Market Recap: Week Ending 7 April 2025

The past week has been marked by significant developments across global financial markets, driven by the introduction of sweeping tariffs by the United States and the subsequent reactions from international economies. These events have led to heightened volatility, impacting various sectors and asset classes.

U.S. Tariff Implementation and Global Repercussions

On 2 April 2025, President Donald Trump announced the commencement of "Liberation Day" tariffs, imposing a baseline 10% duty on all imports, with higher rates for specific countries such as China, Canada, Germany, and Japan. This aggressive trade policy aims to address perceived trade imbalances and bolster domestic manufacturing. However, the immediate fallout has been a sharp decline in global equity markets, with the S&P 500 and Nasdaq experiencing significant losses. Economists have expressed concerns about the potential for increased inflation and a slowdown in economic growth as a result of these tariffs.

In retaliation, China imposed a 34% tariff on U.S. goods, signalling the onset of a renewed trade conflict. This escalation has raised fears of a protracted economic standoff between the world's two largest economies.

The billionaire investor Bill Ackman urged a 90-day pause on the tariffs, cautioning that they could trigger an "economic nuclear winter."

Impact on Manufacturing and Inflation

The U.S. manufacturing sector has shown signs of contraction, with the Institute for Supply Management's manufacturing index dropping to 49% in March, indicating a decline in business activity. This downturn is attributed to rising costs and decreased demand stemming from the newly imposed tariffs.

In Spain, industrial production contracted by 1.9% in February, following a revised 1.2% decline in January. The automotive sector was notably affected, experiencing an 11% decrease. Despite these challenges, the services sector has provided some support to the economy, highlighting the uneven impact of external pressures across different industries.

Central Bank Responses and Monetary Policy

The European Central Bank's March meeting minutes revealed diverging views among policymakers regarding the timing of future interest rate adjustments. The recent tariff developments have added complexity to the ECB's policy considerations, potentially influencing the trajectory of monetary easing in the near term.

In Asia, the Bank of Korea is expected to maintain its policy rate at 2.75% during its April meeting. This decision reflects the need to assess the impact of previous rate cuts and the potential economic effects of U.S. trade policies. Additionally, the recent depreciation of the Korean won, driven by global risk-off sentiment and domestic political uncertainty, is under close observation.

Japan's economy shows signs of gradual recovery, with positive indicators in industrial production, retail sales, and the labour market. These developments increase the likelihood of the Bank of Japan implementing a 25 basis-point rate hike in May.

Markets are closely monitoring the Federal Reserve’s response to inflationary headwinds brought about by the tariff regime. While Chair Jerome Powell has thus far maintained a cautious tone, futures markets have begun to price in the possibility of a rate hike in the second quarter should inflation indicators firm up. The March CPI release on April 10 will be instrumental in shaping market expectations for the Fed’s next steps.

Corporate Restructuring in Derivatives

Eurex, the derivatives arm of Deutsche Börse, announced a significant restructuring aimed at streamlining its operations by merging its equity, fixed income, currency, and repo sales with business development into two new departments. These changes are part of an effort to simplify Eurex's structure and improve customer service. The two newly established departments are:

1. Global Products & Markets Team: Led by Chief Strategy Officer Matthias Graulich, this team consolidates all product and market development activities across trading and clearing.
2. Global Sales & Marketing Department: Headed by Jens Quiram, formerly responsible for fixed income and currency derivatives and repo sales at Eurex Clearing, this department aligns sales and marketing efforts across all asset classes.

Equity Markets

United States: U.S. equity markets experienced sharp declines in response to the newly imposed tariffs. The S&P 500 Index fell 5.97% on Friday, 4 April 2025, marking one of its most substantial single-day losses in recent years. Similarly, the Dow Jones Industrial Average and the Nasdaq Composite Index declined by 5.50% and 6.07%, respectively.

The technology sector was notably impacted, with major firms such as Meta, Microsoft, Google, and Amazon experiencing significant downturns. Jefferies analysts characterised the tariffs as a "free hall pass" for tech companies to reset their performance goals amid rising macroeconomic uncertainties.

Europe: The FTSE 100 plunged 6% to a one-year low, while Germany’s DAX and France’s CAC 40 also saw significant losses.

Asia: Japan's Nikkei and Taiwan’s TAIEX fell nearly 9% and 10%, respectively, reflecting heightened investor concerns over a potential global trade war.

VIX and Broader Market Volatility Measures

The CBOE Volatility Index (VIX) spiked above 30, its highest level since mid-2022, indicating elevated investor anxiety. Derivatives markets reflected aggressive hedging activity, particularly around S&P 500 put options.

Emerging Market Impact

Emerging market assets experienced notable outflows, with currencies such as the Mexican peso and Brazilian real depreciating sharply against the dollar. Sovereign bond yields in frontier markets widened materially, and the MSCI Emerging Markets Index declined by over 4% on the week.

FX Market

The U.S. dollar index (DXY) strengthened to 105.8, driven by safe-haven flows and rising expectations of Fed hawkishness. Conversely, the euro and yen depreciated materially, exacerbating inflation pressures in their respective domestic markets.

Liquidity and Market Depth

Several institutional trading desks noted a decline in market depth across equities and credit, with bid-ask spreads widening notably in less liquid ETFs and small-cap stocks. This points to growing fragility in market functioning as systemic risks mount.

Cryptocurrency Markets

The cryptocurrency market has experienced notable volatility in the past week, influenced by escalating global trade tensions and broader economic uncertainties.

Bitcoin's Performance

Bitcoin (BTC), the leading cryptocurrency by market capitalization, has seen significant price fluctuations. As of April 7, 2025, BTC is trading at approximately $76,349, marking a decline of over 8% from the previous close. The intraday trading range has seen a high of $83,110 and a low of $74,561.

This downturn aligns with the implementation of new tariffs by the U.S., which have heightened investor concerns about a potential global recession. The imposition of these tariffs has led to increased market volatility, prompting investors to reassess their positions in risk assets, including cryptocurrencies.

Altcoin Movements

The broader crypto market reflected Bitcoin’s volatility, with major altcoins experiencing significant declines:

• Ethereum (ETH): Ethereum fell significantly, currently trading around $1,590, representing a decline of approximately 11%. The sharp pullback reflects investor concerns about potential impacts on decentralised finance (DeFi) markets and applications dependent on stable macroeconomic conditions.
• Solana (SOL): Solana, known for its high-speed transactions and scalability, experienced substantial selling pressure, trading near $107.19, down approximately 9.9%. This downturn underscores investors' current preference for reducing exposure to riskier crypto assets.
• Cardano (ADA): Cardano, recognised for its strong academic foundations and long-term development vision, has similarly struggled amidst market turbulence, trading at approximately $0.52—a decline exceeding 10%. Despite its resilient community support, investor caution remains evident across ADA markets.
• Avalanche (AVAX): Avalanche, which has gained attention for its efficiency in DeFi and NFT sectors, also recorded significant losses. The token is currently priced at around $14.83, reflecting a decline of approximately 15% in recent days, highlighting broad-based investor caution in layer-1 blockchain assets.
• Aptos (APT): Aptos, another emerging layer-1 blockchain touted for its scalability, suffered a sharp decline, falling to around $8.50, a decrease of more than 20%. The pronounced volatility in newer altcoins like Aptos illustrates investors' wariness amid economic uncertainties.

Market Sentiment and Technical Indicators

The recent price movements have led to the formation of bearish technical patterns in several cryptocurrencies, suggesting potential further declines. Additionally, market sentiment indicators have shifted towards "Extreme Fear," indicating heightened investor anxiety and potential for continued selling pressure.

Correlation with Traditional Markets

The cryptocurrency market's recent performance has shown increased correlation with traditional financial markets. The S&P 500 and Nasdaq Composite have both experienced significant losses following the announcement of new tariffs, and cryptocurrencies have mirrored this trend. This correlation suggests that macroeconomic factors and geopolitical events are exerting a growing influence on digital asset valuations.

Outlook

Analysts remain divided on the short-term trajectory of the cryptocurrency market. While some anticipate a potential rebound if macroeconomic conditions stabilize, others caution that ongoing trade tensions and regulatory developments could exert continued downward pressure on prices. Investors are advised to monitor global economic indicators and policy decisions closely, as these factors are likely to play a critical role in shaping market dynamics in the near term.

Meanwhile, the SEC deferred its decision on several spot Ethereum ETF applications, citing the need for further market surveillance data. Institutional crypto activity showed mixed signals, with outflows from major ETPs accelerating over the week.

Commodities

Crude Oil: Oil prices have fallen below $60 per barrel, reflecting concerns that escalating trade tensions could dampen global economic growth and reduce demand for crude oil.

Gold: Conversely, gold prices have surged to record highs, exceeding $3,100 per ounce, as investors seek safe-haven assets amid market volatility.

Fixed-Income Markets

U.S. Treasury yields have declined as investors move towards safer assets. The 10-year Treasury yield fell to 4.01%, down from 4.06% the previous market day, reflecting increased demand for government bonds amid recession fears.

In the credit markets, high-yield spreads widened by 35 basis points over the week, reaching their highest levels since November 2023. Investment grade spreads also showed moderate widening, reflecting investor concerns over corporate earnings and refinancing risks in a rising cost environment.

Data Release:

Employment Data

• Nonfarm Payrolls and Unemployment Rate: In March 2025, the U.S. economy added 228,000 jobs, exceeding the anticipated 140,000. This robust job growth was primarily driven by gains in the services sector, notably in healthcare and transportation. Despite this, the unemployment rate edged up to 4.2% from 4.1% in February, attributed to an increased labour force participation rate as more individuals entered the job market.
• Weekly Jobless Claims: For the week ending March 29, initial unemployment claims declined by 6,000 to 219,000, indicating continued labour market strength. However, ongoing federal workforce reductions and corporate layoffs may influence future trends.

Inflation Metrics

• Consumer Price Index (CPI): The annual inflation rate for the 12 months ending February 2025 was 2.8%, a slight decrease from the previous month's 3% rate. The CPI data for March is scheduled for release on April 10, 2025, and will provide further insights into inflation trends amid recent tariff implementations.

Retail Sales

• February Retail Sales: Retail sales in February increased by 0.2% month-over-month, rebounding from a revised 1.2% decline in January. On a year-over-year basis, sales were up 3.1%. Notable gains were observed in online retail and health and personal care stores, while auto dealerships and clothing stores experienced declines.
• National Retail Federation (NRF) Projections: The NRF forecasts that U.S. retail sales will grow between 2.7% and 3.7% in 2025, amounting to total sales between $5.42 trillion and $5.48 trillion. This projection reflects tempered expectations due to consumer anxiety over persistent inflation and recent tariff announcements.

Manufacturing and Services Activity

• ISM Manufacturing PMI: The Manufacturing Purchasing Managers' Index (PMI) fell to 49.0 in March from 50.3 in February, indicating a contraction in the manufacturing sector. This decline reflects decreased new orders and production, influenced by uncertainties surrounding trade policies.
• ISM Services PMI: The Services PMI decreased to 50.8 in March from 53.5 in February, indicating a slowdown in the growth of the services sector. The decline was primarily due to a reduction in new orders and employment, highlighting potential challenges in sustaining the expansion of the service industry.

Gross Domestic Product (GDP) Estimates

• Atlanta Fed's GDP Now Forecast: As of April 3, 2025, the GDPNow model estimates a 2.8% contraction in real GDP for the first quarter of 2025. This downward revision reflects the anticipated economic impact of recent tariff implementations and associated trade uncertainties.