Category: WEEKEND REPORT

1) Macro Overview

In the United States, President Trump’s unexpected decision to impose a 10% baseline tariff on all imports (excluding Mexico/Canada) and additional levies up to 34% on China triggered fears of inflation, recession, and major supply-chain disruptions. Markets quickly priced in four to five Federal Reserve rate cuts (exceeding 100 basis points) by year-end, reflecting expectations of a policy pivot to cushion the economy. Still, March Nonfarm Payrolls expanded by +228,000 (vs. ~140k forecast), and unemployment inched up to 4.2%, suggesting that hiring remains robust. Other data was mixed: the ISM Services PMI fell to 50.8, while large-scale layoffs (275,000 in March, +205% year-over-year) hinted at strains in certain industries. Safe-haven demand drove the 10-year Treasury yield down nearly 35 basis points to about 3.9%.

In the Eurozone, early 2025 had shown modest recovery signs, with inflation dipping to 2.2% and unemployment hitting a record low of 6.1%. However, the U.S. slapped 20% tariffs on EU goods, prompting Brussels to threaten retaliation and putting the European Central Bank (ECB) on high alert; investors now see a roughly 90% chance of an ECB rate cut soon. German 10-year Bund yields dropped about 17 basis points around China’s response to U.S. measures, settling near 1.95%. In China, March manufacturing PMI rose to 50.5 (a 12-month high), though President Trump’s new tariffs effectively brought total levies on Chinese exports to 34%, prompting an immediate tit-for-tat reaction from Beijing. Policymakers in China injected $69 billion into key banks and signaled readiness for more stimulus, yet Fitch downgraded the nation’s credit rating from A+ to A as fears rose of a protracted trade war hitting exports. Meanwhile, in emerging markets, many exporters face the U.S. baseline 10% import tariff, with “reciprocal” rates of up to 50% threatened on around 60 countries. Asian markets led the decline: Japan’s Nikkei 225 plunged 9% this week, and the broader EEM fund slid 7%. However, EM central banks such as India’s and Brazil’s may respond with easier monetary policies if global growth fades.

2) Weekly Performance by Asset Class

Equities fared badly worldwide, suffering their worst week since the March 2020 pandemic crash. In the U.S., the S&P 500 sank 9.1%, the Nasdaq slumped 10% into bear-market territory, and the Dow lost 7.9%. Tech names (including Apple, which fell 15% weekly) and trade-sensitive industrials (e.g., Boeing down 20% over two days) bore the brunt, while homebuilders rose late in the week on tumbling mortgage rates. In Europe, the Euro STOXX 50 dove 8.5% weekly, and autos and banks underperformed on tariff escalation. Asia saw Japan’s Nikkei drop 9%, its biggest weekly slide in a year; however, China’s Shanghai Composite slipped only 0.3% on partial holiday closures, and the MSCI China Index lost 2.4%. In emerging markets, the EEM ETF closed the week 7.3% lower amid broad risk aversion.

Bonds, by contrast, benefited from safe-haven flows. U.S. Treasurys rallied sharply, with the 10-year yield down around 35 basis points to 3.9% and the two-year note also plummeting as rate-cut bets soared. Investment-grade corporate spreads widened to around 1.0% over Treasurys, and high-yield spreads jumped to near 3.9%, the highest in a year. The Bloomberg U.S. Aggregate Bond Index rose 1% on the week, and long-term Treasurys rallied more. German Bund yields fell about 15–20 basis points, while UK Gilts dipped below 3.5% as traders increasingly expect the Bank of England to soften its stance.

Commodities took a hit amid global recession worries. West Texas Intermediate (WTI) crude dropped roughly 11%, from above $69 last week to below $62, after reports that OPEC+ might ramp up production faster than planned. Natural gas prices shed about 5%. Gold briefly topped $3,100 per ounce mid-week before retreating to around $3,055, down 2% in late-session selling—though it remains up about 15% year-to-date. Silver plunged 14% (its worst weekly drop since 2022), reflecting both safe-haven liquidation and weak industrial demand. Copper slid by 8–10%, highlighting concerns over global manufacturing. Overall, the Bloomberg Commodity Index lost roughly 2.5%, reversing early gains.

3) Key Economic Issues: Bearish vs. Bullish

Pessimists worry that the sweeping U.S. tariffs—coupled with immediate retaliation from China—create a genuine trade war, threatening corporate profits, consumer prices, and international supply chains. They point out that global recession odds rose to 60% (from 30%), with major investment banks downgrading forecasts and more firms issuing negative guidance. Some warn of inflationary pressures that could limit central banks’ ability to cut rates, raising the specter of stagflation. In contrast, optimists note that the U.S. labor market (228k payroll additions) remains a firm underpinning for consumption, and that the Federal Reserve, ECB, and People’s Bank of China are all pivoting toward easier policy. Bulls view tariffs as a tough negotiating tactic that can be rescinded once new deals are struck, and suggest that the sell-off could be an overreaction, setting up potential bargains for patient investors. They also stress that household balance sheets and corporate liquidity appear stronger than in previous downturns, which may mitigate the worst-case scenario.

4) Notable Developments Next Week

Several crucial events will dictate whether this pullback stabilizes or deepens. The Federal Reserve releases minutes from its March meeting (April 9), and markets will watch for any signs that policymakers already leaned dovish before the tariff shock. U.S. inflation data arrives on April 10 (CPI) and April 11 (PPI); a downside surprise in core CPI or PPI could solidify the case for more Fed cuts. The European Central Bank’s policy meeting on April 10 will be key after the new wave of tariffs; investors suspect a possible rate cut or, at minimum, very accommodative language. Meanwhile, the IMF Spring Meetings could reveal revised global GDP forecasts. Lastly, the first-quarter earnings season begins in earnest, with JPMorgan, Wells Fargo, Morgan Stanley, Bank of America, and BlackRock reporting on April 11. Markets will scrutinize their guidance for trade-related impacts and credit conditions.

5) Weekly Investment Strategy

Retail investors should remain calm yet proactive. First, it’s important to keep portfolios balanced, maintaining a cushion of high-quality bonds or cash to offset equity volatility. Defensive equity sectors—like consumer staples and healthcare—along with dividend-paying value names can help temper drawdowns. Trimming exposure to heavily trade-linked industries (e.g., semiconductor and industrial exporters) may be wise until clarity emerges. Despite the turmoil, dislocations can offer selective buying opportunities, particularly if you dollar-cost average into core index funds. Emerging markets could rebound swiftly if trade negotiations improve or Chinese stimulus strengthens. With the Fed leaning dovish, government bonds are now more attractive; short-term Treasurys near 4–4.5% offer a solid yield with lower risk, and longer maturities can still provide portfolio hedging benefits if yields fall further. Keep an eye on official policy shifts: any tariff rollback or progress in U.S.-China talks could trigger relief rallies, while a deepening trade war may require a more defensive stance. Above all, ensure your allocation matches your risk tolerance, and consider adjusting slowly rather than making abrupt, emotionally driven moves.