Trouble with a capital 'T'

The still mysterious U.S. tariff sweep coming on Wednesday makes it tough for investors to see much beyond this week, but the real risk is more of a slow-burning U.S. market decline on some open-ended plan - seeding months more of uncertainty rather than a cathartic one-off.

Most medium-range market forecasting has simply been abandoned over the past week, as strategists have no tariff baseline to work with. Guesswork has ensued for the most part, while a lousy quarter-end funk descended on Wall Street and implied volatility gauges crept higher.

The size, shape and duration of the tariffs are all unknown, and the breadth of countries affected remains up in the air. 

If the big announcement on Wednesday does come as some "crash, bang, wallop", that could at least clear the air on Wall Street, which has been on tenterhooks over the issue all year.

In fact, analysts looking at the elevated but relatively contained pricing of stock index volatility suggest that there's little left to come out on Wednesday that truly surprises and pushes those gauges up much further. 

Maxwell Grinacoff, head of equity derivatives research at UBS, made the case on Tuesday that tariffs were now well priced into the S&P 500 index and that investors had substantially "derisked" in March by selling equity in lieu of hedging. 

This trend led to sharp equity price declines, but a more modest reaction in "vol", especially when compared to some of the periodic spikes in the "fear index" seen during the bull market of recent years.

Graphics are produced by Reuters.

"Volatility is now having its 'dirty-shirt' effect – it's already stained, so a little more 'mud' won't do much else," wrote Grinacoff, adding that VIX levels were likely to remain range-bound around 20 as a result.

The prospect of the tariffs announcement on Wednesday clearing the decks then could be considered a positive, but only if you're generally bullish about the U.S. economic outlook.

"We think the potential for even higher volatility from here is thus limited," Grinacoff added. "Unless the U.S. falls into recession territory over the coming months/quarters - albeit not our base case."

Absence of recession is a big caveat. 

Graphics are produced by Reuters.

We're seeing the perfect storm that gold buyers have dreamt of for years - well, almost forty years. Trade wars, military tensions, broken Western alliances, inflation concerns, recession fears and doubts about the dollar's dominant role in world finance: The combination of all this has seen gold zoom nearly 20% so far this year to an all-time high of $3,148 per ounce. It's been its best quarter since 1986. 

And this time around U.S. protectionism and isolationism are also in the mix. With tariff walls and military spending rising and the spectre of "stagflation" lurking in the background, central banks around the world have boosted gold holdings at the margins as part of their precautionary reserve building.

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