Fast reading
- Global shares surge following days of market turbulence as US pauses aggressive tariff hikes; 90-day respite leaves most countries with universal 10% levy – except China with tariffs of 125%.
- Economic fallout from US tariff policy bolsters expectations that the ECB will cut rates by 25bps at its meeting next week.
It has been a tumultuous week for global markets, with major indices see-sawing as investors tried to keep up with US President Donald Trump’s unpredictable tariff rollout.
On Wednesday, the president announced a 90-day pause on additional tariffs on all major trading partners, except China – whose tariffs he raised to 125% – in a shock policy U-turn. A universal 10% levy for all other countries remains in place.
Equities shot up in response, with the S&P 500 surging 9.5% – its third-best day since World War Two – the Nasdaq Composite leaping 12.2%, and the Dow Jones Industrial Average gaining 7.9%1. European indices followed suit on Thursday; the pan-European Stoxx 600 and blue-chip FTSE 100 closed the session up 4.7% and 3.5% respectively. On the same day, the European Union announced it would put retaliatory tariffs against the US on hold.
The rally followed days of volatile trading – including an incredible seven-minute yo-yo on 8 April which saw US$2.4tn in market value added to the S&P 500 and then wiped off again (see Figure 1).
Figure 1: A lot can happen in seven minutes…
While the U-turn brought relief to many investors, the US-China trade war continues to escalate. Beijing announced additional tariffs on imports from the US on Wednesday (taking the levy to 84%) and on Thursday, the renminbi fell to its weakest level since 2007 against the US dollar, before recovering.
Tariff uncertainty has dominated investor sentiment in every direction this week. However, the volatility should begin to recede now that the US president announced a 90-day pause.
“Tariff uncertainty has dominated investor sentiment in every direction this week. However, the volatility should begin to recede now that the US president has announced a 90-day pause,” says Mark Sherlock, Head of US Equities at Federated Hermes Limited. “We expect this to further stabilise as a clearer understanding of the longer-term policy backdrop materialises.”
Sherlock argues that despite the turbulence caused by the tariffs, US small and mid-cap (SMID) companies are better insulated from trade changes due to their domestic focus.
“Revenues of SMID companies are 70 to 80% US-focused versus their large cap peers at 50%. If the tariffs do force a re-alignment of the global supply chain, US small and mid-caps should benefit as they are the economic backbone of the US,” he explains.
Since Trump’s inauguration in January, markets have seen a flurry of executive orders, policy changes and tariff announcements which have fuelled uncertainty and resulted in a risk-off environment, says Sherlock, who remains optimistic, despite the volatility.
“It is common for intra-year declines to be reversed by the end of the year,” Sherlock says, pointing out that since the inception of the Russell 2500 Index in 2004, it has experienced average intra-year drops of 17.8% (median 12.9%) – however, annual returns have been positive in 16 of the last 21 years, he adds.
Figure 2: Calendar year returns and intra-year declines of the Russell 2500 Index
Elsewhere...
The market turbulence this week has added to expectations that the European Central Bank (ECB) will cut rates at its meeting on 17 April.
“With a 25bps cut essentially nailed on, we will be watching closely to see how ECB President Christine Lagarde frames the policy decision and whether she provides commentary on recent market volatility,” says Orla Garvey, Senior Fixed Income Portfolio Manager at Federated Hermes Limited.
The market consensus is that the ECB will cut rates by 75bps over the course of this year and while the tariff picture is rapidly evolving, there is no doubt that macroeconomic volatility is increasing downside risks for economic growth in the near term, Garvey says.
“The positive impact of German fiscal spending will not be felt until 2026. In contrast to the US, the deterioration in the growth outlook in Europe does not come with the same upward inflationary impulse. In fact, it is likely to be the opposite, which will give the ECB greater confidence in its inflation forecasts and keep it on track with its cutting schedule,” she adds.
Share:
1 Bloomberg, as at 9 April 2025.
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