The Reserve Bank of Australia’s Deputy Governor noted a vast degree of uncertainty within the global economy. There is surprise at how markets appear to be dismissing this uncertainty and progressing regardless.

The effects of tariffs are expected to be deep-reaching, potentially weakening global growth. In Australia, the initial impact of these tariffs appears minimal at this stage.

Early Trade Concerns

Despite being in the early stages, the most severe trade concerns have yet to occur. The long-term impact remains undetermined, but current observations do not indicate immediate severe repercussions.

We recognise from recent central bank commentary—a pointed observation by Bullock—that markets, at least for now, seem unusually dismissive of the broader economic ambiguity. There’s no shortage of uncertainty, yet capital continues to flow relatively unfazed. This disconnection between perceived risk and market behaviour can make pricing particularly awkward for those of us whose exposure is time-bound and path-dependent.

Trade restrictions, particularly tariffs, have a tendency to move slowly at first, almost as if the true effect takes time to filter through supply chains. The idea that Australia has so far remained somewhat outside the blast radius doesn’t mean we should take this as a sign of resilience. More likely, we’re seeing delayed effects. It’s not always instantaneous; often, the adjustment unfolds sporadically—with firms reducing inventories, altering sourcing, or redirecting shipments—before macro indicators even begin to register it.

He flagged that the most disruptive changes have not yet taken place. This is material for future pricing. It means that while front-end volatilities may contract due to the lack of immediate shocks, further out the curve, uncertainty should arguably command a higher premium. Nothing has broken yet, but that doesn’t suggest the structure is sound.

Future Market Implications

Market participants have latched onto the notion of resilience—perhaps prematurely. When forward guidance is hazy or hostage to external developments, implieds tend to fall behind realised moves, leading to poor convexity payoffs. Given comments around reservations toward global growth, it stands to reason that tail hedges remain underpriced. There is a sense that we’re underestimating the persistence of trade friction, especially as no initial blow-up has occurred.

For those closely tracking macro-linked exposures, it’s worthwhile to re-evaluate the forward sensitivity not just of risk assets, but also of rates and commodity products that feed into broader inflation assumptions. Tariffs can skew input costs asymmetrically, pressure certain sectors, and ultimately distort the baseline assumptions we feed into our models. Forecast error, in this case, increases exponentially over time rather than linearly.

We are watching closely how second-order effects begin to take shape. It’s not the first-tier economic data that usually catches us out—it’s the repricing that occurs when markets re-align around unanticipated inflections. The initial calm does not guarantee a smooth ride. The coming weeks offer limited macro catalysts, making this a possible window to structure trades with asymmetric risk-reward. Optically, many risk assets are priced as if long-run volatility is collapsing. That is not supported by fundamentals.

So as uncertainty persists, and the longer-term picture remains unresolved, the current period might be better spent exploiting positioning imbalances and refining short-term exposure rather than committing capital under the premise of stability.

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