Our earlier GRM post mistakenly included data tables from the week of March 28th. Here are the up-to-date April 4th tables.
The U.S. Administration’s tariff policy represents a critical policy error that has upended financial markets and raised the specter of a severe recession and a prolonged bear market, with no clear bottom in sight. The imposition of sweeping, unilateral tariffs under the guise of reciprocity has rattled global trade systems and injected significant uncertainty into economic forecasting. Unless swiftly reversed, these actions risk anchoring inflation while simultaneously constricting growth—a classic stagflation trap that could force the Federal Reserve into an unenviable position and prevent equity markets from stabilizing in the near term.
At the heart of this miscalculation lies a series of incompatible objectives. The Administration claims the tariffs are designed to ensure fair trade, revive domestic manufacturing, and raise Treasury revenues. However, these aims are mutually exclusive in practice. Fair trade typically implies mutual reductions in barriers, not escalations. Promoting domestic manufacturing by taxing intermediate inputs only raises costs for U.S. producers, undermining competitiveness. Furthermore, the notion that tariffs will substantially boost Treasury receipts is flawed, as reduced trade volumes and retaliatory actions abroad are likely to erode revenue gains.
The strategy’s incoherence is evident in absurd measures such as, for example, a tariff on coffee, an import for which the U.S. lacks viable domestic production except de minimis production in Hawaii and Puerto Rico. These policies reflect a reactive, politically charged agenda rather than a cohesive economic strategy. Ultimately, market forces are likely to compel a reversal. Only sustained capital flight and a prolonged earnings recession may bring the necessary pressure to correct course and restore stability.
Doesn’t the Administration understand the most basic concept of international trade and economics – Comparative Advantage?
Markets
U.S. Market Analysis
Sharpest Sell-off in Years: U.S. equities suffered their worst weekly decline since 2020 following unexpectedly aggressive tariffs announced by the Trump administration. The S&P 500 dropped over 9%, Russell 2000 entered bear market territory, and the Nasdaq fell 10%.
Small-Caps Hit Hard: The Russell 2000 dropped over 10% this week and is down more than 30% from its all-time high.
Investor Sentiment & Breadth Deteriorated: Market breadth collapsed with fewer stocks trading above their 200-day moving averages; SPX breadth fell to 37.4%.
Bond Yields Plummet: 10-year Treasury yields fell below 4% (from 4.2%) due to flight-to-safety demand, marking the largest weekly gain for bonds in seven months.
Bitcoin Resilience: In a break from past behavior, Bitcoin held steady (~$83K) despite the broader market’s sell-off.
Credit Spreads Widen Sharply: Investment grade spreads widened by 8 bps to 102 bps, and high-yield spreads rose 50+ bps to 387 bps—signaling rising recession fears.
Global Market Analysis
Europe: STOXX Europe 600 fell 8.4%, led by Italy (–10.6%) and Germany (–8.1%). The ECB faces growing pressure to cut rates amid slowing inflation and trade uncertainty.
Asia:
Japan: The Nikkei 225 dropped 9% and TOPIX lost 10%. A 24% U.S. tariff on Japanese imports spooked markets, delaying expected BoJ rate hikes.
China: The Shanghai Composite dipped modestly (–0.3%), while retaliation included 34% tariffs on U.S. goods, rare earth export limits, and trade bans on some U.S. firms.
Emerging Markets:
Emerging Asia: GDP forecasts cut due to tariffs; deeper and earlier monetary easing expected.
Latin America: Spared from direct tariffs but vulnerable to falling global demand and commodity prices.
EEMEA: Limited direct exposure to U.S. tariffs but still faces slower global trade and capital flow risks.
Economics
U.S. Economic Overview
Jobs Report Strong, But Overshadowed: March nonfarm payrolls surged by +228K (vs. 130K est.), but the unemployment rate edged up to 4.2%. Strong healthcare and hospitality hiring offset weak federal employment and temporary jobs.
Inflation Risks from Tariffs: ISM Manufacturing PMI fell back into contraction (49.0), and Services PMI slipped to 50.8. Tariffs have pushed input prices higher.
CPI Outlook: March CPI is expected to show flat m/m inflation, but looming tariffs will likely reignite inflation over the coming months.
Rate Cut Expectations Rise Sharply: Markets now price in ~113 bps of Fed rate cuts in 2025, with 4 cuts expected and a December Fed Funds rate of 3.26%. A May cut has a 43% probability; June is fully priced.
Trade Deficit Stubbornly High: February trade deficit remained elevated at $122.7B as firms rushed to import ahead of tariffs.
Global Economic Overview
Eurozone: Inflation eased to 2.2% with slower services inflation. ECB likely to cut rates in April. Recession forecast for 2025.
China: GDP forecast cut to 4.0% due to tariffs and slowing external demand. Stimulus is expected, but headwinds remain.
Japan: Tankan survey showed mixed but positive business sentiment; BoJ may delay rate hikes due to uncertainty.
Australia & Colombia: Both central banks held rates; RBA likely to cut in May amid tariff-related global risk.
India: Expected to cut rates by 25 bps as inflation softens and growth eases.
Mexico & Norway: Inflation data due next week; monetary easing is expected to begin soon in both nations.
Meanwhile on Saturday — as traders and executives across Wall Street and corporate America were still reeling from the market mayhem — White House aides issued an announcement: Trump had won the second round of the Senior Golf Championship at his Jupiter, Florida club. – Bloomberg
The S&P 500 closed on its 5400 support level, which will not hold. The first key Fibonacci level of the current bull market, which began in October 2022, has been taken out, and the .618 at 5132.90 (4.89 percent lower) is now in play—and, at least to us, is a done deal.
This is not your normal correction, folks. The rules of the game have changed. The Fed put is off the table unless the market suffers a disruptive crash. The post-WWII global economic and political system is no more, and the clowns (except a few) running the show in Washington have zero idea what they’re doing. To paraphrase Will Rogers:
We don’t fear what they don’t know, but what they do know—that just ain’t so.
We are only buying French Dips, and we’re tightening up our seat belts.
After a few days above, the S&P 500 has broken below its 200-day moving average, and a retest of the recent low at 5504 now appears inevitable. We are skeptical that this level will hold, with next critical support near 5400 (see chart below).
Given Friday’s ugly close and current policy overhangs, we anticipate a wave of panic selling at Monday’s open. At this point, a sharp market correction may be the only effective restraint on the Administration’s increasingly disruptive economic policies, which are being wielded like a wrecking ball against global financial and political stability.
New Tariff Impact: Trump announced a sweeping 25% tariff on all non-U.S.-made automobiles, sharply impacting global equity markets and especially hurting export-reliant sectors like autos in Europe and Japan.
S&P 500 Breaks Technical Support: The S&P 500 has fallen below its 200-day moving average, signaling increased risk for further market downturn and diminished investor confidence.
Consumer Confidence Collapse: U.S. consumer expectations dropped to a 12-year low, signaling widespread pessimism about personal finances, labor conditions, and the broader economy.
Rising Inflation Amid Weak Spending: Core PCE rose 2.8% YoY while inflation-adjusted consumer spending barely increased, highlighting stagflation-like dynamics exacerbated by tariffs.
Global Manufacturing Divergence: While global manufacturing remains slightly expansionary (PMI 50.9), export orders have declined and business optimism is at an eight-month low.
“Tariff Day” Looms Large: Scheduled for Tuesday, April 2nd, reciprocal tariff announcements are expected to fuel continued market volatility regardless of content due to heightened uncertainty.
Trump’s Policies as a “Wrecking Ball”: The administration’s aggressive and unpredictable tariff strategies are undermining the global economic and geopolitical framework, complicating forward-looking market and policy planning.
Markets
U.S.
Financial markets have shown increasing fragility in response to former President Trump’s aggressive tariff stance, underscoring the destabilizing effect of protectionist measures. The announcement of a sweeping 25% tariff on all non-U.S.-made automobiles acted as a catalyst for widespread declines in global equity markets. The S&P 500, a key barometer for U.S. equities, has notably dropped below its 200-day moving average—an important technical signal that often presages extended downturns. This technical breach has amplified fears among investors, further compounded by deteriorating consumer sentiment and disappointing inflation-adjusted spending data.
Global
Globally, equity indexes mirrored U.S. market weakness. The pan-European STOXX Europe 600 declined amid fresh auto tariffs, particularly damaging for economies with significant automotive exports to the U.S., such as Germany and Japan. Japan’s Nikkei 225 also retreated, pressured by fears that the country’s auto sector—responsible for a third of its U.S.-bound exports—would be severely impacted. The tariffs have triggered a risk-off sentiment, discouraging investors and tightening financial conditions across developed and emerging markets alike.
Economics
U.S.
Trump’s approach to trade policy, described aptly as a “wrecking ball” to the geopolitical and economic frameworks, is contributing to a multi-shock scenario. While immediate economic data—such as the modest acceleration in business activity and temporary upticks in employment—paint a nuanced picture, the underlying sentiment and soft indicators are sharply negative. Consumer confidence has reached its lowest point in over a decade, and inflation expectations have surged, suggesting broad concerns about long-term economic stability.
The inflationary implications of tariffs are particularly evident. The core personal consumption expenditures (PCE) index rose 2.8% year-over-year, well above the Federal Reserve’s target. Input prices are increasing at the fastest rate in nearly two years, with businesses citing tariffs and higher labor costs as key factors. Despite this inflationary pressure, personal spending has softened, indicating a consumer base increasingly wary of future conditions.
Global
Internationally, global manufacturing shows signs of resilience, but with caveats. The J.P. Morgan Global Manufacturing PMI remained slightly expansionary at 50.9, but optimism fell to an eight-month low. New export orders declined for the first time in three months, a clear reflection of deteriorating trade flows. Europe, particularly the eurozone’s core economies, continues to struggle amid persistent tariff threats. In Asia, China faces prolonged deflationary risks, further exacerbated by weak consumer demand and export challenges tied to the escalating trade tensions.
Week Ahead
Markets are bracing for heightened volatility heading into “Tariff Day” on Tuesday, when reciprocal tariffs are expected to be announced. Regardless of the specific details from the White House, the uncertainty surrounding Trump’s tariff regime is likely to remain entrenched. The mere anticipation of these measures is already shaping trading behavior, with many investors retreating from risk assets.
The upcoming week will also feature pivotal economic data, including the Nonfarm Payrolls report, which could influence both market sentiment and Federal Reserve policy expectations. However, even potentially strong labor figures may not be enough to offset the overarching concern that tariff escalation will further erode growth prospects and investor confidence.
Looking ahead, unless there is a significant policy reversal or a diplomatic breakthrough, Trump’s tariffs will likely continue to pressure global supply chains, stoke inflation, and strain market performance. The administration’s evident tolerance for economic fallout in pursuit of geopolitical leverage adds a layer of unpredictability that hinders markets’ ability to price in future risks effectively.
Global Macro Monitor 