Market snapshot: tariff policy's unintended consequences

Wednesday’s sharp gains turned out to be nothing more than a brief relief rally, as investors headed to the door once more in search of haven assets.

One of the repercussions of the White House moves has been to bring the validity of US haven destinations such as the dollar and Treasury bonds into question, both of which have suffered. Instead, investment flows have been heading towards currencies such as the Swiss franc and the yen, as well as gold which continues to test new highs and has risen by 21% this year alone.

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The latest lurch down followed US confirmation that the cumulative tariff rate on China was now 145%, leading to more widespread selling of Treasuries with the concomitant rise in yields, such as the 10-year note which jumped to 4.4% and is on course for its largest weekly rise since the turn of the century. There is also some speculation that the US moves have resulted in some unintended consequences, with the possibility that a proportion of the selling is actually coming from China, who are moving out of their Treasury exposure.

As is becoming the trend, mega cap tech stocks again bore the brunt of equity selling, with the likes of Apple Inc (NASDAQ:AAPL), NVIDIA Corp (NASDAQ:NVDA), Meta Platforms Inc Class A (NASDAQ:META) and Tesla Inc (NASDAQ:TSLA) dropping by between 4% and 7%, with investors quickly coming to the conclusion that the 90-day reprieve was helpful, but only temporary.

At the same time, economic numbers are garnering little attention given the broader concerns. After last week's non-farm payrolls release saw virtually no reaction, the latest better-than-expected inflation print met with another shrug of the shoulders as investors went back into tariff trauma mode. Despite the rally earlier in the week, the main indices remain underwater in the year to date, with losses of 6.9%, 10.4% and 15.1% for the Dow Jones, S&P500 and Nasdaq respectively.

Some further colour may now come from the first-quarter earnings season, which begins in earnest today with updates from JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC). Outlook comments are likely to overshadow the actual numbers, especially from the former where the CEO has already made his feelings known that the current policy will inevitably cause at least a domestic recession.

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Asian markets echoed the sagging and weary sentiment, with Japan’s Nikkei down by as much as 6%, caused in part by further yen strength which adds to the pressure on exporters in normal circumstances, let alone with the current tariff overhang. China meanwhile is reportedly evaluating further trade alliances away from the US and is considering more countermeasures, and its index managed to escape much of this selling bout as a result.

There was some brief domestic relief for UK markets, where the latest GDP reading revealed growth of 0.5% for February against expectations of a marginal 0.1% rise. A surprise boost in manufacturing and production were major contributors, and the reading could provide some minor insulation against the potential challenges to come.

Given the tariff backdrop as well as businesses who are delaying investment and hiring decisions, it remains to be seen whether those headwinds will force the Bank of England to accelerate its interest rate easing plans.

The report gave sterling some early impetus, as well as the FTSE250 index, although the latter remains down by 10% so far this year. Any earlier hopes of Merger and Acquisition activity boosting the index given its relatively lowly valuations have faded at the moment, as investors clearly have bigger concerns to deal with.

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The premier index also opened in positive territory, although the relatively strong spike soon faded. The continuing surge in the gold price lent particular support to the likes of Fresnillo (LSE:FRES) and Endeavour Mining (LSE:EDV), offset by a dip in BP (LSE:BP.) whose first quarter trading update added to the recent woes of a weaker oil price with a projection that upstream production would fall. The shares have now fallen by some 17% this year, as opposed to the preferred sector play Shell (LSE:SHEL) which has been confined to an 8% decline.

The FTSE100 as a whole has pared some of its earlier losses but remains down by 2.7% in the year to date, with the uncertain Chinese outlook and a faltering oil price weighing on its important energy and resource sectors.