Market Updates

Over the past week, financial markets experienced significant volatility primarily due to abrupt shifts in US trade policy. Although President Trump announced a 90-day pause on the reciprocal tariffs, the 10% overall tariff is still in place and the ‘trade war’ with China has escalated. We think the latest tariff announcement, including the temporary suspension excluding China, might be tightly related to the impact on financial markets, which anticipate the effects on the real economy.

The US finally announced broad tariffs on key trading partners on 2 April, bringing effective US tariff rates to levels not seen in a century. These measures include a baseline universal rate of 10% as well as targeted reciprocal tariffs, which range from 10% to 50%. What’s next | Markets deciphering new tariffs while we’re looking at the broader US policy mix

In the eyes of the Trump Administration, tariffs reflect a strategy to address international trade imbalances, support domestic industries and respond to geopolitical concerns. However, tariffs have also led to increased tensions with trading partners and raised concerns about potential growth and inflation impacts both domestically and internationally.

Last week, both German chambers, the Bundestag and Bundesrat, approved a constitutional amendment with over two-thirds of the votes. This decision allows for a 10-year defence budget and a 12-year infrastructure funding plan.

At the start of 2025, many investors believed that US President Trump’s policies would extend US economic and market exceptionalism. Now, two and a half months later, US equity indices have dropped about 6%, with the dollar being down 4.5%, and Treasury yields have fallen a quarter-percent.

The idea of US exceptionalism has to do with the outperformance of the US economy and the corporate sector because of stronger fundamentals, an AI-driven innovation boost and supportive policies, as investors have experienced over the past couple of years.

At face value, a peace deal should be a positive catalyst for markets, particularly in Europe. So why did markets close on a mixed note last week?

US inflation in January was higher than expected at around 3% for both headline and core inflation (which strips out volatile components). This was mainly due to rising energy prices, along with price increases in used cars, motor insurance, medical care commodities, and airline fares.

Last week was dominated by investors digesting the implications of President Trump imposing a 25% tariff on imports from Mexico and Canada, and 10% on China, plus a 25% tariff on steel and aluminium. Canada and Mexico vowed retaliation but then negotiated some measures leading to the temporary suspension of the US tariffs.

Over the weekend, US President Donald Trump kicked off a ‘trade war’ with its top three trading partners by raising tariffs to 25% on all imports from Mexico and Canada, and 10% on imports from China.

Tech stocks, and the broader equity indices, fell sharply on Monday. Progress made by Chinese artificial intelligence start-up DeepSeek has raised concerns about US leadership in the sector.

In this weekly market update, we’re continuing to answer some questions we’ve received following the release of our 2025 Market Outlook.