Midweek Macro Note: Simply Kaizen, Technicals, Quantifying Risks, Japanese Feelings

In this Midweek Macro Note we discuss tariff impacts (which remain largely to be seen), market price action through technicals and internals, Kaizen, the Yen, and more. #MacroEdge

Kaizen (above) a guiding principal for our, and my work at MacroEdge, continuing in theme of our Japanese titles for the past month.

Good Wednesday evening MacroEdge readers, clients, and community –

This evening, as with most of our Midweek Macro Notes — we’ll keep it short and to the point. As discussed for the past 45 days, when I (and the team) wrote 'Standing on K2', we observed warning signs that materialized into our most substantial correction since last July during Carry Trade Blowup Part 1. Today, we saw wild intraday swings on lower-than-usual volume as institutions sat on their hands and let the retail crowd run wild into the end of the day.

Most surprising is how wrong the consensus economist crowd was — and not so surprising were many of the tweet deletes in the afternoon after the tariffs took effect. The tariffs have been quite impactful, raising the effective tariff rate on all goods from the mid-2s to over 20%. China, from which I am waiting for a response, now has an effective tariff rate of over 50% placed on it. Other countries like Japan and South Korea are likely brainstorming, and the EU President is giving a speech tomorrow morning on the subject. Trump’s goal here is to see who wants to show up to the table over the next week and negotiate down from a high level. In terms of currency markets, there wasn’t a whole lot of panic, but our friend the Yen strengthened considerably as the flight to safety took place, to 147.62 as of the time of my writing. As for the Nasdaq — on the CFD 100 — there is a small gap above, and those almost always get filled in the next several days; if it doesn’t, then it likely becomes a target to fill in the early to mid-summer bounce that we’ve discussed in the past few weeks. Sentiment remains wildly skewed towards buy the dip mode, but I have shifted towards acceptance of this given the outlier sample size returns that many 'investors' have bought into over the past two years (over 100% in 2 years on the Nasdaq). As with many major breakdowns, there will be many who ignore obvious signs that we continue to discuss, such as technicals, internals, and extreme valuations — all three of which are present today. If it seems like there’s an overuse of the ‘—’ for this article, it has been a long, long day at the MacroEdge office, and I will be up at about 4 am to catch an early flight. Looking forward to our radio show this Friday afternoon (#45), so I hope that you can join John and the team for another great show. For those following our research since last July, you may understand why I am titling this note 'Simply Kaizen'... Lastly, to cover a point above again, I do expect gaps made on the 'tariff panic' to fill either this evening or in the next few days. For short-term technical exhaustion signals, these often lead to violent short-term bounces… but won’t change my longer-term outlook until further notice. On Friday, Powell is speaking and the report in the evening will be more geared towards the macro and employment data then. Let’s dive in.

Trident

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