Market Mondays: Trump’s Tariff Tantrum Sparks Volatility Across Asset Classes

Global financial markets staged a volatile week as investors reacted to erratic developments in US trade policy, particularly the announcement and partial rollback of President Trump’s so-called “Liberation Day” tariffs. While the initial shock sent risk assets into a tailspin, partial policy reversals triggered a dramatic relief rally – underscoring the influence of political noise on near-term market sentiment.

With policy uncertainty dominating price action, other macroeconomic and corporate signals struggled to capture investor attention. Nonetheless, a weaker-than-expected US inflation print and growing recession risks are quietly shifting the outlook for central bank policy, particularly in the US, Europe, and the UK.

Trump’s Tariff Flip-Flop and Market Reaction

The headline event of the week was undoubtedly the rollout of Trump’s Liberation Day tariffs – initially threatening to impose a sweeping 125% tariff on all Chinese goods. The market’s reaction was swift and brutal: US indices plunged, Treasury yields collapsed, and safe havens like gold spiked.

However, within days, the administration began walking back the most extreme elements of the policy. Trump floated the possibility of exemptions – first for key allies, then reportedly for tech products like iPhones – before later reversing course again via Truth Social. The lack of clarity created intense volatility: major US indices swung double digits within days, driven more by social media posts than fundamentals.

While there was temporary relief when the administration confirmed a 90-day delay on full implementation for non-China countries, uncertainty persists. As it stands, the US and China remain on a path toward higher bilateral tariffs, with knock-on effects for global supply chains and consumer prices.

Equity Markets Rebound – But Risks Remain

Despite the policy whiplash, equity markets posted one of their strongest weeks in years. The S&P 500 surged 9%, the NASDAQ 100 rallied 12%, and European indices followed suit. But this relief rally masks deeper risks.

The University of Michigan’s consumer sentiment survey showed confidence hitting multi-year lows – particularly among politically progressive and independent respondents. Inflation expectations ticked up, and corporate earnings guidance is expected to deteriorate as firms report over the coming weeks. Many are likely to cite trade uncertainty as a key drag on outlooks.

From a technical perspective, the recent drawdown in indices pushed them into oversold territory. Much of the subsequent rally was driven by short-covering, with sentiment gauges like the CNN Fear & Greed Index at extreme bearish levels before the bounce. If the trade environment continues to deteriorate – or if macro data confirms a slowing economy – there could be renewed downside ahead after positioning clears.

Gold Hits All-Time High Amid Safe Haven Bid

Gold continues to shine as a hedge against geopolitical and macroeconomic instability. After a brief selloff during last week’s broad liquidation event, the yellow metal surged to a fresh all-time high above $3,200/oz. The recovery underscores gold’s role as both an inflation hedge and a store of value in turbulent times, provided markets continue to function properly.

Central bank demand remains a key tailwind for gold, with global monetary authorities continuing to diversify away from the US dollar. Moreover, last week’s weaker CPI print in the US (with both headline and core measures undershooting expectations) increases the likelihood of Federal Reserve rate cuts later in the year – further supporting gold’s bullish outlook.

Technically, some bearish divergence is emerging in momentum indicators like RSI, suggesting caution around immediate entry points. However, as long as real yields remain depressed and the dollar weakens, the broader setup remains constructive.

Dollar Weakness Drives Currency Moves

The US dollar saw broad-based declines last week, driven by falling rate expectations and increasing concern over US credibility. Dollar/yen (USD/JPY), which is highly sensitive to yield differentials, fell sharply after failing to break above the 147 level. It now tests the lower bound of its descending channel.

Japan’s central bank remains cautious about hiking rates, but with US yields dropping and global growth risks rising, the yen may continue to strengthen. Similarly, the euro surged past 1.14, its highest level in three years, as markets price in further easing from the European Central Bank (ECB).

ECB, BoE Poised to Cut; Eurozone and UK in Focus

The ECB is widely expected to cut rates by 25 basis points this week – an outcome fully priced in by markets. Additional easing is likely later this year, with another 50bps of cuts anticipated. ECB President Christine Lagarde has emphasized that the central bank stands ready to act to preserve price stability amid trade disruptions.

European assets, including the euro and Euro Stoxx 600, have rallied on the belief that the ECB will respond swiftly and decisively to any slowdown. However, forward guidance may be limited given the high level of macro uncertainty.

In the UK, the Bank of England is also expected to join the rate-cutting cycle, with markets pricing in 81bps of cuts by year-end. The pound has strengthened alongside other major currencies, but remains more constrained than the euro due to lingering fiscal concerns and weaker inflation progress.

Oil Faces Dual Headwinds

Oil prices remained under pressure despite last week’s broad risk-on move. Brent and WTI both rebounded slightly after the US softened its tariff rhetoric, but the medium-term outlook remains bearish.

The global growth outlook is deteriorating – especially with US-China trade tensions unresolved – and oil is increasingly trading as a proxy for economic sentiment. Compounding the downside risk, OPEC appears willing to maintain or even increase output into a weakening demand environment, likely in deference to US political pressure for lower energy costs.

Last week’s bounce was off multi-year lows, but unless there is a meaningful reversal in trade policy or a surprise supply cut, crude may continue to test the downside.

Looking Ahead: Tariffs, Earnings, Central Banks

The week ahead is headlined by the ECB meeting and the start of Q2 earnings season. Markets will also be watching for any additional comments or executive orders from the Trump administration that clarify – or further muddle – the US tariff regime.

Key events to watch:

• ECB Rate Decision (Thursday): A 25bps cut is priced in. Focus will be on Lagarde’s tone and whether further easing is hinted at.

• US Retail Sales & Initial Jobless Claims (Thursday): Important indicators of consumer resilience amid macro uncertainty.

• Corporate Earnings Season Begins: With many S&P 500 firms set to report, guidance and commentary around tariffs will be closely scrutinized.

• Trump’s Trade Policy: Expect further volatility tied to headlines, social media posts, or policy announcements.

Conclusion: Volatility Is the Only Certainty

Markets staged an impressive rebound last week, but it was driven more by positioning and hope than by fundamentals. Trump’s tariff policy remains fluid and unpredictable, creating both upside and downside tail risks for investors.

Safe havens like gold remain well supported, while traditional risk assets like equities may struggle to hold gains if macro data confirms economic slowing. Currency markets will continue to reflect shifting rate expectations and geopolitical stress.

The message for traders? Stay nimble, manage risk carefully, and expect more turbulence ahead.