LIVE MARKETS-'Liberation Day' will be the start, not the end, of tariff volatility

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'LIBERATION DAY' WILL BE THE START, NOT THE END, OF TARIFF VOLATILITY

Investors globally are shunning risk on Monday ahead of a major escalation in the developing trade war on April 2, when U.S. President Donald Trump has promised to slap reciprocal tariffs on trading partners.

While clarity on tariff rates, which have largely been absent two days before they go into effect, should offer some reprieve to companies preparing mitigation strategies, Morgan Stanley strategists believe it would be "a maximalist starting point ahead of bilateral negotiations as opposed to a clearing event."

Indeed, the sweeping 25% U.S. import tariff on car and car parts announced last week was more aggressive than market experts had expected.

Over the weekend, Trump said levies would target all countries, while a media report said he is urging senior advisers to take a more aggressive stance on tariffs, dashing last week's hopes of taking on a more moderate approach.

"Timing is an important variable: the administration has said it plans to announce some tariffs for implementation on April 2, while others are to be implemented further in the future, signaling a path for negotiations," Morgan Stanley strategists led by Michael Wilson said in a note on Monday.

"Importantly, this is a low conviction view given the amount of policy latitude the President has on this issue."

China, the EU, Mexico and Canada have the highest percentage of industries that face "more material risk," strategists noted.

Of the industry groups with more material tariff exposure, capital goods is the best positioned given its stronger pricing power, they said.

Meanwhile, consumer discretionary goods faces more risk and continue to underperform given its import exposure to China, its weak pricing power and its cost exposure to Vietnam, which could be in scope for tariffs on Wednesday, they added.

(Medha Singh)

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