Executives are currently navigating a complex environment, with a temporary 90-day pause on tariffs creating uncertainty. Many focus on managing international supply chains, stockpiling, and adjusting inventories to cope with shifting rules.

Opportunities to outpace competitors exist; however, temporary moves may not lead to prolonged disinflation but instead cause pricing turmoil. Companies are embedding tariff clauses in contracts and storing goods, debating whether to pay 30% tariffs on Chinese imports or delay for potential better deals.

Potential Boost For Risk Assets

A potential boost for risk assets and the US dollar is the upcoming tax cut package proposed by Republicans. The cuts may come with Medicaid reductions and increased deficits. The US runs a deficit at 7% of GDP, and this requires future fiscal tightening.

The Joint Congressional Committee on Taxation estimates the tax bill’s cost at $4.9 trillion over ten years. While markets may initially respond positively to this development, it inevitably leads to an increase in fiscal austerity as the deficit needs to be addressed.

We are observing a scenario where short-term relief in trade measures—namely, the 90-day tariff pause—has resulted less in clarity and more in tactical scrambling. While some have accelerated procurement, others are spreading orders across markets to minimise disruption. These shifts in inventory management are not without cost; hedging against policy swings often introduces inefficiencies that can distort pricing downstream, particularly within futures and options markets. Price signals in forward contracts may not reflect demand but rather defensive positioning.

The storage of goods ahead of tariff deadlines may temporarily support wholesale volumes, leading some to draw false confidence from isolated resilience in demand indicators. That said, there’s been no evidence this brings longer-term pricing stability. In fact, sharp swings in input costs—largely policy-driven—are beginning to stretch implied volatility in key commodity and manufacturing-related indices. Once deferred imports are exhausted, the reactive nature of stockpiling raises the risk of sudden imbalances, particularly where supply constraints coincide with fiscal recalibrations.

Domestic Policy Effects

Looking at domestic policy, the proposed tax cuts present a warming effect across rate-sensitive assets, especially with expectations for widened household liquidity and delayed fiscal pullbacks. However, with the U.S. deficit already at 7% of GDP, the eventual response from bond markets can’t be shrugged off. The bill’s projected cost, at nearly $5 trillion over a decade, implies sharper tension to come between growth incentives and inflation management. Short-dated Treasury yields are already showing early signs of repricing, suggesting front-end risk premia may rise if the Federal Reserve remains unmoved.

We should be viewing this phase not as a structural growth shift but a transient fiscal impulse. Any discounting of future earnings or cash flows—whether via rate sensitivities or equity multiples—needs to account for the likely braking effect that budget tightening will have from next year onwards. If deficit containment starts in parallel with moderating consumer demand, asset price volatility could rise, particularly in cyclical sectors closely tied to discretionary spending patterns.

Derivatives markets, especially in currency pairs involving the U.S. dollar, are beginning to reflect this layering of macro inputs. The dollar’s strength for now is less about broad-based conviction and more anchored in timing mismatches between fiscal expansion and eventual tightening. That spells potential reversals if the yield curve flattens too quickly under heavy issuance. Option skews remain informative here; recent activity suggests market makers are hedging against a stronger dollar in the short run but pricing less certainty out into the second quarter.

This means it’s appropriate to recalibrate any directional exposure against duration-sensitive instruments. Our bias has moved away from trend-following strategies and towards asymmetrical risk structures, especially where we can express views on rates re-steepening or steepener unwinds. Skewed payoffs with tight cost overlays have shown more utility than linear exposure to headline themes.

We are not in a phase of structural repricing—but the sequencing of policy, supply chain responsiveness, and fiscal drag will generate pockets of dislocation. These are better approached with granularity. Trading decisions should rest not on the appearance of policy relief but on the more mechanical constraints that come once stopgap measures expire and the cost side asserts dominance.

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