’s national security.

Early this morning China announced that it is setting its economic growth target for 2025 at 5%, and its CPI inflation target at 2%. The fiscal deficit will widen to around 4% of GDP, which is the largest in over 30 years. The increased fiscal stimulus goes hand-in-hand with a loosening in the monetary policy stance from “prudent” to “moderately loose” – the first time that China had adopted such accommodative policy in 14 years -that was announced in December. By contrast, Donald Trump used his address to Congress yesterday to say that his Administration will aim to balance the Federal budget without giving firm details on how that would be achieved.

The Treasury curve bear-steepened on Tuesday with the 10-year yield rising 8.9bps to 4.25% and the 2-year up 4.1bps to 3.99%. The Canadian sovereign curve shifted even further upwards, while European yields fell at the short end and posted mixed-results further out the term structure.

Of course, despite the hints at détente from Lutnick, further salvos in the developing trade war are likely imminent. Trump used his address to Congress to indicate that reciprocal tariffs and tariffs on agricultural imports will apply from April 2nd:

“whatever they tariff us, we tariff them. Whatever they tax us, we tax them. If they do non-monetary tariffs to keep us out of their market, then we do non-monetary barriers to keep them out of our market. We will take in trillions of dollars and create jobs like we have never seen before.”

Some countries may stand to benefit in the short run from a reshuffling of the global trade deck, but all of this is likely to be bad news for growth in its totality. Speaking in Sydney, RBA Deputy Governor Andrew Hauser (formerly of the Bank of England) noted that there is now a chance that first quarter GDP growth in the USA prints negative. This lines up with the signal from the Atlanta Fed’s GDP nowcast model, which is signalling a contraction of 2.8% in the first quarter, versus a previous forecast of 2.3% expansion as recently as February 26th.

Hauser said:

“if companies and households come to conclude that trade policy uncertainty isn’t ‘classical uncertainty’ (i.e. “carry on until the fog lifts) – but genuine ambiguity- i.e. “anything could happen” – then they may choose to just batten down the hatches, postponing planned spending, particularly on long-term investment, until things become clearer. This sort of watchful waiting is pretty sensible, individually, but for an economy it can be bad news. As The Economist put it recently “tariff uncertainty can be as ruinous as tariffs themselves”.”

This echoes recent comments made by one of our favourite bears, Jeremy Grantham, on Bloomberg’s ‘Merryn Talks Money’ podcast. Grantham paraphrased John Maynard Keynes to point out that animal spirits are incredibly important to economic performance:

“You could line up all your economic stimuli, everything a wonderful plan, but if for whatever reason people become pessimistic, they sat on their money and they did not spend, you’re toast…”

Now that major US stock indices are all in the red year-to-date, the likelihood of creeping pessimism would appear to be growing.

On that theme, the “take Trump seriously, but not literally” meme that had been compressing equity risk premia and sending US stocks into the stratosphere late last year seems to be rolling over in Europe. Growing realisation that Trump means what he says and says what he means on trade sent European stocks sharply lower yesterday, while news that the USA would be halting arms supplies to Ukraine helped to continue the outperformance of European defence names.

European Commission President Ursula von der Leyen announced a new lending instrument to provide EUR 150bn of loans to member states for defense investment. The new facility is expected to improve coordination and quality of expenditure on pan-European priorities (artillery, drones etc). The facility is also expected to help improve inter-operability, create economies of scale for new defence procurement and support a significant step-up in support for Ukraine.

Von der Leyen also announced the activation of an escape clause within the Stability and Growth Pact that will allow for defense spending to increase by 1.5% of GDP without triggering excessive deficit procedures. This relaxation of fiscal rules could be worth up to EUR 650bn over four years. In a similar vein, Germany is set to create a new EUR 500bn fund for defense and infrastructure spending, and to exempt defense spending of more than 1% of GDP from debt-brake rules. 

Fresh from being feted by international leaders after his confrontation with Trump and Vance last week, Ukrainian President Zelenskyy struck a conciliatory tone with the Administration yesterday by saying that he was ready to work under Trump’s “strong leadership” and that it was “time to make things right.” “We are ready to work fast to end the war…and to work with the US to agree a strong final deal.” 

President Zelenskyy appears to recognise that European pledges of support are nice, but it is real production and real firepower that really matters. On that score, the USA is still the only game in town.

As we detailed earlier, last night saw Germany announce plans for one of its largest fiscal regime shifts in post-war history. 

The leaders of CDU/CSU and SPD this evening announced an agreement on an even more significant fiscal expansion than what anyone had expected at the beginning of the week. The plan is to make three material changes to the debt brake in the very near term, convening the outgoing parliament in which the centrist parties still hold a constitutional majority:

• A EUR 500bn (11.6% of GDP in 2024) special purpose off-budget vehicle for infrastructure investment, that is planned to be disbursed over the next 10 years, and which amounts to roughly 1% of GDP in annual infrastructure spending (of which EUR 100bn will be allocated to the federal states).

• A reform of the debt brake to exempt any defense spending in the main budget’s “Einzelplan 14”, the budget of the Ministry of Defence, over and above 1% of GDP, effectively permitting open-ended borrowing for defense. Currently the Einzelplan 14 amounts to EUR 53.25bn (1.25% of nominal GDP in 2024). The current off-budget fund adds another EUR 25bn of defence funding but this would not be relevant for this part of the proposal. Thus apart from removing any constitutional limit on additional defence spending, 0.25% of GDP (EUR 11bn) of spending in Einzelplan 14 that surpasses the 1% threshold is freed up to fund other measures, for example tax reductions.

• An increase in the structural deficit allowed for the states (Länder) from the current level of 0.0% of GDP to 0.35%, the same proportion as the federal level. Furthermore the proposal includes the formation of an expert commission tasked with creating a long-term reform proposal to structurally reform the debt brake by the end of 2025. This would have to be passed by the newly elected 21st Bundestag. It remains unclear if this reform proposal would supersede the announced measures to be passed in the 20th Bundestag or would add to them.

All elements require a two-thirds constitutional supermajority. The parties want to pass the agreed measures with the old 20th Bundestag parliament, before the newly elected 21st Bundestag (where the AfD has a potential blocking minority) is convened on March 25.

In keeping with recycled European aphorisms, party leaders, especially the Conservatives, explicitly referred to this decision as a “whatever it takes” moment and a determination to “rearm completely”. According to DB’s reading, tonight’s robust rhetoric implies that the open-ended borrowing room for defense will be used at a pace that could bring German defence spending to at least 3% perhaps as early as next year (although the exact target may only be defined after the NATO summit in June).

Assuming it goes through, Deutsche Bank’s Jim Reid warns that everything you thought you knew about Germany’s economic prospects 3 months ago, or even 3 weeks ago, should be ripped up and you should start your analysis from fresh. 

Today’s CoTD simply looks at Germany’s fiscal deficit through time and assumes an extra 3% deficit phased in over the next decade from current levels. 

This is incredibly back of the envelope, but puts the planned move in some historical perspective. 

Of course, if growth rebounds then this may reduce the deficit so there are a lot of moving parts. However, this could easily be a sustained fiscal stimulus unparalleled in Germany’s history. Germany will still likely have the lowest debt/GDP in the G7 as far as the eye can see. 

We estimated that Germany could spend around $1.6tn before its debt/GDP equalled the second lowest (the US) in the G7. 

This package has the potential to be in the magnitude of around $1tn over time and the US won’t stand still in terms of its debt over this period. 

If you want a bit of fun, Germany could spend $8.5tn before its debt/GDP equalled Japan’s! 

So don’t underestimate how important this news is. Your portfolio over time will thank you for it.

Indeed it will, if you were long bunds as zee bond vigilantes just sent Bund yields higher by over 24bps…

…the biggest yield jump in history for the German bond market…

The FT reports that investors said the bond sell-off did not reflect concerns about the sustainability of Berlin’s debt, which at around 63 per cent of GDP is far lower than the level in other big western economies such as France, the UK and the US.

In contrast with recent rises in borrowing costs in countries such as the UK, which have threatened their fiscal plans, markets were pricing in a better growth trajectory that was boosting risky assets such as stocks at the expense of ultra-safe government debt.

“Yields are rising because of the perception that Germany is turning on the growth tap. It is very risk-positive,” said Karen Ward, a strategist at JPMorgan Asset Management.

We are not sure we’re buying what these analysts are selling on this one – especially as we noted overnight that swap spreads are literally exploding.

And remember, Europe is well-known for suffering sovereign debt crises at the worst possible time, and should inflation remain stubbornly sticky, the yield on new German debt may soon become unmanageable… which means the ECB will have to step in and monetize German deficit spending, as it did for much of the past decade. The only problem: it will first need a market and/or deflationary shock to greenlight such an intervention. Although in light of events in the past 5 years, we doubt very much that the Frankfurt-based central bank will have any problems coming up with yet another fake crisis to capitalize on.

This sudden (and urgent) surge in borrowing comes after Zelensky publicly snubbed Trump’s deal in The Oval Office – prompting VP Vance to explain that this was a done deal… “someone got to him… likely it was our European allies”…

Yes! Lost in the temper tantrum thrown by pissy pants Zelensky is that this was a DONE DEAL. The signing was pro forma. Someone got to him. Likely it was our “European allies.”

pic.twitter.com/FwJujQHchA

— Cernovich (@Cernovich) March 4, 2025

Are we giving zee Germans too much credit for a 4D-Chess move? Did our “allies” force Zelensky to tank the deal with Trump at the last minute, to prompt a new ‘crisis’ (it worked with COVID, remember), enabling them to bypass the debt brake in the name of security, freedom, and whatever patriotic, democracy-saving narrative they choose next? Perhaps, but if the shoe fits (mixing analogies unapologetically) as the deadline for government change in Germany (March 24th) looms and the AfD’s ability block this massive debt plan looms even larger indeed.

And finally, who could have seen this coming?

More (defense) spending coming -> more debt issuance -> higher yields -> more QE.

Rinse repeat https://t.co/wWQofr1Ogb

— zerohedge (@zerohedge) February 23, 2025