April the Cruelest Month?

Convergence of liquidity tightness and trade imposts, with likely more to come.

“Whan that Aprille with his shoures soote, The droghte of March hath perced to the roote,” Geoffrey Chaucer

“April is the cruelest month” T.S.Elliot

So, what will it be? Will April deliver with ‘his showers sweet’, as modern parlance would have it, or will April be cruel? The probability is April 2025 will be cruel. Why? A confluence of liquidity tightness at quarter-end may be compounded by trade disturbances a couple of days later. Nor is this the only excitement on the calendar - more of that later.

QT and bank asset growth has increased demand for reserve balances and now regularly constrains quarter-end provision of repo to the Street. That has to contend with persistent demand for funding for leveraged positions. The limits of that funding were nicely outlined in a FT piece today.

As we noted previously, year-end 2024, repo spiked well above the theoretical upper limit set by the Standing Repurchase Facility (SRF) offered by the Fed. Senior members of the FOMC, such as Lorie Logan, have identified reserve demand as a major risk in the control of short-term interest rates, possibly requiring abandonment of QT, and injection of liquidity via SRF. Quarter-end follows shortly after an FOMC meeting. If repo does shoot higher, it will be an embarrassment for the Fed. Repo and plumbing are opaque to most investors. A panic could lead to questions about FOMC competence.

April is the cruelest month

Following hard on the heels of quarter-end, President Trump has promised that April 2nd will see the announcement of “substantial” tariffs on major trading partners. He has dubbed that date ‘Liberation Day”. Perhaps not coincidentally, the date marks the second anniversary of the Mandate for Leadership by The Heritage Foundation. The Mandate (also known as Project 2025) provides a roadmap to fundamentally alter the framework of all major areas of federal government – including trade. Peter Navarro wrote Part 1 of the Trade section of ‘Mandate’. Rumours suggest Navarro's proposals in the Mandate for Leadership will strongly influence the US administration on 2 April. The Mandate outlines possible target countries.

Now it is fair say there appears to be debate within the Administration about how hard to pursue this agenda. But this is just the start. By summer we should know whether the US will withdraw funding and membership of major multilateral organisations, including the UN, the IMF and the World Bank.