Fast reading
- Stock indices tumble, led by declines in export-orientated companies.
- US dollar falls 2.4% against a basket of its peers, the biggest daily fall since 2015.
- Gold hits new historic high; Treasuries also gain.
The latest episode in the long-running US trade policy saga sparked a global sell-off this week as President Donald Trump announced a series of reciprocal tariffs.
These included a baseline 10% tariff on all imports from all countries excluding Canada and Mexico, higher tariffs on countries seen by the administration to be taking advantage of the US on trade, and a 25% tariff imposed on all car imports into the US.
The market response was unequivocal, with a capital flight to assets perceived as offering a safe haven and a sell-off in assets perceived to be at risk.
The S&P 500, which had posted multi-year highs before and immediately after the US election, sold off in early trading Thursday, losing 3.8%. The Nasdaq fared worse, losing 4.8%.
Earlier in the day, the FTSE 100 dropped 1.5%, the DAX 2.2% and the CAC40 2.5% at market open, led by export-oriented companies.
Asian equities also fell sharply with Japan’s Nikkei down close to 3% and the Hang Seng 1.5% lower by market’s close.
In global currencies, the euro gained (2% in early mid-day trading) while the dollar fell 2.4% against a basket of its peers, the biggest daily fall since 2015.
In contrast, gold – traditionally viewed as a hedge against higher inflation – continued its ascent, reaching a new all-time high at a gravity-defying US$3,117 per troy ounce midweek.
Treasuries also gained, with the yield on benchmark 10-year bonds falling 0.11 percentage points to 4.02%. Two-year Treasuries, likewise, benefited with yields down 0.12 percentage points to 3.74%.1
Risk on? Six months of market returns
The investor response
“It appears the US takes the view that a trade deficit with any country is inherently unfair,” says Jonathan Pines, Lead Portfolio Manager, Asia ex-Japan. “The greatest impact will be on companies in high tariff countries exporting items to the US for which price rises can’t be easily passed on.”
According to Pines, these could include non-US companies exporting low value components used in the production of high value products assembled in the US, but could also include Asian banks, for example, given concerns around outstanding loans.
“The tariff announcements are worse than our expectations, however we don’t think this is the end game,” Pines continues. “The US has signalled a willingness to negotiate and so, for now, we’re assessing which of our holdings have had stock price falls higher or lower than warranted by the announcements.”
For Kunjal Gala, Lead Portfolio Manager for Global Emerging Markets at Federated Hermes Limited, the latest round of tariffs should be seen as detrimental to global growth and will likely impact export-dependent economies. Nevertheless, he says, many emerging markets have robust and growing domestic economies that can partially offset the negative effects of reduced global trade.
“Historically, global shocks disrupt fund flows, but normalcy often returns as solutions are found and policies implemented,” he adds. “We believe the tariffs may be adjusted downwards as global policymakers negotiate with the Trump administration. While the risk of retaliation exists, sensible negotiations are likely.”
We anticipate the current focus on tariffs will shift to more positive developments for the US economy, such as negotiating lower tariff rates, tax cuts, Fed rate cuts, and deregulation
Steve Chiavarone, Head of Multi Asset Group at Federated Hermes, offers an optimistic take, noting that the first quarter has been dominated by uncertainty. This has put pressure on equity markets, he says, resulting in the outperformance of defensive dividend payers, longer-duration high-quality fixed income, and non-US stocks.
In this context, Chiavarone believes we could now be approaching peak uncertainty. “We anticipate the current focus on tariffs will shift to more positive developments for the US economy, such as negotiating lower tariff rates, tax cuts, Fed rate cuts, and deregulation,” he says. “This shift could alter the narrative, especially against the backdrop of low expectations.
“In this environment, we think cyclicals, small-caps, and beaten-up growth names will perform better in the second half of the year. To remain constructive, we are closely monitoring three key areas: the labour market with the jobs report being crucial, credit spreads which have widened slightly but remain relatively tight, and corporate earnings which continue to show solid estimates.”
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1 All data sourced from Bloomberg as at 3 April 2025.
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