U-TURN IF YOU WANT TO
Financial markets were highly volatile in what proved to be an eventful week, with President Trump delaying the implementation of "reciprocal" tariffs for 90 days but escalating the US-China trade war. US stocks staged a relief rally as the growth hit from tariffs may now be less than previously expected.
Tariff talk and any potential negotiations are set to remain in focus this week. Elsewhere, Q1 corporate earnings announcements and guidance will also be of interest - including Goldman Sachs, Taiwan Semiconductor and LVMH - while US retail sales (Wednesday) and the ECB meeting (Thursday) are also likely to be noteworthy.
The US last week implemented the additional 10% tariffs announced on "Liberation Day" but announced a 90-day delay in "reciprocal" tariffs for trading partners that were willing to negotiate.
By contrast, the US-China trade war escalated with tit-for tat tariff increases culminating in America announcing a 145% tariff on Chinese imports and China raising its tax on US imports to 125%.
US consumer prices rose by less than expected in March, decelerating from February with headline prices up by 2.4% y/y and core inflation at 2.8%. Price pressures are expected to rise from here though if tariffs are implemented for an extended period of time.
The impact of tariff policies was illustrated in the University of Michigan consumer survey as the sentiment index fell sharply in April while one-year ahead inflation expectations rose to 6.7%, the highest level since 1981.
On Friday evening, the Trump administration exempted smartphones and laptops from the tariff regime. Over the weekend, US trade secretary Howard Lutnick suggested that this particular pause may be temporary as a 'tech specific' tariff rate is being considered.
Global equities fell heavily early last week as a large growth shock was expected from "reciprocal" tariffs, with the US expected to enter recession. However, the 90-day delay led to a sharp rebound in US stocks, which had sold off more than other global stocks. The S&P 500 ended the week up by 5.7% The EuroStoxx 600 was down by 1.9%.
US Treasury bond yields were sharply higher over the week as concerns over an economic slowdown and expansionary fiscal policy, leading to an increased government debt load, pushed up rates. Yields did drop slightly following the tariff delay but remained elevated after climbing 60bps between Monday & Wednesday morning.
The potential for tariffs to add to inflation pressures was a contributory factor but market comments also raised concerns that a combination of rising yields and a falling dollar may be reflecting lower confidence in the safety of US treasuries as policy uncertainty continues to rise.
The yield for US 10-year Treasuries was up (bond prices fall as yields rise) by 46bps to 4.47% while that for the equivalent German bund declined by 2bps to 2.52%.
- Tue 15th Eurozone - Industrial production • Germany - ZEW business survey
- Wed 16th US - Retail sales, industrial production
- Thu 17th US - Initial jobless claims • Eurozone - ECB meeting
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.