- Equities: Trump's sweeping tariffs caused US and Europe markets to decline; Asia also posted negative performances
- Credit: TIPS may persist in its current streak of positive returns and outperformance over treasuries amid anticipation of further rate cuts and risks of stagflation
- FX: Equity movements may be a gauge for FX
- Rates: Early signs that extreme levels have been reached; positive negotiation breakthroughs ahead of the 9 Apr reciprocal tariff implementation could help stabilise sentiment
- The Week Ahead: Keep a lookout for US Change in Initial Jobless Claims; China CPI
Trump’s sweeping tariff policy caused market declines. The Liberation Day tariffs (universal 10%, effective on 5 Apr, and reciprocal, effective on 9 Apr) turned out to be more severe than what the market was pricing, triggering a sharp decline. As a result, the NASDAQ and S&P 500 indices lost 10.0% and 9.1% respectively. Similarly, the Euro STOXX 600 fell by 8.4% amid negative sentiments regarding Trump’s 20% tariffs on the EU. This week, keep a close watch on the US CPI report, a crucial indicator amid rising recession fears.
Asia ex-Japan equities also fell due to the Trump administration’s decision to hike tariffs on China by 34% and China’s reciprocal tariffs of 34% on all US imports starting 10 Apr. Japan’s Nikkei index plunged 9.0% due to Trump’s larger-than-expected reciprocal tariff of 24% to be applied on imports from Japan.
Topic in focus: Navigating Trump’s beautiful trade war. Confusion and chaos gripped financial markets following Trump’s “Liberation Day” tariff blitz, marking his administration’s most aggressive disruption of the global order to date. The imposition of a 10% universal tariff on all imports, alongside reciprocal tariffs as high as 60% for countries with the worst US trade deficits, triggered fears of an escalating trade war. China was hit with a 34% tariff, and the EU with 20%. With global recession risks already emerging, the scale of this trade salvo far exceeded what markets had anticipated.
While some viewed Trump’s tariffs as a negotiation tactic, the universal tariff suggests an ideological shift aimed at resetting global trade structures instead. As the EU signals potential retaliation, financial markets must brace for prolonged turmoil and our recommendations for equities are:
- Favour markets with fiscal stimulus capacity: Countries like China and Europe are better positioned to buffer the impact through stimulus. China’s low central government debt (25% of GDP) gives it ample room to boost domestic demand, while Europe’s new EUR500bn infrastructure fund signals a shift toward growth-driven fiscal policies.
- Favour companies reshoring to the US: High-margin sectors like semiconductors, pharmaceuticals, and aerospace are moving production back to the US, supported by government incentives such as the Inflation Reduction Act (IRA) and are better positioned to withstand supply chain disruptions.
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