ING Sales and Trading Interview Questions
Last Updated:The last few times we talked – a while ago now, back in the simpler times of October and September of 2024 – we talked about the tail risk of tariffs to markets since, well, it seemed to me like they’d come in some form or another but there was no real consensus on what that form would be (despite Goldman’s valent efforts to put pen to paper and approximate some rough math – all of which, in retrospect, hasn’t aged too well).
To listen to the financial media, one would think that no one anticipated that tariffs would come at all – instead preferring to believe that they were a talking point, a negotiation tactic, or a twinkle in the future President’s eye that’d vanish upon inauguration. There’s some semblance of truth to this – even back in October, as it seemed more and more probable that there’d be a Republican sweep, I flagged that Goldman’s custom basket of tariff-exposed equities hadn’t moved much which seemed to indicate that market participants (at least equity market participants) weren’t too concerned about the tariff threat.
However, a better characterization is that, sure, some market participants did treat tariffs as an aspiration that’d never turn into an actuality but most figured there would be some rise in the level of the effective tariff rate vis-à-vis the rest of the world. In other words, the conventional wisdom – which, of course, is typically never right – was that if Trump won there’d be some modest baseline level of tariffs against almost all trading partners, some larger level of tariffs on China, and that they’d be announced within minimal fanfare and with little movement for negotiation on them (i.e., ~40-60% on China and 10% on most of the rest of the world, perhaps with a carveout for Canada and Mexico).
As a result, because of the somewhat modest level of tariffs anticipated, and the fact that the US isn’t too trade-exposed to begin with, the thought was that these tariffs would represent a modest drag on growth, cause a modest one-time price adjustment, but that all this would be more than offset by the pre-existing inertia of the economy, the extension and expansion of tax cuts, deregulation, etc.
In other words, there would be no rebalance of the global trading system, no rebalance of the global monetary system – instead, there would be some sand thrown into the gears of export-reliant economies that would require them to undertake a slight rebalance, there would be some incentive to reshore production to the US where feasible, etc. and all this would probably lead to a stronger dollar, higher for longer rates, and more or less leave equities unimpacted (except a few that are more China-exposed).
With the April 2 tariff announcement, we did not see a slight readjustment to the effective tariff rate but rather what some believe represents a systemic readjustment and what others, who are perhaps over their skis a bit, believe represents some form of a more fundamental reordering of sorts (for some, the beginning of a reordering of the global trade system; for others, the beginning of a reordering of the global monetary system).
Over the last week – beginning with the tariff announcement itself, followed by the realization that the full tariffs would be implemented as announced on Apr 9 – the hot takes, theories, and prognostications from traders and strategists have been innumerable (most aged like sour milk after a few days as new events superseded those that came before).
And it’s this reason – that through Apr 2 to Apr 11 there was no conventional wisdom or dominate “take” among market participants – that we saw such illiquidity across all asset classes which led to the huge, lurching moves that caused some hyperventilation here and there. It takes years to rebalance trade flows, but much less time to rebalance capital flows – and the issue was that no one knew how capital flows should be rebalanced and what this rebalance, should it occur in earnest, would mean or represent.
As a sign on the times, Goldman’s brought back their “market stress monitor” to gauge market microstructure across asset classes (to no one’s surprise, market depth and liquidity have been low everywhere – but not at levels, right now, that would justify the need for the Fed to step in to ensure that cooler heads prevail although the Fed's Collins has signaled that of course orderly operations in the treasury market would be maintained).
Right now (Apr 11) markets, across asset classes, are somewhat of a Rorschach test: there are a number of different interpretations that can be made, and it’ll become clear in retrospect what the better interpretations are (or are not).
For example, there’s been sustained pressure out the long-end of the yield curve that has taken many by surprise and has led to various interpretations (i.e., a more benign de-dollarization as cheaper markets now look relatively more attractive, a more troubling de-dollarization due to declining confidence in the US overall, a more microstructure story involving significant pressure from the basis trade, or dealers just creating room for the extremely well-executed 10Y auction on Apr 9 and the 30Y auction on Apr 10 that occurred after the poor 3Y auction on Apr 8).
Or as GS said in a recent, brief desk note, "1/ the risk of ongoing instability in USTs; this week's been difficult to un-pick the drivers of price performance between international supply, basis trade technicalities, and the repricing of risk premia."
In the end, like all things in markets, it’s a confluence of factors and the real question is how to weigh the multiple factors that are driving the long-end – is there minimal loss of confidence in US assets and the US overall, or is that the primary factor behind the blow out in rates? I’d take the former over the latter at this stage.
But, regardless, it seems that the only certainty right now is that there will be continued uncertainty – indeed, the fact that people still, unironically, are looking back to the so-called Mar-a-Lago accord for some intellectual roadmap of the future based on the ideas of Stephen Miran (see: A User's Guide to Restructuring the Global Trading System) before he was made the chair of the Council of Economic Advisors is proof positive of this. As Miran has said numerous times, that was more of a thought experiment and doesn’t represent administration policy (his recent speech at the Hudson Institute that’s been overlooked by many is probably the clearest articulation of the Trump administration’s recent actions and the pathway forward as Miran sees it).
However, it seems right now that markets don’t want to listen to what Miran or Bessent are saying – preferring to inculcate themselves in the belief that there’s a more defined framework they’re operating under and that it’s not really the case that they’ve unleashed an unprecedented series of actions and will play it by ear from here when it comes to future deals (i.e., maybe some quasi-deals will be struck that lower the overall level of tariffs to some lower baseline amount, maybe some deal frameworks are announced that temporarily lower the tariff level beyond the 90-day pause while the full details are fleshed out, maybe deals are struck that involve promises of purchases of American goods or investments in the US that lead to tariffs being lifted all together, maybe no deals are struck at all and we revert back to the pre-pause level of tariffs – no one knows, but markets are having a tough time digesting that uncertainty and the fact that true clarity will be months, if not longer, away).
Note: In case you haven’t seen a full overview of the actual tariff regime (as it exists now, with the exception of the 90-day pause and the increased level on China) here’s a nice summary from MS...
ING Sales and Trading Interview Questions
As with all my other recent blog posts, in this post I’ll walk through a few markets-based questions that cover the major themes or storylines that are impacting markets. Typically, it’s pretty easy to peck away at these posts over a week or two since the major themes or storylines tend to have a shelf-life of at least a few months.
However, in this environment with each new day comes a new theme or storyline (often one that is in direct contraction with the prior major theme or storyline). Such is life in these interesting times. Given this, I’ve tried to create questions, and discuss themes, in a way that hopefully won’t make this all too stale too shortly.
In theory, one would expect the imposition of tariffs to lead to a stronger dollar – what are some reasons this could not occur?
If we think about a classical tariff model – always better in theory than in practice – then one would expect that the imposition of a tariff will involve some level of shared burden between the foreign manufacturer, the importer, and the domestic consumer via higher prices (with the consumer’s currency appreciating by some level depending on the level of tariff and who it’s against to offset the tariff rate increase).
However, what we saw in the lead up to Liberation Day, and in the aftermath, wasn’t a sudden surge in dollar strength but rather a sluggish fall relative to most other G10 currencies.
Based on this, theories have abound to explain what's happened and, as is often the case, there’ll never be agreement on the exact mix of factors involved or their relative levels of importance. But let’s trot out at least a few of them...
First, the simplest explanation is often the easiest: the dollar began from a position of exceptional economic strength relative to most currencies to begin with due to consistent US outperformance relative to the rest of the world over the last few years (which, of course, led to a significant rates differential as US rates seemed destined to have rates be higher for longer while other central banks began to tilt much more dovish – this was especially true in the aftermath of the Fed’s 50bps cut which most now believe was premature and led to the market pricing in just one or two 25bps cuts through 2025 after the economy, once again, proved more resilient than expected).
Therefore, when the tariffs were announced – so outsized relative to most expectations – the immediate impact was for market participants to begin penciling in lower growth and pricing in rate cuts which began to compress in forward rates differentials between the Fed and most other developed market central banks (at one-point this week over 100bps of additional rate cuts in 2025 were priced in). Which, of course, is a kind of mechanical recipe for a weaker dollar.
This has been compounded by the consistent tariff talk leading up to Liberation Day – and the on-again off-again tariffs with Mexico and Canada – which has contributed to soft data prints coming in, well, soft (i.e., business optimism surveys, consumer sentiment surveys, etc.) which has further lowered growth expectations and caused cuts to slowly begin to be priced in a bit more.
Second, behind the quantitative is always the qualitative, and the haphazard approach to the rollout of tariffs, and the associated communications strategy that has been anything but consistent, has meant that there has been a significant rotation out of dollar-denominated assets over the last few months. Or, as GS put it, “US tariff announcements and a more aggressive stance toward historical allies have hurt global opinions about the US and US assets.”
While GS frames this as a principled approach by international institutional investors, it’s more a reflection of the fact that the US has embarked on at least some level of fiscal restraint while the EU, for example, has begun to loosen the purse strings and thus has seen significant equities outperformance (for the first time in a quite some time) relative to the US. So, a bit of a geographical rotation shouldn’t be too much of a surprise (sell dollar-denominated assets to buy other-denominated assets).
This is, once again, all compounded by the fact that when you looked across global equities the US was quite expensive while the rest of the world was quite cheap – so, if it seems like there’ll be more stimulative policies elsewhere and their equities are cheaper to begin with then it’s natural to look there, not here.
However, some at GS have a more pessimistic interpretation of what we've seen; here's an excerpt from a different desk note than referenced earlier regarding the volatile and price action on Apr 10, "Price action yday felt like an exodus of US assets with the dollar rapidly weakening, US equities struggled for bid and longer dated US fixed income was under significant pressure... havens like the CHF rallied nearly 4%. Europe in dollars is now outperforming relative to SPX since liberation day and I will expect this to continue as the market seeks domestically (EU) exposed pockets that are unaffected by a slowdown in global growth."
But whatever the exact reasons are there’s no doubt about the outcome: there’s been significant flight from US assets into assets denominated in other currencies, and that has put some level of downward pressure on the dollar.
Note: Of course, another layer here – which can also be seen in the 10Y performance over the last week – is the rising depreciation pressure on EM currencies which, as always, has forced EM central banks to sell their treasuries to defend their currencies. However, it’ll be a few weeks before we can have a full picture of how much pressure on the dollar and the entire yield curve has originated from “official”, as opposed to institutional, players.
Third, and perhaps related to both the points above, is that the inconsistent messaging on tariffs (i.e., their level, their duration, and even their ultimate purpose) has led to heightened uncertainty (to put it mildly) and because of this the theoretical strength in the dollar that should come from the imposition of tariffs isn’t being fully priced in.
Or, put another way, the drag on the dollar that comes from this uncertain environment (i.e., through businesses and consumers taking a step back and curtailing spending to see what happens, institutional investors rotating out of dollar-denominated assets, etc.) is priced into the dollar now, whereas the theoretical pull upwards on the dollar that should come from tariffs is only partially priced in because the size, scope, and duration of the tariffs is still unclear. So, more of the drag has been priced in than the pull.
Put yet another way: if a 10% universal tariff had been announced – with no exceptions, and no room for negotiations – it probably would have been the case that we would’ve seen some level of dollar strength (or at least much less weakness than we’ve seen thus far).
Typically, what kind of conditions would there need to be before a sustained rebound in equities could occur?
Not all equity downturns are created equal, and an equity market that’s driven by a singular “event” or issue (tariffs) means that, well, a single tweet or truth can add or subtract a few trillion in market value. Thus, why positioning in equities has been so light (no one wants to be caught off-sides, and it’s hard to not be caught off-sides in this kind of market) which has only exacerbated the levels of moves we’ve seen (for the spx, 851bps on Monday, 727bps on Tuesday, and a cool 1077bps on Wednesday – the largest series of changes since 08).
With that said, in more normal equity drawdowns – and perhaps as will be the case with this more unconventional one too – there are a few different conditions that tend to exist at the bottom of the downturn as GS laid out in a recent note: attractive valuations, extreme positioning, and policy support.
1. Attractive Valuations
It seems so obvious as to not need to be said, but valuations matter – and the sell-off in equities to-date should always be framed against the backdrop of the extremely rich multiples that equities enjoyed in the US (in contrast to the more sluggish multiples in Europe and especially in APAC).
While multiples did fall down to 18x on Apr 8 – a level that is more normal and begins to look more attractive if one doesn’t think there’ll be a recession –with the rebound on Apr 9 we entered back into the 20x range.
Further, these multiples are still all based on earnings expectations that haven’t been revised down much, and if uncertainty leads to more sluggish earnings growth than what was priced in beforehand then these multiples will look even richer (i.e., a 18x multiple now could become a 20x+ multiple in the future at the same price level if earnings expectations fall – the denominator matters!).
Here’s a nice overview from GS that runs through a few different scenarios – and, as you can see, right now equities are priced for modest EPS growth this year, reflecting modest economic growth overall, with multiples that are still on the rich end of the spectrum (based on the current set of factors, equities probably aren't at an unreasonable level – but if one thought that a recession was likely to occur, or that uncertainty should lead to a decline in multiples, then we’d still be at rich levels and should expect another leg or two down in equities before we bottom).
2. Extreme Positioning
The night is darkest before the dawn, and so through the equities sell-off of the last few weeks everyone’s eyes have been glued to investor positioning. This can be measured a few different ways – and due to synthetic positions can sometimes be misleading – however there’s no doubt that we’ve swung from a level of pretty bullish positioning to the opposite.
To this end, Goldman’s Risk Appetite Indicator had one of the largest two-day drops since 1991 after already falling to a more neutral level after the on-again, off-again tariffs with Mexico and Canada began to be viewed as a harbinger of what was to come.
While it’s not the case that when extreme positioning begins to reverse we see a commensurate uptick in equities, as GS notes when the RAI is below -2 then 90% of the time equities are higher twelve months later. Sentiment can only be so negative for so long.
3. Policy Support
Unlike in other recent times of market stress, a complication of our current dynamic is that the most obvious form of immediate policy support is a reversal of the policy that landed us in this time of market stress to begin with (as opposed to more conventional forms of fiscal or monetary policy support). (Of course, we saw the truth of this on Apr 9 when the quasi-pause was announced.)
Indeed, the former seems squarely off the table – while the Big Beautiful Bill will still keep the US running large deficits, there’s no doubt there’s some tightening going on behind the scenes through the actions of DOGE and it seems unlikely that a significant fiscal stimulus package would occur outside a prolonged and much sharper decline in the economic fundamentals.
When it comes to the latter, things are a bit trickier. Over the last few weeks, a consistent trend has been increased expectations of lower rates in the future (but, as I’ve mentioned innumerable times, the last few years have seen the market pricing in aggressive cuts and those cuts then being priced out after more favorable economic data comes out or inflation reveals itself to be stickier than expected).
To this end, through Apr 7 and Apr 8 rate cut expectations kept churning upwards until over 100bps worth of cuts were being priced in for 2025 – even after the rollback of Apr 9 the level of cuts anticipated still stands at over three 25bps cuts (79bps priced in right now).
This is all in stark contrast to the rhetoric that’s come out of the Fed over recent days which has underlined their willingness to sit on the sidelines (again) due to uncertainties around the level of inflation the current tariff policy will lead to (i.e., Chair Powell commented that it is “not clear at this time what the appropriate path for monetary policy will be” and that “[the FOMC] does not need to be in a hurry [to adjust policy]”).
It’s fair to say that the market doesn’t quite believe this: the Fed will blink when employment begins to show signs of cracking and economic growth begins to slow. Especially since the Fed generally, and Chair Powell in particular, have made frequent comments acknowledging that tariffs typically lead to a one-time price adjustment, and that it’s unfair to suggest this one-time price adjustment will lead to durable inflationary pressure all else equal. In other words, the Fed, when it comes down to it, will probably be willing to stomach (again) letting inflation run well above target if it means preserving the labor market and the broader economy (not least because meaningful economic dislocation will have a disinflationary impact of its own).
Note: It’s also worth pointing out that unlike through 2023-24 when financial conditions were loose which acted as a nice stimulus (and perhaps was one of the reasons the Fed shouldn’t have opted for a 50bps cut) due to recent market vol, and the fact that rates through the curve haven’t fallen much, financial conditions have tightened significantly. So, this is another reason the Fed should probably adopt at least more accommodative rhetoric since lower rates (even if still well above neutral) can help ease financial conditions at the margins (and also perhaps take pressure off of rates across the curve which have experienced significant pressure).
In a recent GS survey of their clients (always a bit biased since most active clients tend not to take the time to answer polls) only 14% thought that the S&P had seen its lows already, so clearly most think that the conditions for a sustained rebound haven't been met yet...
Beyond the direct impact of tariffs themselves, what are some downstream consequences that could lead to enhanced growth downside?
As I’ve said before, through 2022-24 one of the most accurate economic forecasters was Hatzius over at GS who held firm in his belief that inflation could flutter down (close) to target through 2023-24 without the need for significant cracks in employment and that the US wouldn’t fall into recession back in 2022-23 when that began to become the consensus view as the Fed unleashed one of the fastest rate hike cycle we've seen.
But no matter one’s track record one’s bound to get some egg on their face eventually. That's par for the course in the forecasting game. To this end, after all the tariff talk materialized into actual broad-based tariffs, on Apr 9 GS capitulated on it's consistent non-recession call and made a US recession over the next twelve months their base case. However, a few hours later when the pause was announced, GS reversed course and took out a recession as their base case. Ouch.
While lots have had their fun with this reversal, it’s important to remember that GS wasn’t making a binary call here (i.e., 100% recession probability vs. 0% recession probability). Instead, they raised their odds of a recession to 65% before then, a few hours later, lowering it to 45% (with the expectation now for 2025 Q4/Q4 GDP growth of 0.5% and core PCE inflation of 3.5% vs. their prior expectation of -1% GDP growth, a 5.7% unemployment rate, and core PCE of a bit under 4.0%).
Perhaps more notably Goldman’s recession forecast anticipated 200bps of cuts through 2025, beginning with a 50bps cut in June (in other words, despite the higher level of core PCE anticipated in 2025 in the recession case GS didn't think the Fed would be too concerned with keeping rates higher for longer when there was a material crack in employment). However, in the non-recession (current) forecast just 75bps of “insurance” cuts are anticipated with the first 25bps in June (this aligns much more with current market pricing).
Here's what GS anticipated GDP growth and the unemployment rate to be in their recession forecast...
And, to put Goldman’s aggressive recession forecast (even if it’s now reversed), into context here’s their recession probability squared up against the current Bloomberg consensus (the consensus of other forecasters) alongside the anticipated PCE pathway (notice that Goldman's revised view of a 45% probability of a recession is still above the consensus – although that consensus has quickly risen over the last few days).
Note: It’s important to remember that what’s been announced is a pause in the implementation of the reciprocal tariffs, and it seems likely that in 90 days we’ll be in a situation that’s somewhere between where we are now and where we would be with full reciprocal tariffs (i.e., some countries will strike deals to avoid the full reciprocal tariffs, but the 10% baseline will probably remain – plus, also keep in mind that the sectoral tariffs are on the horizon too, presumably, so we’ll still probably see at least an effective tariff rate of 10-15% when the dust settles).
Anyway, it’s always difficult to disentangle effects but there are some downstream or knock-on or indirect (pick your word choice) ramifications of the current tariff policy that will probably be a non-trivial drag on growth for the foreseeable future even if the tariffs become watered down over the next few months.
First, as mentioned earlier, there’s been a significant tightening of financial conditions – the pace of which has only been matched in the financial crisis and the pandemic. All of which represents a significant potential drag on forward growth. Although, to steel-man this, the financial crisis and pandemic represented exogenous shocks whereas what we’re currently experiencing is a policy shock which could be unwound and if it were unwound then financial conditions would loosen significantly (although the residue of uncertainty, no matter what policy choices are made in the future, will likely persist).
Second, and related to the first to a degree, is that a natural buffer to lower growth expectations in most situations is that the entire yield curve will compress in as the Fed begins to lower rates – but, with the Fed on the sidelines for now due to concerns about heightened inflation from this policy choice, we’ve seen yields respond less forcefully than in other periods in which lower growth has been expected (to put it mildly, since we’ve seen a large sell-off in the 10Y over the last few days which isn't captured in Goldman's analysis below since it ends on Apr 8).
To give you a sense of just how significant the move in the 10Y was through the week ending Apr 11, take a look at this...
Third, while far less important in the grand scheme of things than overall financial conditions, there does appear to be some level of deliberate substitution away from US goods and US travel by businesses and consumers alike (what some call a boycott, although I think that’s far too strong a word to use right now).
In the end, even a sustained move by international consumers and businesses away from US products and US travel won't represent too significant of a drag on US growth – however, it’s another drag that, when piled on top of all the others, could be the difference in a tilt closer to negative overall growth.
Note: What would be of far more concern is large international institutional investors rebalancing even more away from the US due to perceived political risks. Some, like Saravelos at Deutsche Bank, have raised this as an issue but this kind of rhetoric, to my ears, is a bit too hot and a bit too of-the-moment. There’s been dollar weakness and a rotation away from US equities, sure, but this needs to be appropriately placed against the backdrop of how expensive US equities were, how cheap EM and European equites were, and the relative compression of growth expectations (and rates differentials) between the US and the rest of the world (i.e., since there’s no longer the expectation of significant US outperformance vis-à-vis the rest of the world, then one would expect an asset rebalance to occur if it's been tilted disproportionality toward the US as of late).
...Or as GS said in a recent desk note, "...the consensus global over-weight of US assets and US $s has been compounded by both proactive allocation decisions but also by 15 years of exceptional US asset & US$ outperformance. Even before tariff stress became apparent, Q1 had already brought significant discussion with global allocators about routes to reduce unhedged US$ length and over-exposure to US assets."
Fourth, and perhaps most obvious, is the enhanced policy uncertainty that now exists – which, due to the strategic choice to engage in negotiations through this pause window, will overhang not only the markets but also capex decisions (GS predicts capex will be flat YoY) and consumer spending decisions (i.e., we’ll probably see some significant seasonal adjusted vol around car sales; perhaps some softness in new home purchases, especially if we begin to see significant economic weakness; etc.). Indeed, it’s tough to know when uncertainty will begin to really abate – of course, not in the next three months but it seems almost assured that in the months thereafter uncertainties will remain around increases or decreases to tariff rates.
Thus, when we add all this together we achieve a significant economic drag in the near term that goes beyond the tariffs themselves although these indirect growth impacts are, of course, informed by the tariffs. With that said, through significant enough deregulation, a fall in oil from global economic weakness, and the extension of the Trump tax cuts, this economic drag could be offset to a degree.
And, of course, it’s important to remember the relatively strong economic position the US had prior to this new policy being rolled out (and rolled back and then rolled out again) which provides the administration a bit more room to maneuver (i.e., even with a significant economic hit, a recession can be avoided as global trade flows and the overall economy rebalance – thus why even with this unprecedented policy roll out most treat a recession as a coin flip).
Conclusion
The last few weeks have been in some sense unprecedented since price action has all revolved around a policy choice that could be reversed in full, or in part, if desired. Which explains why liquidity has been so light across asset classes, and at least partially explains why we’ve seen such outsized moves (including moves that have been based on fake tweets and real truths).
For a sense of how laser-focused in on policy, to the exclusion of everything else, markets have been we had a below expectations CPI print followed up by more or less unchanged jobless claims this week. These are both data prints that would have led to a compression of the yield curve and equites running higher a few months ago – but instead they were tossed aside by market participants and barely registered a blip.
There comes times in markets when backwards looking data become almost irrelevant to market participants (in stark contrast to 2023-24 when backwards looking data around inflation and the labor market were the main drivers of price action). Right now, there’s a stark divide in the minds of market participants: the time before Liberation Day, and the time after.
As a final note, I should reinforce what I mentioned in my last post which was written shortly before the election occurred: in interviews there can be times when it’s almost impossible not to reference politics, or some derivative thereof, when discussing market events.
However, it’s important to not let your interviewer come away with an impression of your personal politics from your answers – in other words, your answers should be more dispassionate observations of what’s occurred, and perhaps what you think will occur, but not be full of subjective value judgements regarding those who are promoting the policies you love or loathe (even if you have a sneaking suspicion that you and your interviewer are simpatico in your political views).
Also, keep in mind that from a market maker’s perspective market vol begets client activity and client activity begets (most of the time!) higher desk revenue (especially if there’s enough market vol to significantly increase bid-ask spreads). Indeed, in the bank earnings for Q1, and especially for Q2, we should see some blockbuster S&T revenue numbers across most banks – which will be welcomed since revenue across the other divisions might begin to be a bit lukewarm (and will be increasingly so if this period of heightened uncertainty continues to the same degree, or even an approximation of the same degree, in future quarters).