United States
A wave of economic anxiety swept across Wall Street overnight as tensions between the US and China worsened, triggering a sharp selloff across equities, commodities, and the dollar. A day after one of the strongest rallies in over a decade, markets quickly reversed course as the White House confirmed that tariffs on Chinese goods had surged to 145%, compounding fears of a prolonged and disorderly trade standoff between the world’s two largest economies.
The S&P 500 fell 3.5%, wiping out the prior session’s gains in a swift reversal of sentiment. The Nasdaq Composite shed 4.3% while the Dow Jones gave back 2.5%. Despite a well-received 30-year Treasury auction, bond markets showed signs of stress, with the yield on the US 10-year note rising seven basis points to 4.42%.
President Donald Trump’s attempt to soften the narrative, suggesting that a deal on tariffs is “close” – albeit without naming China – failed to reassure investors. “Markets are sobering up and realising that the US-China ‘food fight’ will probably get worse before it gets better,” said Michael Bailey of FBB Capital Partners.
Tech stocks, which had fuelled Wednesday’s surge, led Thursday’s reversal. Tesla plunged 7.3%, while Meta, Nvidia, Amazon, and Apple all declined by more than 4%. The so-called Magnificent 7 Index tumbled 5%, reflecting growing investor scepticism over the sustainability of recent gains.
Market participants were further rattled by reports that the US administration is considering delisting Chinese companies from American exchanges – a move that would deepen the financial decoupling. “This could have been handled better,” said Ray Dalio of Bridgewater Associates. “It’s left investors with an element of trauma or fear.”
While US inflation data showed a cooling trend in March, concerns over tariff-induced price pressures remain front of mind. “Tariff-driven inflation is still coming, even if the immediacy has been delayed,” warned Vail Hartman at BMO Capital Markets.
Europe
European stocks rallied sharply, experiencing their strongest gains since March 2022, following US President Donald Trump’s announcement to pause plans for higher reciprocal tariffs on numerous trade partners. The reprieve eased immediate concerns about the potential economic damage from a global trade war. The Stoxx Europe 600 Index surged by 3.7%, though it trimmed earlier gains of as much as 7.3%. All sectors closed in the green, with financial services and banks leading the charge. France’s CAC 40 gained 3.8%, and Germany’s DAX added 4.5%.
Trump’s 90-day tariff pause provided temporary relief for European stocks, which had entered a correction in the previous week. In return, the European Union will delay the implementation of its counter tariffs on US steel and aluminum exports. The cooling of underlying US inflation in March also offered optimism, as it could potentially mitigate the price pressures that widespread tariffs could trigger. The consumer price index, excluding food and energy, increased just 0.1% from February, marking the smallest rise in nine months.
Despite this relief, Rajeev De Mello, Chief Investment Officer at Gama Asset Management, cautioned that the uncertainty surrounding ongoing tariff negotiations and the broader volatility in markets could continue to keep a risk premium embedded in assets. “Trump will be reluctant to allow a worse episode, but I would rather fade the risk-on moves from these levels as the market finds a new equilibrium,” he said.
Nicolas Forest, Chief Investment Officer at Candriam, added that Trump’s move should be seen as a tactical withdrawal rather than a capitulation. “The selloff in the bond market was a real alert,” he said, noting that the market stress was evident not only in hedge funds but also in selling from Asian investors, who have substantial debt to refinance.
Despite the relief rally, Michael Field, Chief Equity Strategist at Morningstar, remained cautious: “The worst-case scenario is now off the table, but the overhang of the trade war is likely to persist for some time.” Investors are already adjusting their expectations for where the US tariff rate will land, but Matthew Ryan, Head of Market Strategy at Ebury, pointed out that while the market is hopeful of a reduction, there are still no guarantees. “The fact that Trump appears open to negotiation suggests that this number is almost certain to come down from current levels,” he concluded.
Australia
The Australian sharemarket is poised to open lower on Friday, with ASX futures down 116 points or 1.5%, as global markets reel from renewed trade war fears. The local market is expected to give back a large portion of Thursday’s stunning rally, when nearly $100 billion was added to the ASX’s value. Despite this, there remains a strong undercurrent of optimism in the local market, driven by investor confidence in the ongoing recovery from the pandemic, though global geopolitical risks continue to weigh on sentiment.
The Australian dollar rose 1.1% to US62.23¢ overnight, benefiting from broad-based USD weakness, though renewed risk aversion could place downward pressure in Friday’s session. A cautious approach to global risk markets is expected, with the outlook for the Australian economy largely dependent on international developments, particularly the outcome of US-China negotiations.
In local sectors, miners continued to perform well. The materials sector showed strong performance, despite volatility in commodity prices. BHP advanced 5.4% to $36, while Fortescue increased 3.5%, reflecting confidence in the resilience of Australia’s mining industry, particularly with the demand for iron ore in China. South32, a prominent player in the gold mining sector, rose 9.5%, while De Grey Mining saw a 5.09% increase.
The Australian bond market has also seen significant activity, with the 10-year bond yield rising 14 basis points to 4.24%, and the 2-year bond climbing by 6 basis points to 3.31%. With growing concerns over inflation and the potential for further global disruptions, there is heightened speculation about the Reserve Bank of Australia’s future policy stance, with many economists predicting further interest rate cuts before the year’s end.
Commodities
The US dollar saw broad-based weakness overnight, dropping 1.5% on the Bloomberg Dollar Spot Index. The Aussie dollar gained 1.1%, rising to US62.23¢, buoyed by global risk-on sentiment earlier in the session. However, further downside risks remain as geopolitical tensions, particularly surrounding the US-China trade dispute, continue to keep investors on edge. The euro rose 2.3% to $1.1200, while the British pound gained 1.1%, reaching $1.2966. The Japanese yen strengthened by 2.1%, settling at 144.67 per dollar.
In commodities, oil prices remained under pressure with West Texas Intermediate (WTI) crude falling 3.3% to $60.31 per barrel, while Brent crude dropped 3% to $63.52 per barrel, amid concerns over reduced global economic activity as the trade war drags on. Gold, however, saw a notable rebound, climbing 2.9% to $3,173.48 an ounce, driven by a flight to safety. Iron ore rose 2.6% to $97.25 a tonne, although continued volatility in Chinese demand for commodities may limit further upside.
Bitcoin and other cryptocurrencies also saw significant losses, with Bitcoin dropping 4.2% to $79,904 and Ether falling 9.5% to $1,514.5, as risk sentiment weakened globally.
Economic Calendar
United States:
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March US Producer Price Report – 10:30pm
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University of Michigan Sentiment Survey – Midnight
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This article was written by Paul Darwell, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
