Tariff reversals made for a tumultuous week
This week started chaotically, with the White House initially dismissing a report of a 90-day tariff pause as "fake news", only for U.S. President Trump himself to confirm the pause two days later. He exempted countries that didn't retaliate while simultaneously hiking tariffs on China to a whopping 125%. The blanket 10% global tariff remains in place, but this partial reversal gave markets the policy relief they were desperately looking for. Notably, the intra-day market swing was the largest since the Lehman Brothers crisis of 2008, showing how extremely investors are reacting in this event-driven environment.
Behind the scenes, the bond market quietly signalled its discomfort, with the 10-year Treasury yield rising, even as stocks plunged early in the week. Some pointed fingers at the People’s Bank of China or the Communist Party’s influence as drivers of these unusual bond market moves. That narrative is popular and perhaps partially accurate, but one shouldn't underestimate the capacity of our own familiar hedge funds to stumble into trouble all on their own. Either way, the U.S. bond market's discomfort added an extra layer of tension to an already jittery market.
After Trump's tariff pause triggered a euphoric surge (U.S. equities recorded their third-best daily gain in history), investors woke up the next morning with a hangover from the brief relief. The immediate tariff anxiety subsided, yet the focus quickly shifted to uncertainties surrounding the upcoming earnings season and the fact that the tariff crisis is not really over at all. Thankfully, Thursday morning’s softer-than-expected inflation data provided some respite: the U.S. consumer price index (a measure of inflation) came in at -0.1% month-over-month, instead of the anticipated +0.1%, easing stagflation fears significantly.
It appears market volatility is far from over. Trump's notorious policy unpredictability continued to exacerbate short-term price movements, keeping traders on edge. Still, beneath the turbulent surface lies opportunity; while short-term surprises may continue, longer-term optics remain positive, especially if supportive measures like tax cuts materialize and more concrete trade deals begin to take shape.
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