Global Economy & Markets, Weekly Roundup 11/04/25
The sharp escalation in trade tensions has triggered a broad market volatility surge
Uncertainties surrounding the trade landscape led to wild swings in global markets, with realized and implied volatility increasing abruptly and US assets, including the dollar, remaining under selling pressures.
Initially, economic brinkmanship intensified on April 2nd, as President Trump announced a universal tariff of 10%, and additional higher tariffs on trading partners up to 50%, depending on their trade balance with the US (country-specific tariffs). Exemptions regard goods that face product-specific tariffs like steel, aluminum, autos. For now, “reciprocal” tariffs do not include pharmaceuticals, semiconductors, critical minerals and energy products. The 10% tariff rate took effect on April 5th, while the country-specific tariff was expected to come into force on April 9th.
However, on April 9th, President Trump issued a 90-day pause on country-specific tariffs for “non-retaliating” countries as bilateral negotiations have proceeded. Still, the across-the-board tariff rate of 10%, as well as sector specific tariffs, will remain.
The stress in the US Treasury market with the 30-Year UST yield increasing abruptly by 50 bps to 5% intraday on Tuesday, as well in US large cap equities, with the S&P500 declining by 10% in two days, which has occurred only three times previously since WW-II, probably contributed to the reversal in proposed tariffs.
On the other hand, for China, which has retaliated, the nominal tariff rate on Chinese imports (2024: $439bn or 13% of total US goods imports | trade deficit: circa -1% of US GDP) will be 125%, on top of the 20% rate announced in March, with effect from April 9th. In response, China has imposed, so far, additional tariff rates of 125% on all US imports ($164bn or 6% of total Chinese goods imports), with effect from April 12th, stating that will ignore further tariffs from the US Administration on Chinese goods as tariff rates have now gone to punitive levels.
All told, as of April 10th, the S&P500 has been lower by -6% since “Liberation’s Day” announcements. Regionally, the correlation of equity returns has been very high, with no place to hide (Eurostoxx: -9% and MSCI EM: -7%). Regarding sectors, IT has declined by -5% for the same period, as, inter alia, 55% of the S&P500 IT sector’s revenue stems from abroad and supply chains are concentrated heavily in EM Asia. Other cyclical sectors have also declined significantly, with the US banking sector down by -10% (euro area banks: -12%).
Trade uncertainty continues to represent a meaningful downside risk for economic activity, affecting investment, hiring and spending decisions, at least over the next three months, albeit the latest developments may limit extreme outcomes. Investors appear highly uncertain of how and, to what extent, protectionist threats will materialize, mainly between the US and China.
Regarding central banks, the minutes of the March Fed meeting (issued on April 9th) echoed the message from the press conference that uncertainty regarding the net effect of government policies remains high, with the majority of FOMC members highlighting the potential for more persistent inflationary effects than previously thought.
Uncertainties surrounding the trade landscape led to wild swings in global markets, with realized and implied volatility increasing abruptly and US assets, including the dollar, remaining under selling pressures.
Initially, economic brinkmanship intensified on April 2nd, as President Trump announced a universal tariff of 10%, and additional higher tariffs on trading partners up to 50%, depending on their trade balance with the US (country-specific tariffs). Exemptions regard goods that face product-specific tariffs like steel, aluminum, autos. For now, “reciprocal” tariffs do not include pharmaceuticals, semiconductors, critical minerals and energy products. The 10% tariff rate took effect on April 5th, while the country-specific tariff was expected to come into force on April 9th.
However, on April 9th, President Trump issued a 90-day pause on country-specific tariffs for “non-retaliating” countries as bilateral negotiations have proceeded. Still, the across-the-board tariff rate of 10%, as well as sector specific tariffs, will remain.
The stress in the US Treasury market with the 30-Year UST yield increasing abruptly by 50 bps to 5% intraday on Tuesday, as well in US large cap equities, with the S&P500 declining by 10% in two days, which has occurred only three times previously since WW-II, probably contributed to the reversal in proposed tariffs.
On the other hand, for China, which has retaliated, the nominal tariff rate on Chinese imports (2024: $439bn or 13% of total US goods imports | trade deficit: circa -1% of US GDP) will be 125%, on top of the 20% rate announced in March, with effect from April 9th. In response, China has imposed, so far, additional tariff rates of 125% on all US imports ($164bn or 6% of total Chinese goods imports), with effect from April 12th, stating that will ignore further tariffs from the US Administration on Chinese goods as tariff rates have now gone to punitive levels.
All told, as of April 10th, the S&P500 has been lower by -6% since “Liberation’s Day” announcements. Regionally, the correlation of equity returns has been very high, with no place to hide (Eurostoxx: -9% and MSCI EM: -7%). Regarding sectors, IT has declined by -5% for the same period, as, inter alia, 55% of the S&P500 IT sector’s revenue stems from abroad and supply chains are concentrated heavily in EM Asia. Other cyclical sectors have also declined significantly, with the US banking sector down by -10% (euro area banks: -12%).
Trade uncertainty continues to represent a meaningful downside risk for economic activity, affecting investment, hiring and spending decisions, at least over the next three months, albeit the latest developments may limit extreme outcomes. Investors appear highly uncertain of how and, to what extent, protectionist threats will materialize, mainly between the US and China.
Regarding central banks, the minutes of the March Fed meeting (issued on April 9th) echoed the message from the press conference that uncertainty regarding the net effect of government policies remains high, with the majority of FOMC members highlighting the potential for more persistent inflationary effects than previously thought.