Market Review 7th April 2025
- Simplicity News Desk
- Apr 7
- 4 min read
Everything you need to know, Simplified!
Markets last week
Summary
Global equities fell sharply following US President Trump’s sweeping tariff announcement; US equities dropped -8.8%, global -7.5% and UK -7.1%
Japanese equities declined -10.0%; other Asian markets, which were closed for public holiday last Friday, are catching up with losses today
Bond markets rallied as risk was sold off; 10-year US yields fell to 3.99% and UK yields to 4.45%
Tariffs reflect an effort to address the US’s dual deficit and shift economic benefit from Wall Street to ‘Main Street’
Risk assets are repricing to reflect greater uncertainty, trade-driven inflation and shifting policy dynamics
Tariff response is likely to vary; most partners will negotiate, but China’s 34% retaliatory tariff signals escalation
US CPI data on Thursday is expected to slow to 2.6%; Federal Open Market Committee (FOMC) minutes may shed light on evolving policy views
UK monthly GDP (Friday) likely to show 0.1% growth in February, consistent with modest Q1 rebound, but trade tensions pose downside risk.
Market Review
So, this is what liberation feels like
‘Liberation Day’ on Wednesday saw President Trump announce sweeping tariffs on countries worldwide. Global equity markets fell sharply on the news, with the US leading the tumble. By week’s end, global equities were down -7.5%, the US fell -8.8% and UK equities declined by -7.1%. The worst-performing companies were those most directly impacted by the tariffs, namely US domestic firms with offshore supply chains. Many Asian markets were closed on Friday and initially avoided the losses but have experienced significant declines today. Japanese markets, which remained open, fell -10.0% in local currency terms.
Bond markets provided some ballast: US and UK sovereign yields fell significantly, with the 10-year treasury yield dropping 0.26% to 3.99% and the UK 10-year gilt (UK government bonds) yield falling 0.25% to 4.45%.
The backdrop: the ‘Triffin Dilemma’
The US runs a dual deficit (trade and budget), a structural consequence of the dollar’s role as the global reserve currency. This has contributed to long-term economic imbalances and industrial decline, massive inequality and a sense of despair. Trump is determined to fight it through a combination of unconventional methods, aimed at effectively ‘restructuring the global trading system’ in favour of blue-collar America.
The administration argues that US consumer demand has been siphoned out of the US economy into the global economy, hollowing out domestic industry. Trump’s focus is on addressing the history of perceived ‘unfair’ trade terms and escaping the structural decline from their consistent dual deficit, all the while maintaining US dominance. The aim is to tilt the benefit away from ‘Wall Street’ to ‘Main Street’ and Trump’s barometer during his second term is the 10-year Treasury yield, not the S&P500. Since the strategy is now one of risk before reward this means more uncertainty. Risk assets (like equities) have had to reprice lower to offer a higher risk premium amid rising uncertainty.
Tariffs announced on ‘Liberation Day’ are targeted at balancing trade deficits. The administration has used a simple formulaic approach to calculate tariff levels. The US is, in many cases, simply matching the protectionism of its trading partners. This is the first major offensive in a global trade war and the rest of the world now faces a decision on how to retaliate: escalate or negotiate. This produces the most uncertainty but there is room for softening of the initial announcements.
The market’s sharp repricing reflects the challenge of adjusting to this new paradigm: trade-driven inflation, policy divergence and geopolitical complexity. Risk assets are recalibrating, while high-quality bonds and inflation-linked securities have outperformed.
The week ahead
Tariff response, escalation or negotiation:
Trump has announced reciprocal tariffs on over 180 countries but remains open to negotiation. Some partners have historically secured softer terms following tariff announcements. Most will likely pursue talks, though China’s surprise retaliatory 34% tariff marks a hard escalation, the start of the next phase of this trade war.
Thursday: US CPI inflation
Our thoughts: Headline inflation is expected to slow to 2.6% in March, down from 2.8% previously. Core inflation is also expected to ease slightly. Inflation concerns remain front and centre for markets, particularly as the newly announced tariffs have lifted inflation expectations. The FOMC minutes, also due this week, could provide additional insight into shifting policy stances within the committee.
Friday: UK monthly GDP
Our thoughts: UK GDP is expected to come in at 0.1% in February, following a surprise contraction in January that marked a weak start to the year. While Q4 2024 showed strength thanks to a private sector rebound, early 2025 data points to a more fragile recovery. February’s print should be consistent with modest quarterly growth, but escalating trade tensions have dampened sentiment and could weaken activity.
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