Market nurses huge hangover as tariff reality sets in

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist 

After Wall Street clocked one of its best days in history on Wednesday, a sense of sober realism was always likely to return on Thursday. But few would have anticipated such a sudden, screeching reversal in sentiment.

Stocks sank and demand for 'safe-haven' assets exploded - gold leaped 3% to a new high and the Swiss franc had one of its best days ever. Maybe U.S. President Donald Trump's tariff truce on Wednesday wasn't as conciliatory as it first seemed.

More on that below, but first, a round-up of the main market moves on another extraordinary day. 

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

Data refreshes every time you open this email. For more U.S. market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

The relief from Trump's tariff climb-down was visceral, but fleeting. Global trade tensions may have cooled a bit, but the outlook for consumers, businesses and investors is as murky as it was before Trump's surprise Truth Social post on Wednesday.

Whatever concessions he offered to the rest of the world were essentially offset by the extra duties slapped on imports from China. The world's two economic superpowers are locked in a full-scale trade war, a confrontation with no winners.

Former U.S. Treasury Secretary Janet Yellen, in her first broadcast interview since leaving office, told CNN International that the likelihood of a U.S. recession has risen, and slammed said Trump's tariffs as a terrible "self-inflicted wound".

In financial market terms, the big losers on Thursday were assets leveraged to growth and risk appetite like stocks, oil and bitcoin. The big winners were safe-haven plays like the Swiss franc and gold.

The franc's 4% rally against the dollar was stunning. Not only is that its biggest rise since the Swiss National Bank scrapped the franc's cap in January 2015, it's among the top 10 since the era of free-floating exchange rates was introduced more than 50 years ago. 

The euro rallied sharply too and German government bonds outperformed U.S. Treasuries, suggesting investors switching out of U.S. assets may be turning to Europe. There's a case to be made for it - there are few sufficiently liquid alternatives.

Economic data and commentary from central bank officials are playing second fiddle to trade issues for investors right now, evidenced by figures on Thursday that showed a surprising fall in U.S. inflation in March. Treasury yields fell a bit, but not across the whole curve and not as much as one might expect with Wall Street falling so steeply.

A solid 30-year bond auction - demand for the $22 billion sale was the strongest since November - failed to prevent long-dated yields from rising. Just as tariff fears haven't dissipated, nor have concerns over the long end of the U.S. Treasury curve. 

With the dust now settled on the euphoric market rebound following President Donald Trump's trade war climb-down, investors are realizing that the global economy still faces the most punishing U.S. tariffs in nearly 100 years. 

The picture is marginally brighter than it was before Trump blinked at 1:18 p.m. Eastern Time on Wednesday and announced a 90-day hiatus and a reduction to 10% for most of his 'reciprocal' tariffs. Washington is now pursuing negotiations with its trading partners and most retaliatory measures have been put on ice. 

But the big picture remains pretty dim.

Analysis published by the non-partisan Budget Lab at Yale on Thursday suggests U.S. consumers will face an overall average effective tariff rate of 25.3%, only "slightly different" from before Trump's pullback, and the highest since 1909. Even accounting for likely consumption shifts away from Chinese goods the average tariff rate will be 18.1%, the highest since 1934.

"It's clear the U.S. economy hasn't seen a shock like this since the 1920s and 1930s," PIMCO economist Tiffany Wilding wrote on Thursday. 

She estimates that every percentage point increase in the average effective tariff rate shaves about 0.1 ppt off U.S. growth and adds a similar amount to inflation. She says U.S. recession is now likely, as is core inflation surging to 4.5%. That's a dismal picture.

Trading Day is sent every weekday morning. Think your friend or colleague should know about us? Forward this newsletter to them. They can also sign up here.

Want to stop receiving this email? Unsubscribe here . To manage which newsletters you're signed up for, click here.

This email includes limited tracking for Reuters to understand whether you've engaged with its contents. For more information on how we process your personal information and your rights, please see our Privacy Statement.

Terms & Conditions