Sentiment soured for both US, European and Asian markets. The US tech stocks were particularly hit – without a new catalyser. Investors continued to step out on tariff worries, and the worries got worse when Trump announced that he would impose 25% tariffs on auto imports… both finished cars and auto parts. GM, which was having a good rebound since the beginning of the month, tanked more than 3%, Ford could weather the news better and closed flat while Tesla, which is both a tech company and a car maker, dived more than 5.5%. As such, the S&P500 lost 1% and returned below its 200-DMA after a strong fight to break the back of this resistance early this week, while Nasdaq 100 tanked 1.83%. The liquidity in the equities space is also draining, with Bloomberg warning that the most active contracts on the S&P500 have the lowest liquidity in two years. That, combined with the lack of appetite and bearish sentiment decreases predictability, increases volatility and the chances of a deeper downside correction in stocks.
The bearish sentiment across the US equities is now expanding into the European equities. The massive government spending being already priced in, European equity investors are faced with the ugly truth of the hectic tariff policies. The Stoxx 600 index retreated 0.70% on Wednesday on the back of the growing tensions into the April 2nd tariff deadline. But focusing on April 2nd doesn’t make sense. There will be a lot of April 2nds in the next four years.
Gold remains the most reliable hedge against the Trump tariffs.
The tariff talk’s impact on the US dollar has been surprisingly negative so far, but the dollar’s direction will likely depend on how the countries will respond to the US tariffs. If there is no retaliation, the US dollar could rebound on relief that the impact of the tariffs on American exports – hence the American growth – would be contained, while retaliation from the US’ biggest trading partners would further hammer the US growth prospects and weigh on the dollar.
The US will reveal the latest GDP update today. The US economy is expected to have slowed from above 3% to 2.3% in Q4 and the price pressures are expected to have increased. The combination of low growth, high inflation is bad for the market mood, both for equities and the dollar.
Before we go, the UK’s budget day went as smoothly as it potentially could go when you think that Rachel Reeves announced £14bn welfare cuts while increasing the military budget by an additional £2.2bn into 2027. The OBR, on the other hand, halved its 2025 growth forecast from 2% to 1%. But at the end of the day, investors looked reassured that the finances will be kept in check. The 10-year gilt yield first peaked but fell after the announcement, and Cable fell below the 1.29 mark but rebounded to trade above this level again this morning. Sterling erased early losses against the euro and is testing the 100-DMA this morning. That, to me, is a sign that the budget day went well. Rachel Reeves avoided a potential market turmoil. But whether the no-incident budget could give a sustainable support to sterling is yet to be seen. With spending and growth prospects looking much weaker, all hopes are on the Bank of England (BoE).
