We were hoping that after the turmoil caused in markets across the globe, following the 2 April implementation of tariffs on most countries around the world, that we would at least have some certainty, but alas, here we are… again.
President Donald Trump’s recent tariff policy has seen a whirlwind of economic disruption, political manoeuvring, and global trade recalibration. Initially heralded as a bold move to restore equity in international commerce, the rollout of “reciprocal tariffs” quickly sent financial markets into a tailspin. Now, with a partial pause announced, the story of these tariffs reflects both the unpredictability of Trump’s leadership and the fragile balance of global trade.
How the tariffs were calculated
Trump’s reciprocal tariffs were designed using a formula that divided a nation’s trade deficit with the United States (US) by its exports to the US, then halved the result. This approach aimed to penalise countries with significant trade surpluses while maintaining a baseline 10% tariff for all trading partners. For example, China – already at the centre of US trade tensions – saw its tariff rate soar to 104%, later increasing to 125% following retaliatory measures by Beijing.
Economists collectively criticised this formula for its flawed assumptions about elasticity and trade dynamics, while analysts argued that Trump’s method exaggerated tariff rates due to unrealistic metrics, with some suggesting that no country should face tariffs higher than 14% under corrected calculations. The European Union (EU), Japan, South Korea, and Vietnam were among those hit hardest by these steep duties.
Market tailspin
The announcement of reciprocal tariffs on 2 April triggered immediate chaos in global financial markets. Within two days, US stock exchanges experienced their largest decline in history, erasing $6.6 trillion in market value. The S&P 500 plunged over 12% nearly approaching bear market territory, while bond yields surged as investors sought safe havens. The ripple effects extended internationally; Asian markets faltered, and the Chinese yuan fell to its lowest value since the global financial crisis.
Wall Street leaders and Trump’s allies voiced concerns over the economic fallout. Billionaire investor, Bill Ackman, proposed a temporary pause on tariffs to stabilise markets and allow for negotiations, while Elon Musk mocked Trump’s trade adviser, Peter Navarro, in private conversations, and hedge fund managers warned of potential stagflation or recession due to escalating costs for consumers and businesses alike.
Trump’s reversal
However, in true Trump fashion, On 9 April, after witnessing days of market turmoil and mounting pressure from business leaders, Trump announced a 90-day pause on reciprocal tariffs for all nations except China, whose tariffs were simultaneously raised to 125% due to what Trump described as “disrespect” toward global markets. The pause reduced duties on goods from 57 trading partners back to the baseline 10%, offering temporary relief while negotiations continued.
Trump framed this reversal as a strategic move to compel trading partners to lower their own barriers. US Treasury Secretary, Scott Bessent, praised the decision as part of Trump’s broader negotiating tactic, emphasising the leverage gained through initial tariff hikes. However, while some have applauded this chaotic ride that Trump has sent US trading partners and financial markets on, others viewed this flip-flopping strategy as emblematic of Trump’s inconsistent trade policies.
Economic uncertainty ahead
Wednesday’s pause on the implementation of tariffs sparked a dramatic rebound in markets; the S&P 500 surged by 9.5%, its largest single-day gain since 2008. However, this was short-lived and global equity and bond markets resumed their selloff on Thursday as uncertainty persists regarding the long-term impact of Trump’s tariff policies. While some nations are engaging in talks with the US, others – like China – remain entrenched in retaliatory measures. Beijing imposed an 84% tariff on American goods in response to Trump’s escalation, further straining relations between the world’s two largest economies.
The broader implications for inflation and consumer prices are concerning. Higher costs for imported goods, ranging from electronics to agricultural products, could undermine economic growth and exacerbate challenges faced by businesses reliant on global supply chains. Meanwhile, there is concern that without intervention from the US Federal Reserve (Fed) or clearer policy direction from Washington, markets may struggle to sustain any recovery.
Trump’s reciprocal tariff saga underscores the volatility inherent in his approach to governance and trade policy. What began as an aggressive bid to reshape global commerce quickly devolved into economic disruption and political backlash. The subsequent pause offers temporary respite but leaves unresolved questions about future negotiations and market stability. As nations grapple with these shifting dynamics, one thing is clear: Trump’s tariffs have fundamentally altered the landscape of international trade – for better or worse.
A LOOK AT THE MARKETS
Turbulence is, yet again, the best descriptor for the week. President Trump continued to send the markets on a seesaw ride, as he not only walked back his tariffs for 90 days, following pressure from soaring bond yields and some of the Wall Street heavy weights, but also sought permission from the US Supreme Court to have the right to fire agency leaders. This latter move caused a stir in markets as it suggests that Trump might use the same approach to go after Fed Chair, Jerome Powell, following Trump’s multiple remarks regarding the Fed’s unwillingness to cut rates merely on his appeals or requests.
Some of the key market drivers this week:
- Trump postpones tariffs on all nations, excluding China, for 90 days; China faces tariff of 145%.
- Risk-off sentiment remains dominant, with US assets bearing the brunt of the market sentiment.
- US treasury yields soar, reflecting growing concerns about the US economy and declining confidence in American assets.
- Gold set for its strongest weekly performance since November, reaching new record highs.
- Poor sentiment weighs on the dollar, as it approaches its lowest level in three years.
US stocks rally nipped in the bud
US stock futures fell this morning, rounding off a volatile week dominated by market swings tied to tariff and trade uncertainty. On Thursday, major indices erased much of Wednesday’s historic rally. The Dow dropped 2.5%, the S&P 500 slid 3.46%, and the Nasdaq fell 4.31%. Wednesday’s gains were driven by President Trump’s announcement of a temporary 90-day tariff pause for most countries but on Thursday investor optimism faded as concerns over US-China trade tensions resurfaced. The White House confirmed tariffs on Chinese imports had been raised to 145%, intensifying fears of a prolonged trade war. Meanwhile, the German DAX soared by 5.7% on Thursday and the United Kingdom’s (UK’s) FTSE by 3.2%, reflecting the poor sentiment towards the US.
Our focus today will be on key consumer sentiment data and earnings reports from financial institutions, including JPMorgan Chase and Wells Fargo, following a lower-than-expected Consumer Price Index (CPI) reading yesterday. It is important to note that the CPI reading is backward looking, and therefore not yet reflective of the current tariffs that have been implemented on goods imported by the US.
US Treasury yields face biggest weekly gain in three weeks
The yield on the 10-year US Treasury note climbed to 4.5%, marking its largest weekly increase in three years, reflecting the widening cracks in sentiment and confidence towards the US economy and American assets, fuelled by foreign investors, such as Japan offloading Treasuries amid scepticism over US trade policies. UK Gilt yields declined, while German Bund yields climbed as expectations of a European Central Bank (ECB) rate cut declined.
The rapid selloff in Treasury bonds highlights broader uncertainty in financial markets, as investors weigh the impact of escalating trade tensions and potential recession risks.
Gold remains safe haven of choice
Brent crude oil futures dropped toward $63/barrel, marking a second consecutive weekly decline as US-China trade tensions raise concerns about global fuel demand. The US confirmed tariffs on Chinese imports have been raised to 145%, overshadowing a temporary 90-day tariff pause for other countries. This increase could dampen oil demand from China, the world’s largest importer. Additionally, the expanded Organisation of Petroleum Exporting Countries, OPEC+, accelerated production increases, heightening fears of oversupply.
Gold is set for its strongest weekly performance since November, reflecting investor caution in the face of escalating global uncertainties. Its price soared past $3,200/ounce, reaching a record high as safe-haven demand surged amid trade tensions and a weaker US dollar. The tariff hike on Chinese imports is fuelling concerns over an economic fallout. Inflation risks remain elevated due to intensified trade measures.
Dollar approaches lowest level in three years
The US Dollar Index fell to just above 100 this morning, nearing its lowest level in three years as investor confidence in American assets waned. Concerns over President Trump’s tariff policies, including the sharp increase to 145% on Chinese imports, have fuelled fears of slower economic growth and deepening trade tensions, despite a temporary 90-day reprieve on other US trading partners aimed at easing negotiations.
Safe-haven currencies like the Japanese yen and Swiss franc strengthened significantly against the dollar, while the euro surpassed $1.11/€ for the first time since late 2024. In response to these developments, markets adjusted forecasts for ECB rate cuts and scaled back bets on Bank of England easing, further supporting the pound and the euro.
Amid global uncertainty, emerging market currencies like the South African rand are volatile, reflecting broader risk aversion for most of the week, seeing large swings daily. The rand hit a low of R19.92/$ earlier this week, before rebounding along with its emerging market peers on the back of a significantly weaker dollar.
*Please note all data is as of the time of writing, and data might differ upon distribution.
*Please also note there will be no Weekly Wrap next week, due to the Easter long weekend.
Key indicators:
USD/ZAR: 19.36
EUR/ZAR: 21.91
GBP/ZAR: 25.22
GOLD: $3,210
BRENT CRUDE: $60.62
Sources: LSEG Workspace, Reuters, Bloomberg, Trading View and Trading Economics.
Written by: Citadel Advisory Partner and Citadel Global Director, Bianca Botes.