Markets in a Minute: Tariffs, Tensions & Turning Points
Market Overview
US President Donald Trump’s return to office has delivered no shortage of surprises, as markets experienced major turbulence in his first 100 days. The “Liberation Day” tariff announcement on 2nd April was a significant pressure point – triggering a sharp sell-off across global markets. The tariffs, including a blanket 10% levy on goods and a range of additional trade restrictions, were far more aggressive than expected. US consumer sentiment fell by 32% in April to levels not seen since the 1990 recession. However, Trump made a U-turn on 9th April, declaring a 90-day pause on most of the tariffs, with a sharp sell-off in the US Government bond market the likely catalyst. All eyes are now on the implementation (or potential rollback) of US trade policy and the policy response from the Federal Reserve (Fed). Should Trump dial down his rhetoric and offer more predictability, this may help stabilise consumer and business confidence. However, should aggressive tariff policies ensue, this may raise concerns over a potential US recession and prolong the heightened market volatility.
‘Liberation Day’ obliterated the global economic status quo, with eyes on potential deals to normalise trade
- Global markets fell sharply in response to Trump’s harsher-than-expected ‘Liberation Day’ tariffs, with several market indices recording the largest one-day decline since the onset of the COVID-19 pandemic in March 2020. This fuelled concerns the US economy was headed for a recession.
- A week after the tariff announcement, Trump announced an immediate 90-day pause on the higher reciprocal tariffs for most countries, allowing for negotiations. Equity markets rocketed upward before close on the same day, with some indices making record-breaking single-day gains.
- Tensions between Trump and Fed Chair Jerome Powell escalated, after Powell appeared to add to the negative market sentiment. He echoed recent comments from Fed officials about an uncertain outlook, and that higher-than-expected tariffs could have a similar economic impact as a result. Trump took to social media, branding Powell as “Mr too late” to attempt to force interest rate cuts despite lingering inflation concerns.
- Markets saw some relief by month-end, amid hopes of de-escalating tensions between the two largest economies, the US and China, and after Trump said he would not fire Powell. Sentiment was also boosted by growing speculation other trading partners were making near-term agreements with the US that could boost the global economy.
- However, the escalating trade war between the US and China. The Trump administration excluded China from the 90-day pause and instead increased tariffs on Chinese goods by up to 145%. China swiftly responded in kind and increased levies on US imports by up to 125%.
UK economy holds up relatively well, but can’t escape a deteriorating outlook from financial tariffs
- The UK economy expanded at a faster-than-expected +0.5% in February, with much of the growth attributed to stronger services output. On a year-on-year basis, gross domestic product (GDP) increased +1.4%, beating consensus estimates. This faster growth has not changed the market view that the Bank of England will continue its path of further interest rate cuts over 2025.
- UK annual consumer price inflation slowed from 2.8% in February to 2.6% in March, below the 2.7% consensus forecast from economists. Importantly, services inflation (a more stubborn component) slowed faster than expected, to 4.7% from 5%.
- UK unemployment held firm at 4.4%, despite data from the Office for National Statistics indicating the number of employed persons fell by 78,000 in March, the most since 2020. Weekly average earnings remained strong and expanded by 5.9% in the three months to the end of February.
- Despite these positive data points, the International Monetary Fund (IMF) still downgraded its 2025 UK economic growth forecast to 1.1%, a significant downward shift from the 1.6% forecast in January, partly due to recent political developments. Meanwhile, Bank of England Governor Andrew Bailey said the UK faced a “growth shock” from Trump’s trade policies.
China continued to fight back against the US in an escalating April trade war
- The China-US trade war stole headlines in April, as China fought back against America’s imposed tariffs over the month which escalated from an initial 34% on American goods on 10th April 25, to ending on 125%. Although shortly after, Beijing called the latest US tariff move a “joke”, and appeared to rule out any future increases.
- Economic uncertainty over China remains, with many economists lowering forecasts that the country can meet its official 5% GDP target. However, the US-China trade war has raised expectations that Beijing will deploy the raft of stimulus measures over the near term.
- In a move designed to show strength to the global market, China’s Politburo (the ruling party’s 24-member policymaking body) said in their April meeting that they would “fully prepare” emergency plans in response to external shocks. They also stressed strengthening their monetary toolkit and plans to boost tech (including AI), housing, and wider consumption, according to state media.
- By the end of the month, investor sentiment had begun to recover as optimism that trade tensions were de-escalating took hold. Negotiations between the major players are ongoing.
In summary
The first week of April saw an indiscriminate sell-off and heavy falls across global investment markets, with few places for investors to hide. To put the turbulence into context, the VIX index of US market volatility (often dubbed the ‘fear index’) reached levels only previously witnessed at the peak of the Global Financial Crisis and the outbreak of COVID-19. As if Trump’s tariff policies were not enough, he alarmed investors further during the month with comments threatening the future independence of the Fed. However, he again made a complete reversal later in the month – saying he had no intention of removing Governor Powell. Despite the significant volatility for equities, much of the world’s equity markets recovered their losses over the month, with the exception of the US and China, both of which felt most of the damage from tariffs.
April was equally volatile for bond markets, but like equities they regained their poise by the end of the month. The ten-year US Treasury finished April yielding 4.16% ,slightly down from 4.21% offered a month ago (although it came close to 4.5% before Trumps’ climbdown). The ten-year UK government bond (Gilt) finished the month with a 4.44% yield, down from 4.68% at the start of April, despite news that the UK borrowed £14bn more than expected in the last financial year. Germany’s ten-year Bund had a similar journey, after tightening fairly sharply to finish April yielding 2.44%.
For currency markets, the major story was the sharp fall of the US dollar, which fell 3.3% against sterling. However, the pound fell just over 1.6% against both the euro and yen. In the commodity markets, gold continued its stellar run, with demand fuelled by economic uncertainty and market turmoil. An ounce of gold started April costing $3,158 and finished at $3,319, having broken through $3,500. Oil was a big loser with a barrel of Brent falling $11 to finish at $63.12 on concerns of a slowing global economy.
April brought renewed market volatility as policy shifts in the US—particularly around tariffs—sparked uncertainty across global markets. While the initial reaction was sharp and broad-based, many markets recovered by month-end as tensions began to ease. Despite the noise, fundamentals in regions like the UK remained relatively stable, and long-term investment principles continue to hold true.
As always, maintaining a diversified approach and focusing on long-term goals is key. If you have any concerns about your portfolio, please don’t hesitate to contact your financial adviser. We’re here to help you stay on track—no matter what the headlines say.