A Nothing Burger: What Changed?
How global liquidity, strategic alliances, and the Fed’s next move will shape market dynamics
In times of euphoria, market movements are often driven by headlines. While fundamentals remain constant, the prevailing sentiment of fear or greed, influenced by the daily remarks of individuals in high office, tends to dominate perception.
The Fear and Greed Index is a sentiment indicator used to gauge investor emotions. It measures whether fear (driving selling) or greed (driving buying) is dominating market behavior.
Do we all recall the events of April 2nd, 2025, famously referred to as ‘Liberation Day’? U.S. President Donald Trump introduced a comprehensive tariff strategy known as "reciprocal tariffs." Through Executive Order 14257, he enacted a 10% baseline tariff on all imports for most countries effective April 5, 2025, with higher, country-specific tariffs imposed on approximately 60 nations starting April 9, 2025. Tariffs on Chinese imports surged to an astonishing 145% thereafter.
Following the headline announcement, markets began plummet. The situation seemed dire, chaos unfolded, the entire global trade framework appeared to be collapsing. At least that’s what the sentiment portrayed.
Fast forward to today, and the market has once again embraced greed. In a striking turn of events, it even briefly surpassed its previous levels in the days leading up to Liberation Day.
What changed?
A negotiated deal between the United States (U.S.) and the United Kingdom (UK)? Peanuts.
The deal is modest in scope. It mitigates some tariff pain for the UK (e.g., steel, autos) but doesn’t eliminate the 10% baseline tariff, which still raises costs for UK exporters compared to pre-April 2025 levels. For the U.S., the $5 billion in export opportunities is significant but small relative to the $1.2 trillion U.S. goods trade deficit. The deal’s focus on specific sectors (steel, autos, beef) limits its broader economic effect.
This is more political optics rather than anything else. Its focus on a low-deficit partner like the UK sidesteps larger challenges - cough, cough - China’s massive 145% tariffs. All other tariffs are still in place, nothing has changed!
The Real Story
For those that actually analyze this deal, you will notice one striking thing - a strategic re-positioning of allied forces against the superpower challenger, China. This deal becomes a blanket for other deals to come.
Understand the areas they don’t mind keeping the tariffs on, and reflect on the other areas where tariffs are eliminated. It appears like a strategic positioning, it is about protecting U.S. hegemony, it is about national security in every sense.
The U.S. eliminated its 25% tariffs on UK steel and aluminum, replacing them with an “alternative arrangement” to be negotiated, creating a “new trading union” for these metals. The UK agreed to align with the U.S. by imposing 25% tariffs on steel and aluminum from other countries (e.g., China), ensuring a synchronized approach.
The U.S. allowed tariff-free imports of UK aerospace components, boosting UK manufacturers such as Rolls-Royce.
Both countries exempted pharmaceuticals from tariffs, preserving trade in this sector.
The agreement creates new export opportunities for agricultural products in both directions, offering enhanced market access for countries.
Materials, such as steel and aluminum. Aerospace products, such as jet engines and plane parts. Pharmaceuticals. Agriculture.
Are you reading between the lines?
These highly industrialized regions are vital to any nation's survival. The agreement underscores both economic and national security, with both nations portraying trade as essential to industrial resilience.
The end goal is to strengthen and renew alliances with the U.S. while in attempt continuously hurting China’s surging dominance as the ‘next superpower’.
Focus on Liquidity
Ultimately, markets hinge on a single factor—liquidity. If this concept still eludes you, I strongly recommend revisiting one of my earlier Substack posts on global liquidity.
According to the latest data, global liquidity has surged to record highs, estimated at approximately $176.2–$177.2 trillion—primarily fueled by central bank policies and an expanding money supply.
This influx of liquidity has been a key driver behind risk asset markets and liquidity-sensitive cryptocurrencies like Bitcoin.
Major central banks, including the Bank of Japan (BOJ), European Central Bank (ECB), and People’s Bank of China (PBOC), have played a pivotal role in this expansion. The BOJ’s bond purchases and China’s monetary stimulus have injected substantial liquidity into global markets. Meanwhile, the PBOC has implemented reserve requirement ratio (RRR) cuts and liquidity injections to stabilize the renminbi and domestic markets.
Let’s not overlook the temporary weakening U.S. dollar—an indirect yet significant driver of liquidity. As the dollar declines, non-U.S. borrowers find it cheaper to service or refinance their debt, freeing up capital for investment and spending, ultimately fueling liquidity. A weaker dollar also tends to lift asset prices, making equities, commodities, and cryptocurrencies more attractive in relative terms.
Additionally, some other central banks have begun lowering interest rates—primarily in response to tariff concerns, but largely as a reaction to signs of global economic weakening.
Bank of England (BoE): Cut its base rate by 25 basis points to 4.25% on May 8, 2025, the lowest since May 2023.
European Central Bank (ECB): Cut its main deposit rate by 25 basis points to 2.25% on April 17, 2025, marking the seventh cut since June 2024.
Reserve Bank of India (RBI): Cut its repo rate by 50 basis points in 2025, bringing it to 6% after two consecutive cuts.
Swiss National Bank (SNB): Cut its policy rate by 25 basis points to 0.25%, the lowest since September 2022, marking its fifth consecutive cut since March 2024.
And guess who still hasn't joined the rate-cutting spree?
The Federal Reserve—the heavyweight.
Once it finally moves, we’ll be strapped onto a rocket ship… until it inevitably crashes in flames.
My Call
As we revisit my ‘Charts Wrap-up’ segment for April, I nailed the prediction perfectly.
The blue line stands out as a key point of interest. While a breakdown to new lows is possible, it does not necessarily signal the start of a bear market. This could turn out to be a false move. Upon retesting the blue line, we can assess whether it breaks back above.
The next move will set the course ahead - of course, it will once again be headline driven. The market is clinging to hopes of a U.S.-China deal, expected next week. However, I don’t anticipate much progress just yet, making another market decline likely.
However, the chart shows a long-term uptrend, as indicated by the rising price action over several years. A 200-week moving average (MA) is plotted (thin blue line), which has acted as a support during the uptrend. The price has generally stayed above this MA, reinforcing the bullish trend. This is the key.
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