The most extraordinary week in financial markets saw financial assets whipsaw. Equities initially plunged amid fears that the global response to the US’s so-called ‘reciprocal’ tariffs would plunge the global economy into a recession. However, shares soared after surging bond yields forced Donald Trump to make an abrupt U-turn, announcing that tariffs on all countries apart from China would be just 10% for the next 90 days to allow time for trade negotiations.
The US and China continued to impose ever higher tariffs on the other’s exports. US tariffs on Chinese goods now stand at 145% while Chinese tariffs on US goods are 125%. Late in the week, Trump bowed to pressure from US tech giants, such as Apple which warned the price of its goods in the US may triple, announcing that smartphones, tablets and laptops were exempt from his ‘reciprocal’ tariffs.
UK
The FTSE 100 ended the week 1.1% lower.
UK GDP unexpectedly rose 0.5% in February, helped by a stronger services sector.
The UK suspended import tariffs on 89 products (ranging from pasta to juices, plastics, plywood and gardening supplies) for two years and increased the loan facility for exporters to ease the strain on British businesses following the drastic imposition of US levies.
US
The S&P 500 closed the week up 2.3%, having fallen about 12% since ‘Liberation Day’ on April 2 followed by a 9.5% jump on Wednesday (its best day since 2008). The Nasdaq closed the week up 4.0%, having tumbled into a bear market earlier in the week followed by a 12% rise on Wednesday (its best day since 2001).
Minutes of the latest FOMC meeting showed policymakers “generally saw increased downside risks to employment and economic growth and upside risks to inflation while indicating that high uncertainty surrounded their economic outlooks”. Boston Federal Reserve (Fed) chief Susan Collins suggested the Fed stood ready to inter-vene if mar¬ket con¬di¬tions deteri¬or¬ate. However, Trump’s erratic approach presents the Fed with a dilemma: does it support the economy or stay tough on inflation?
US inflation fell to 2.4% in March. However, the data was largely discounted as it is backward looking. Economists are now predicting that Trump’s tariffs are likely to push US inflation to 4% later this year.
The University of Michigan’s consumer confidence index slumped to 50.8 in April, down 11% from March and the lowest level since June 2022. One-year inflation expectations surged to 6.7% in April, the highest level since 1981.
Europe
The Eurofirst 300 finished the week down 2.1%.
Japan
The Nikkei 225 closed the week down 0.6%.
Japan appears to be the first major economy to secure priority tariff negotiations with Donald Trump.
Pacific Basin ex Japan
While Beijing matched the US’s higher tariffs with hikes of its own on US exports, the authorities called the U.S.’s latest increase to 145% a “joke” and ruled out any more increases on its part, saying it “has no practical economic significance”. Pres¬id¬ent Xi Jin¬ping said that there were “no win¬ners in a tar¬iff war” and that “con¬front¬ing the world will only lead to self-isol¬a¬tion”.
Chinese consumer prices fell 0.1% year on year in March, compared with February’s 0.7% drop. Producer prices dropped 2.5% year on year in March.
Emerging Markets
The MSCI EM Index ended the week down 6.7% in USD terms.
The Reserve Bank of India lowered the policy repo rate by 25 bps to 6%.
Bonds
The yield on the 10-year US Treasury bond jumped 59 bps over the week to close at 4.53%, its highest level since February and the biggest weekly rise since 2001, while the yield on the 2-year note climbed 32 bps to 3.93%. Liquid¬ity appears to be worsen¬ing in the $29tn Treasury mar¬ket as non-US holders sell up.
US high-yield credit spreads rose to more than 440 bps this week, the highest level seen since late 2023.
The yield on Germany’s 10-year Bund closed the week down 1 bp at 2.57%, while 10-year UK gilt yields rose 31 bps to 4.84% as the Bank of England cancelled a planned auction of long-dated gilts due to the market turmoil. 30-year gilts touched 5.6%, the highest level since 1998, fuelled by concerns about UK growth and the possibility that the government would have to issue more debt in response.
Japan’s 10-year bond yield increased 19 bps to 1.34%.
Commodities
Gold surged to record highs, marking its biggest weekly gain since the pandemic in March 2020 and peaking at $3,243 an ounce.
Oil prices fell sharply with Brent crude touching $60 a barrel for the first time in four years before closing the week around $65 a barrel.
Currencies
The US dollar slumped to a three-year low as measured by the US Dollar Index. Trump’s erratic policymaking is threatening the greenback’s safe-haven status.
