Weekly house view | Trade war
The week in review
President Trump announced sweeping tariffs, which Canada and China quickly met with retaliatory measures, raising the spectre of a full trade war. China is already probing a US chemicals giant as economic relations become more hostile. The US could raise up to USD 600 bn a year with the new levies, taking the average tariff rate to the highest in over a century, while weakening GDP growth and raising inflation.
Ahead of the tariff announcement, the US economy was in good shape, creating more jobs than expected in March. And in the euro zone, unemployment fell in February. Federal Reserve Chair Jay Powell struck a more hawkish tone than expected following the tariff announcement, saying the Fed will wait until their effects are known before taking decisions.
The shock to markets from the levies was nonetheless the biggest since the pandemic. The MSCI World[i] lost 7.9% (in USD), the S&P500[ii] fell 9.1% (in USD), the STOXX Europe 600[iii] 8.4% (in euros), and the MSCI China[iv] 3% (in USD). Friday saw trading volumes hit the highest on record with 26.6 bn shares traded. Global sovereign yields fell, with 10-year US Treasury yields closing at 4.01%. Japan’s 10-year yield lost 38bp to 1.18%.
In oil, OPEC+ agreed an output hike, leading to a 10% fall in Brent to USD 65. The hike should help inflation expectations come down.
Quote of the week
“Reciprocal. That means they do it to us, and we do it to them,” Trump said of the tariffs, which are based on the narrow basis of goods traded, and not services.
Key data
US nonfarm payrolls increased by a stronger-than-expected 228,000 jobs in March after a downwardly revised 117,000 rise in February.
The Institute for Supply Management said its manufacturing PMI dropped to 49.0 in March from 50.3 in February.
In the euro area, seasonally adjusted unemployment rate fell to 6.1% in February from 6.2% in January, and from 6.5% in February 2024.