Yesterday morning, Asian stocks responded positively to optimism surrounding trade talks between Washington and Tokyo.

However, as the day progressed, it became apparent that US President Donald Trump intended to press ahead with a range of tariffs this week. Let’s unpack what happened yesterday in detail and see what the rest of the week looks like.
 

Tariffs to Go Ahead

On Monday, Trump threatened to hit Beijing with an additional 50% tariff after the latter imposed a reciprocal duty of 34% on US exports. Far from backing down, Beijing struck a defiant tone on Tuesday, vowing to “fight to the end” if the US followed through with its threats of additional tariffs.  

Despite the bellicose rhetoric, there was some cause for optimism throughout the day on Tuesday. Reports of US trade negotiations with Japan and a number of other countries eased trade war concerns. 

Indeed, US Treasury secretary Scott Bessent fuelled such optimism on Tuesday: “I think you’re going to see a couple of big trading partners do deals very quickly.”

However, such optimism appeared to be misguided. In a press conference on Tuesday, White House press secretary Karoline Leavitt announced that additional tariffs on China would “be going into effect at 12.01am tonight [Wednesday morning]”. 

The additional measures would mean that Chinese exports will face a levy of 104% from later today, as the world’s two largest economies seemingly edge their way towards a full-blown trade war. 
 

Optimism Fades on Wall Street

Japanese and South Korean stocks rose yesterday on trade deal optimism; however, both have tumbled in trading on Wednesday morning.

European stocks closed yesterday’s session higher on increased hopes for positive tariff negotiations, with the FTSE 100, GERMANY 40 and CAC 40 all notching gains of more than 2%.

On Wall Street, it was another volatile day, as hopes for tariff concessions faded throughout the trading session. At one point, the S&P 500 was trading more than 4% higher but, eventually, as optimism ebbed, it closed the session down by 1.6%.

The Dow Jones and the Nasdaq also erased their intraday gains, ending the day with losses of 0.8% and 2.2% respectively.

The CBOE Volatility Index (VIX) which measures expected market volatility in the US, closed at 52.33, its highest closing price since April 2020. For reference, a VIX reading of 30 is typically considered high.
 

Oil Nosedives

Oil prices have been declining since President Trump’s “Liberation Day” announcement and plummeted once again in early Wednesday trading as traders digest the latest developments.

As of 10:30 BST, Brent and WTI were both down 3.8% and 3.9% respectively. Brent crude is currently hovering above $60 a barrel; WTI, on the other hand, has dropped to around $57 a barrel.

For reference, on 2 April, the day of Trump’s tariff announcement, Brent and WTI closed the day’s session at $74.95 and $71.71 a barrel respectively.

This sharp decline in oil prices reflects concerns regarding the impact of a trade war on global growth. Later today, the Energy Information Administration (EIA) will release its Crude Oil Inventories report, which could have a further impact on oil prices.
 

Investors Flock to Safe Havens

As the sell-off continues, investors appear to be seeking refuge in safe havens.

Gold snapped a three-day decline on Tuesday and rose again in trading on Wednesday morning.

The Japanese yen and Swiss franc also continue to maintain their credentials as safe ports in a storm, with both currencies gaining ground on the US dollar on Wednesday morning.
 

What Else is Happening this Week?

With the majority of market moving news involving the word “tariff”, investors may be forgiven for forgetting there is more going on this week. Let’s take a look at some of the non-tariff related events we can expect this week.
 

FOMC Minutes

At their last meeting in March, the Federal Open Market Committee (FOMC) decided to hold US interest rates steady at 4.5%.

Today, three weeks after the decision, the minutes from that meeting will be released, offering insights into the Fed’s decision-making rationale and its stance on monetary policy.

These minutes are often scrutinised by traders for any clues regarding the outcome of future monetary policy decisions.
 

US Inflation Data

On Thursday, the US Bureau of Labor Statistics will release inflation data for March, in which annual inflation is expected to have fallen from 2.8% to 2.6%.

Expectations that the Fed will cut interest rates at its next meeting in May have increased recently, amidst concerns that a trade war will weigh on US growth. If inflation data comes in lower, as expected, this is likely to further fuel expectations of a rate cut.

Consequently, traders and investors will be watching the latest US inflation data carefully.
 

UK GDP

On Friday, the UK will announce its monthly GDP figures for February. In January, the UK economy unexpectedly contracted by 0.1%. However, the market is anticipating growth of 0.1% in February.

If the reading comes in lower than expected once again, this could have a negative effect on the GBP and UK stocks.

However, if the UK economy has grown more than expected, this could have a positive effect on the GBP and UK stocks.

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