The recovery in global risk sentiment, spurred by US President Donald Trump’s announcement of a 90-day pause on reciprocal tariffs (except for China), brought a much-needed sigh of relief to equity markets. Yet, beneath the surface, there’s a nagging sense that we’re not out of the woods. The bond market’s volatility, surging inflation expectations, and a weakening consumer sentiment all point to deeper uncertainties that could shape the trajectory of the global economy in the weeks and months ahead.
Let’s unpack this week’s developments and what they mean for investors, consumers, and policymakers.
The US equity markets staged an impressive rebound last week, with the Dow Jones Industrial Average climbing five per cent, the S&P 500 gaining 5.7 per cent, and the Nasdaq Composite surging 7.5 per cent. These gains came after a tumultuous period where markets were rattled by fears of an escalating trade war, particularly between the US and China. Trump’s decision to pause tariffs for 90 days on most trading partners, allowing time for negotiations, was a pivotal moment. It signaled a potential de-escalation, at least temporarily, and markets responded with enthusiasm. The CBOE Volatility Index (VIX), often called Wall Street’s “fear gauge,” reflected this shift, dropping to 37 after spiking above 50 earlier in the week. That’s still elevated compared to historical norms, suggesting investors remain on edge, but it’s a far cry from the panic levels seen during the height of the tariff uncertainty.
The bond market told a different story. The selloff in US Treasuries was striking, with the 10-year Treasury yield jumping nine basis points to 4.48 per cent and the two-year yield climbing 12 basis points to 3.97 per cent. This was the largest weekly surge in yields in over two decades, a clear signal that investors are bracing for higher inflation and possibly tighter monetary policy. The ongoing US-China trade war, despite the tariff pause for other nations, continues to stoke fears of supply chain disruptions and rising costs. When goods become more expensive due to tariffs, businesses often pass those costs onto consumers, fueling inflation. The bond market’s reaction suggests that investors are betting on this scenario playing out, even if equities are basking in the tariff reprieve for now.
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The US Dollar Index, which measures the greenback against a basket of major currencies, closed lower last week, adding another layer of complexity. A weaker dollar typically supports commodities priced in dollars, and we saw that dynamic play out with gold soaring past US$3,200 per ounce, a two per cent gain for the week. Gold’s rally wasn’t just about a softer dollar—it was also driven by recession fears and the safe-haven demand that kicks in when trade wars escalate. Similarly, Brent crude oil jumped 2.26 per cent to settle at US$65 per barrel, buoyed by comments from US Energy Secretary Chris Wright about potentially ending Iran’s oil exports to pressure the country over its nuclear programme. Geopolitical tensions, layered on top of trade uncertainties, are keeping energy markets volatile, and that’s something I’ll be watching closely in the weeks ahead.
On the economic data front, the picture is sobering. The University of Michigan’s preliminary consumer sentiment index for April plummeted 11 per cent to 50.8, its lowest level since June 2022. This sharp decline reflects growing anxiety among Americans about the economic fallout from tariffs, rising prices, and uncertainty about jobs and growth. Even more concerning is the surge in inflation expectations, with the one-year outlook hitting 6.7 per cent, the highest since 1981. That’s a staggering figure, and it underscores the psychological impact of the trade war rhetoric and policy shifts. When consumers expect prices to keep rising, they may pull back on spending or demand higher wages, both of which can create a feedback loop that drives inflation higher. For the Federal Reserve, this is a nightmare scenario—balancing growth, inflation, and now trade-driven disruptions.
Over the weekend, the Trump administration added a twist by exempting smartphones, computers, and other tech devices from reciprocal tariffs. This move was a relief for markets, particularly in Asia, where tech supply chains are heavily integrated. Asian equity indices traded higher in early sessions today, and US equity futures pointed to a positive open. The exemption makes sense from a consumer perspective—hitting tech products with tariffs would have driven up prices for everyday goods such as iPhones and laptops, risking a backlash. But it also highlights the delicate balancing act the administration is trying to perform: projecting strength on trade while avoiding self-inflicted economic wounds. I suspect this exemption is a pragmatic nod to the reality that tech is the backbone of modern economies, and disrupting it too severely could backfire.
Looking ahead, all eyes will be on Federal Reserve Chair Jerome Powell’s upcoming speech. Investors are desperate for clarity on how the Fed plans to navigate this inflationary environment, especially with consumer sentiment tanking and inflation expectations soaring. Powell has been cagey in recent comments, emphasising that the Fed is monitoring trade policies closely. If he signals a hawkish tilt—perhaps hinting at pausing rate cuts or even tightening policy to combat inflation—it could dampen the equity rally. Conversely, a dovish stance might boost stocks but risks fueling inflation further. It’s a tightrope walk, and Powell’s words will carry immense weight.
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China’s first-quarter GDP and monthly activity data, due this week, will also be critical. The trade war with the US is undoubtedly weighing on China’s economy, and weaker-than-expected numbers could reignite fears of a global slowdown. Given that several markets will be closed for Good Friday, trading volumes may be thinner, potentially amplifying any market moves. My sense is that investors are in a wait-and-see mode, parsing every headline for clues about the direction of trade talks and monetary policy.
The cryptocurrency market, meanwhile, has been a mixed bag. Bitcoin slipped more than two per cent on Sunday, trading at US$83,482 during Asian hours. Ethereum fell below US$1,600, and altcoins showed varied performance. The crypto market’s sensitivity to trade policy signals is intriguing—when tariffs on Chinese electronics were floated, digital assets wobbled, likely because of fears that supply chain disruptions could hit mining hardware or broader tech sentiment. Yet, Bitcoin advocate Michael Saylor remains undeterred, using social media to double down on his “Buy the Future” mantra. His latest post, timed with Bitcoin’s brief rally to US$83,246, underscores his belief that cryptocurrencies are a hedge against economic chaos. I’m skeptical about Bitcoin’s role as a reliable safe haven—it’s still too volatile and sentiment-driven—but Saylor’s conviction is a reminder of the passionate community behind it.
Ethereum’s technical picture offers some hope for bulls. After finding support at US$1,449 last week, it’s hovering around US$1,638. A close above US$1,700 could spark a rally toward US$1,861, supported by a Relative Strength Index (RSI) that’s climbing toward neutral territory. But the risk of a drop to US$1,300 looms if support breaks. XRP, meanwhile, is showing resilience, stabilizing at US$2.14 after a 14.28 per cent recovery. A break above US$2.23 could push it toward US$2.50, though it needs to hold above its 200-day EMA to sustain momentum. These technical levels matter for traders, but the bigger driver for crypto will be macro developments—trade policies, Fed signals, and global growth.
As I reflect on this week, my view is one of cautious optimism tempered by realism. The tariff pause and tech exemptions are positive steps, but the underlying tensions—US-China trade frictions, inflation fears, and consumer unease—aren’t going away. Equities may continue to climb if trade talks show progress, but the bond market’s warning signs and weak consumer sentiment suggest fragility. Gold’s strength and crypto’s volatility reflect a market searching for anchors in uncertain times. For investors, diversification and vigilance are key. For policymakers, the challenge is to avoid tipping the economy into recession while addressing legitimate trade concerns.
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