Economic Overview
The week of March 31 to April 4, 2025, was characterized by significant market volatility, primarily driven by the US administration's announcement of new reciprocal tariffs and subsequent retaliatory measures from major trading partners. These US tariffs have heightened concerns about global trade dynamics and their potential impact on economic growth.
On April 2, Trump unveiled a comprehensive tariff plan, imposing a minimum 10% tariff on all imports into the US, effective April 5. Additionally, higher tariffs were targeted at countries with which the US has substantial trade deficits. Notably, China faced a cumulative tariff rate of 34%, including previous levies. In response, China announced equivalent retaliatory tariffs on US goods, escalating trade tensions between the two largest economies.
These policy shifts have introduced uncertainty into the economic outlook, with potential implications for consumer spending, corporate profitability, and overall economic growth. While the US economy entered this period from a position of strength, the escalation in trade barriers poses downside risks that warrant close monitoring.
Equities, Fixed Income, and Commodities
Following the news of US Tariffs, US equity markets experienced sharp declines over the week. The S&P 500 Index fell 9.1%, the Dow Jones Industrial Average decreased 7.8%, and the NASDAQ Composite dropped 4.4%. These movements reflect investor apprehension regarding the potential economic impact of escalating trade tensions.
In the bond market, US Treasury yields declined as investors sought safe-haven assets amid equity market volatility. The 10-year Treasury yield fell to 3.99%, marking its lowest level since October 2024. This movement indicates increased demand for government securities as a refuge from market uncertainty.
The announcement of new tariffs and the potential for a trade war have implications for commodity markets, particularly those directly affected by tariffs. For instance, agricultural commodities may face price pressures due to anticipated reductions in export demand stemming from retaliatory measures by trading partners.
US Tariffs Impact on Sector Performance
The US tariff announcements had varied impacts across different sectors.
The technology sector faced significant headwinds, with major firms experiencing stock price declines due to concerns over supply chain disruptions and increased costs associated with tariffs.
Companies in the manufacturing and industrial sectors, particularly those reliant on international supply chains, faced challenges due to increased input costs and potential retaliatory tariffs affecting exports.
The consumer goods sector experienced volatility, as tariffs on imported goods raised concerns about increased prices for consumers and potential reductions in consumer spending.
Sector performance from 28th March to 4th April 2025
Source: FE Analytics
Regional Market Insights Following US Tariffs
The US equity markets' sharp declines reflect heightened investor concern over the potential economic ramifications of the newly announced tariffs and the prospect of a protracted trade conflict.
In response to the announcement of US tariffs, China implemented retaliatory tariffs, matching the US reciprocal tariff rate of 34%. This escalation has raised concerns about the impact on Chinese exports and overall economic growth.
Other major US trading partners, including the European Union, Japan, and Vietnam, were also targeted with higher tariffs. These regions are assessing potential responses, which could further influence global trade dynamics and market performance.
Currency Market Highlights
The EUR/USD pair moved within a volatile range throughout the week, reflecting a tug-of-war between renewed risk appetite and shifting expectations around US monetary policy. The pair opened the week just under the 1.0800 level and briefly surged to a multi-month high of approximately 1.1145 following the US administration’s surprise tariff announcements, which weighed heavily on the dollar. However, the euro’s momentum faded after Friday’s stronger-than-expected US jobs data, leading to a correction back below 1.1000. Mixed signals from Eurozone economic data and a firm US labour market continue to define the pair’s direction.
The USD/JPY pair exhibited volatility in response to global risk sentiment and monetary policy expectations. The pair opened near 151.00 and initially declined, touching support around 148.50 midweek as investors fled to the safe-haven yen amid geopolitical tension and rising trade protectionism. A recovery above 149.00 followed as US Treasury yields climbed post-NFP data. However, the pair struggled to maintain gains, ending the week around 149.50, with the yen supported by speculation of policy tightening by the Bank of Japan.
The GBP/USD pair remained range-bound but relatively resilient, supported by stable U.K. economic data and the broader weakness in the US dollar midweek. The pair started the week near 1.2890, tested resistance at 1.3050, and ultimately retreated toward the 1.2950 area following strong US employment figures. Traders continue to watch the 1.2830 and 1.3050 levels closely, as both represent significant liquidity zones that could trigger directional moves.
The GBP/JPY pair traded with a bullish bias early in the week, supported by GBP strength and relative yen weakness. The pair climbed from around 193.50 and attempted to break past resistance near 195.00 midweek. However, sentiment turned more cautious later in the week as safe-haven demand for the yen resurfaced, prompting a pullback. The pair ended the week hovering near 194.00, caught between opposing forces of yen strength and GBP resilience, and remains technically positioned for a breakout should macro conditions align.
Market Outlook Following US Tariffs
The recent escalation in trade tensions introduces significant uncertainty into the economic and market outlook. Key considerations moving forward include:
- Economic Growth: The implementation of broad tariffs poses downside risks to growth, potentially impacting corporate profits and consumer spending.
- Inflation: Tariffs may exert upward pressure on prices, contributing to inflationary trends that could influence monetary policy decisions.
- Monetary Policy: The Federal Reserve may consider policy adjustments to support growth if labour market conditions or other indicators show signs of deterioration.
In the week ahead, markets will closely monitor several key developments:
- US Consumer Price Index (CPI) data is due and may influence expectations around the Fed’s interest rate path. A hotter-than-expected reading could revive hawkish sentiment and pressure both equities and bonds.
- The European Central Bank (ECB) will release its latest meeting minutes, providing insight into the likelihood of a potential rate cut in June.
- Geopolitical risks and tariff reactions will continue to shape sentiment, particularly any responses from the EU, Japan, or Vietnam to the US tariff hike.
- In currency markets, traders will be watching for potential breakouts at key technical levels in EUR/USD, USD/JPY, and GBP/USD, all of which remain near multi-week inflection points.
Investors are advised to maintain a diversified portfolio, emphasize quality assets, and remain vigilant in monitoring trade developments and macroeconomic data. While volatility may persist, a disciplined, long-term investment approach remains prudent.
