In a declaration he had dubbed “Liberation Day”, US President Donald Trump announced a raft of tariffs on US trading partners. While described as reciprocal, the revealed levies were substantially higher than the market had anticipated. Rather than matching existing tariffs, the applied rate appears to be a ratio of the US trade deficit to total imports for each country, which is then divided by two. This is supposedly to capture all aspects of unfair trade practices, rather than just tariffs, such currency manipulation, subsidies, quotas and other restrictions. Additionally, a minimum rate of 10% is applied regardless of the balance of trade with the US. The hardest hit countries include Vietnam (46% tariff), Sri Lanka (44%) and China (34%), with the European Union hit with 20% rates and the United Kingdom seeing the minimum 10% level. Japan was hit with a larger than expected 24% rate.

Global equity markets nosedived following the announcement as investor expectations for a global recession moved sharply higher, with the S&P 500 seeing its largest single day decline since 2020 and losses for the week of 9.05% (price return in sterling). European markets, as represented by the MSCI Europe ex UK, tumbled 6.95% while the Japanese Nikkei 225 declined 6.01% (both PR in £). The FTSE 100 shed 6.97% while the mid-cap FTSE 250 lost 7.55%. Despite goading from Donald Trump to cut interest rates, US Federal Reserve chair Jerome Powell stated that, while “uncertainty is high and downside risks have risen” as a result of the tariff increases, the “size and duration of these effects remain uncertain” and with the economy still in a good place, the bank would await greater clarity before making changes to monetary policy. This dispelled any hopes that the so-called ‘Fed put’ would provide support to financial markets.

In commodity markets, the eight OPEC+ nations agreed an unexpected acceleration of their plans to phase out production cuts. This came in the wake of President Trump’s tariff announcements, which had already sent the oil price tumbling, resulting in an overall fall in excess of 6% on the day. Brent closed the week at $66 a barrel, having traded near $75 at the start of the month. In fixed income markets, sovereign bond yields broadly fell as investors fled to safety. The US 10-year Treasury yield broke below 4% for the first time since October, having been as high as 4.80% in January. The UK 10-year gilt yield also fell, down 24bps to 4.45%.

Week Ahead

Source: ForexFactory, 07/04/25

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