Image Source: Unsplash

From Tariff Truce to Checkout Truth: Retailers Set to Reality-Check the Rally

Wall Street may have powered higher on the back of a U.S.–China tariff cooldown, but this week’s retail earnings slate is set to reality-check that optimism. With reports due from bellwethers like Target (TGT), Home Depot (HD), Lowe’s (LOW), Ralph Lauren (RL), and TJX, traders will finally get a high-resolution view of how Main Street is digesting Trump’s trade war pivot.

Yes, stocks have staged a monster rebound since the April 2 “Liberation Day” tariff blitz—the S&P 500 is up over 18% from the lows and has clawed back its YTD losses—but we’re about to find out if consumers are still willing to swipe, or if Walmart’s (WMT) warning was just the opening bell.

Walmart's Thursday bombshell—they’ll be forced to hike prices despite the recent tariff truce—landed just days after the White House dialed back some of the most draconian levies. That raised eyebrows. If the world’s largest retailer is still feeling the heat, what does that say about mid-tier and discretionary names? This is the moment when tariff theory meets price tags.

Traders will be watching for signs of margin compression, forward guidance revisions, and—perhaps most critically—consumer trade-down behavior. Are households shifting to generics, pausing big-ticket purchases, or front-loading again ahead of another policy pivot? These questions are more than micro—they’re the pulse of the U.S. economy, given that consumption still makes up more than two-thirds of GDP.

April retail sales already showed signs of fatigue. The post-frontloading hangover from Q1 is real. Add to that sour sentiment readings and a Walmart-led pricing overhang, and you've got a cocktail that could spike volatility—especially in consumer cyclicals and discretionary names.

And while equity markets have been **resilient—some would say blindly so—**this week’s data may force a reassessment. If big-box earnings fall flat, or if consumer guidance turns defensive, expect the market to start repricing the “soft landing” narrative traders have recently embraced.

This week’s retail earnings aren’t just about quarterly beats or misses—they’re a macro referendum on the tariff truce, inflation pass-through, and the staying power of the American consumer. The 18% S&P rally has been fueled by the assumption that tariffs are now a backburner risk. These reports will show whether that assumption holds—or gets returned to sender.

Dollar Dominance Wobbles as SLR Reform Meets Reserve Diversification

April wasn’t just a wobble—it was the clearest episode of triple selling we’ve seen in decades: U.S. equities, bonds, and the dollar all under pressure at once. For seasoned FX traders, it echoed the post-9/11 “Sell America” wave—a rare alignment of risk-off and structural angst. And if you used that historical playbook, the signal was loud and clear: a U.S.-led cyclical slowdown that forces the Fed to ease faster and deeper than its G10 peers. That’s not a one-off. That’s a trend starter.

But here’s the thing—look beneath the surface.

The U.S. Q1 GDP “shock” contraction of -0.3% annualized had bears pounding the table, but that was never about domestic demand. It was front-loaded inventory distortion, as importers raced to beat tariff deadlines. And we’re already seeing signs that container bookings from China are exploding again—+300% since the 90-day pause was announced. Call it “tariff front-running” 2.0.

Japan saw a similar trade-driven hit in Q1, and even the U.K.’s eye-popping 2.9% GDP growth came with a tariff-shaped asterisk: exporters front-loading orders ahead of policy walls going up. Trade distortions are everywhere, and headline data is lying by omission. But don’t confuse volatility with vitality. Underneath, the U.S. is creaking—and the Fed is the only one with room to blink.

Still, here’s where it gets interesting. While recession odds have backed off and equities have found their feet, the real potential market disrupter is the growing push to rework the Supplementary Leverage Ratio (SLR). If regulators exempt Treasuries from SLR calculations—something that’s now supported by SIFMA, House Financial Services, Powell, and Bessent—you’re not just tweaking regulation. You’re unlocking balance sheets.

This would trigger a structural bid for USTs, particularly from banks who’ve been on the sidelines thanks to capital constraints. It’s not quite QE, but it would have similar mechanical effects—a stealth re-liquification of the world’s most important collateral market at a time when issuance is ballooning and foreign central banks are still net sellers.

To put the SLR-related demand potential into perspective: if banks were to step in and buy an additional $500 billion in Treasuries, it would take their holdings back to levels not seen since the early 1970s—a time before deregulation reshaped the entire financial landscape.

That was an era before securitization, before derivatives, and before capital-light trading books dominated bank balance sheets. Back then, Treasuries were the core asset—not a regulatory burden. So, for demand to move the needle today, banks would effectively have to roll back the clock and be willing to absorb Treasuries at a scale that hasn't been culturally or operationally normal for over five decades.

That’s not impossible—but it’s a big behavioral shift. And it underscores why removing Treasuries from the SLR denominator is more than a technical tweak—it’s the only way to make that scale of demand feasible without choking off return on equity.

If the exemption goes through, and Globally Important Systematic Banks embrace the news you’re looking at a potential half-trillion-dollar reallocation back into USTs—not overnight, but mechanically possible. And in a market grappling with massive net issuance and thinning foreign official demand, that kind of domestic bid could be the backstop that keeps the long end from breaking down. ( Stepehn Innes)

Which brings us back to the dollar. ( But keep the SLR on your front page)

The extra "bagged" premium the USD carries via policy uncertainty, political dysfunction, and regulatory fog is being repriced. But the deeper trend is one we’ve been flagging for a while—the erosion of dollar dominance, not its collapse. Reserve managers aren’t staging a coup on the greenback, but they are diversifying. Slowly. Strategically.

IMF COFER data shows USD’s share of global FX reserves is stuck near 30-year lows—57.8% as of Q4 2024, down from a 73% peak in 2001. That recent 25% rally in the dollar from 2020 to 2022? It barely moved reserve allocations. Foreign central banks didn’t reload USTs—they sold them. The TIC data backs it up, with sustained selling by official institutions. The real net buyers? Private foreign investors, who’ve snapped up over $1 trillion in Treasuries since 2023, while central banks shifted into bills or rotated into Agencies.

But here’s the risk: What happens if that private bid falters?

If central bank selling persists and private demand fades with a solid SLR tweaked UST bid—especially as rate volatility returns—alternative destinations like euro-zone debt become more viable. The euro’s reserve share is near post-GFC lows, just 20%, with ample room to rise if fragmentation risk continues to recede and euro yields hold above water.

Let’s be clear—we’re not in the "end of the dollar" camp. But this slow drift away from U.S. assets is real, and it has market consequences. It doesn’t take full reserve detonation to drag the dollar lower in multi-month cycles, especially as U.S. fiscal risk mounts and rate cut expectations firm up.

The "Sell America" setup hasn’t vanished—it’s just paused. The dollar’s reserve status is intact, but its unchallenged dominance is fraying at the edges. The SLR exemption push could plug one leak in Treasuries, but FX markets are already starting to price the bigger picture. This isn’t the panic of collapse—it’s the grind of recalibration. And in FX, that’s often where the best trades live.

More By This Author:

The Weekender : Screens Breathe, Traders Recalibrate & Risk Gets Repriced
Wall Street Shakes Off Tariff Blues, Dances To The Disinflation Beat
From Euphoria To Caution: Trade Truce Rally Meets Bond Market Reality