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Tariff tantrum

8 Apr 2025 | 3 minutes to read

A good week for

  • Government bonds added between +1.5% and +2.3% (in local currency)
  • The yen and euro strengthened against sterling by +1.6% and +2.3% respectively

A bad week for  

  • Global equity markets cracked: Japan slid -10.3%, the US -9.1%, Europe -8.4% and the UK -6.8% (in local currency)
  • Oil (Brent Crude) slipped -10.9% (in dollar terms)

Tariffs: make imports expensive again

President Trump proclaimed 2 April as ‘Liberation Day’, imposing sweeping tariffs on imports to reshape US trade policy. A baseline 10% tariff will apply from 5 April to all imports, followed on 9 April by stricter surcharges targeting 60 countries. Higher reciprocal tariffs will be imposed on those deemed ‘bad actors,’ including China (54%), Vietnam (46%), Japan (24%) and the European Union (20%).

The move is designed to counter perceived unfair trade practices and barriers like VAT, subsidies and currency manipulation that Trump considers harmful to American industry. The administration aims to repatriate American manufacturing, jobs and wealth ‘lost’ to globalisation. Whether this marks a high-stakes bluff to force new trade deals or a deeper ideological pivot towards protectionism remains to be seen.

Market reaction

US equities plunged last week, with the S&P500 posting its worst two-day fall since World War II, sliding -10.5%. Defensive consumer staples were the only sector to eke out gains, as investors sought safety. European markets followed suit, the FTSE 100 fell over 7% last week, with similar losses recorded in Germany and France. US Treasury yields fell as investors sought safe-haven assets. The extreme market reaction reflects a widespread view that tariffs will likely dampen global economic growth, exacerbate inflation and increase the risk of a US recession.

For an in-depth look at the US tariff response, please read our full article here.

OPEC+ increases oil supply

Eight producers from the Organisation of the Petroleum Exporting Countries and their allies (OPEC+) last week agreed to raise their combined crude oil output by 411,000 barrels per day (bpd) from May. This increase - from Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria and Oman – was much larger than the extra 140,000 bpd expected and surprised the market. In a statement the cartel said its members believe oil demand will significantly increase later in the year and this decision can easily be paused or reversed depending on evolving market conditions. OPEC+ officials also denied that they intended to appease President Trump who wants lower global energy prices to offset any potential inflation caused by incoming tariffs. WTI crude oil is now trading around $61 per barrel, down -18% since last Wednesday and -31% year-to-date. Regardless of the politics, all things equal lower oil prices are stimulatory for the global economy facing multiple headwinds.

Tariffs trouble US Fed

The US economy added 135,000 more jobs in March than forecast with a total 228,000 new hires. US Fed Chair Jerome Powell responded by saying that the uncertain economic outlook could increase unemployment and inflation – two key components of the central bank’s dual mandate. The unemployment rate ticked up from 4.1% to 4.2% in March, but this was attributable to rounding and a slight rise in the participation rate. The impact of tariffs complicates the Fed’s job of analysing and finding a trend in the data. Future markets are currently pricing a 50% chance of a rate cut at the Fed’s June meeting.

Staying focused

Now more than ever is a time to remain focused. It may be tempting to react to every tweet but in doing so lose sight of the bigger picture. A powerful confluence of factors is at play, and we believe investors will be best served by doubling-down on tried and tested methods to navigate a way through: time in the market, not timing the market, diversification and sticking to a long-term plan.

Our investment team remains laser-focused on fundamental analysis and will continue to assess economic data and company fundamentals to select what we believe offer the best risk-reward opportunities for our clients.

In other news

  • Chinese EV maker BYD shipped nearly 1m cars in Q1 2025; Tesla shares fell to their lowest level in 3 years after reporting a 13% drop in its Q1 EV sales versus the same quarter in 2024 (before tariff news)
  • Elon Musk reiterated a desire to “end the Fed” – but newswires reported that Trump told his inner circle that Musk will soon leave the administration
  • German retail sales advanced by a strong-than-expected +0.8% in February, up 4.9% annualised from February 2024

Disclaimer

Past performance is not a reliable indicator of future returns. Nothing herein should be construed as a recommendation to hold, buy or sell any security or encourage any investment decision. The mention of any particular asset class, sub-asset class or company does not imply that it is held, or may ever be held, in any product or service.

The information contained in this article is believed to be correct but cannot be guaranteed. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This article is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are provided, Close Brothers Asset Management accepts no responsibility for the content of such websites nor the services, products or items offered through such websites.

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