The data are unequivocal about this one, so don't shoot the messenger.

Let's start with the context that will put this in perspective.

1 The Colombia Feud

Trump sent migrants to Colombia using US military airplanes. That was a change of approach that initially provoked Colombia to diver the planes elsewhere.

In retaliation, Trump swiftly enacted 25% tariffs. Within 6 hours, the migrants were allowed back into Colombia.

This didn't represent a change in policy, as Colombia previously accepted migrants in civilian planes, but it did spook the market. Let's look at some data.

2 The VIX Term Structure

Betting markets are great indicators. The futures market on the S&P 500 is one such market. Roughly, the relationship of call to put options on it makes up the VIX (fear and greed) index.

The structure of contracts that make up the VIX can be measured. A quick look reveals that it remains in "contango," which is positive--that's blue dots following up and to the right.

But the steepness of that curve is much flatter, indicating a neutral outlook for the coming months.

3 CME Fed Watch Tool

This tool also measures a betting market of sorts. It can be used to assess the probability that the Federal Reserve will raise interest rates or cut them for some month in the year.

We see two new developments from Saturday. First, (orange box) there is now a preponderance of participants who see rate hikes in July of next year.

Second, a small minority now see a series of hikes above our current position in 2026 (red box).

The fact that the market is pricing in a hike cycle means one thing: they anticipate the Federal Reserve to act to combat inflation.

That inflation, which was very slowly subsiding, will be rekindled by Trump's tariff policies.

Colombia is not enough to matter. Rather, the incident shows that Trump means to deliver on his campaign rhetoric.

And quite soon, he has made it clear that he intends to enact tariffs on both Canada and Mexico.

4 Canada and Mexico

According to the Wall Street Journal, Trump is "very serious" about 25% tariffs on our two largest trading partners, and his aids want to enact them before talks begin.

Again, context matters. The estimated impact on consumer prices is 0.5% over 2025 (according to the Tax Foundation). It is also estimated to slow GDP growth by 0.4% and cause an up-tick in unemployment by about 340k.

These are real numbers, but not dramatic numbers.

5 Concluding Thoughts

Thus far, Trump's policies have provoked large reactions because changes to interest rates (bond yields) have reverberating effects on the broader market.

Even if the 25% tariffs on Canada and Mexico are permanent, they are unlikely to affect our economy dramatically.

The bull market has not been canceled. Cycling into $BTC however, might make sense. Until we gain clarity, the only certain outcome is more volatility.

Happy Trading!

-Sebastian Purcell, PhD

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