Trading the unknown unknowns

Traders find a template of "known unknowns" useful for analyzing some situations.

- DEVANGSHU DATTA

Take the annual Budget, for instance, or the Reserve Bank of India's (RBI's) monetary policy reviews. You know when the event will occur, and you know it will have financial implications. But you don't know what the implications will be. You gather resources, build scenarios, and take positions accordingly, based on the known timing.

Two events currently on the anvil contain large components of "unknowns" with economic implications. One is the global tariff war, and the other is the Indo-Pak faceoff after Pahalgam.

The tariff war falls into the category of "known unknowns." There's a 90-day moratorium and that "pause" runs out in July. Donald Trump is unpredictable and he's backed himself into a corner, but he has only a few alternatives.

He can impose tariffs at the last proposed levels, probably with a rethink on China-specific tariffs. He can propose some other tariff structure, and go through another round of bargaining for "deals." Or, he can revert to the structure prior to April 2025 and pretend none of this ever happened.