TRADE. WAR. WHAT IS IT GOOD FOR?
Global equities sold off sharply last week as a result of more aggressive tariff policies than expected, while government bond yields declined partly due to expectations that a resultant growth shock may require more central bank rate cuts.
This week, focus is set to remain on tariffs but US consumer-price inflation (Thursday) and, in particular, consumer confidence (Friday) may also be of note to gauge the impact of policy uncertainty.
On so-called "Liberation Day", President Trump announced more aggressive and far-reaching tariffs than expected, with an across-the-board 10% tariff on all imports effective from 5th April and varied "reciprocal" tariff levels to be implemented from this Wednesday using a formula based on the foreign country's trade deficit with the US and the amount of goods imported.
The result of the reciprocal tariffs is a 20% rate for the EU and 34% for China while countries like Vietnam are set to be particularly hard hit with a 46% tariff. China retaliated by announcing a 34% tax on US imports from this Thursday, while other trading partners are expected to respond with similar actions against America.
The US March employment report was much better than expected, with 228K non-farm jobs added though the unemployment rate rose marginally to 4.2% as labour-force participation increased.
Global equities fell heavily due to the potential growth shock from tariff announcements as well as heightened uncertainty due to a potential trade war, with the S&P 500 declining by 9.1% and the EuroStoxx 600 down by 8.4%.
Government bond yields were sharply lower as a potential growth shock from trade tensions and increased uncertainty could push central banks to cut policy rates by more than previously expected to support activity, with demand for government bonds also rising as they are viewed as a safe-haven asset.
The yield for US 10-year Treasuries was down (bond prices rise as yields fall) by 25bps to 4.01% while that for the equivalent German bund fell by 20bps to 2.54%.
- Mon 7th Eurozone - Retail sales • Germany - Industrial production
- Tue 8th US - NFIB small business survey
- Wed 9th US - Fed meeting minutes
- Thu 10th US - Consumer-price inflation, initial jobless claims
- Fri 11th US - University of Michigan consumer sentiment
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.