Trump tariffs roil markets

US President Donald Trump unveiled his most wide-ranging tariff policies last week, targeting all trading partners of the US with a minimum 10% tariff and much higher rates for countries that the US claims place high tariffs or non-monetary trade barriers on US imports. Among the major trading partners hit with new higher tariff rates include China at 34%, the European Union at 20%, India at 26%, Japan at 24% and South Korea at 25%. Many smaller, emerging economies have been hit with much higher tariff rates on the US government’s claim that they charge near 100% tariffs on imports of US goods. China has already retaliated with its own 34% tariff on imports from the US while other trading partners are considering their responses to the US’ major disruption to global trade. The baseline 10% rate took effect on April 5 while the higher individual levels will be implemented on April 9.

The UAE will face a 10% tariff rate as will Saudi Arabia while Iraq’s exports to the US will face a tariff of 39%, Jordan at 20% while Turkey will endure a 10% tariff. However, exports of aluminium will still be at a higher 25% rate, which will catch out some of the main non-oil flows from the UAE to the US.

Market response to the tariff announcement has been enormously negative as the individual country levels and baseline of 10% were higher than seemingly many market participants had been expecting. The Dow Jones index dropped 8% last week, the US dollar index fell 1% and 10yr US Treasury yields fell 25bps as markets price in a greater chance of a US recession.

Jerome Powell, chair of the Federal Reserve, said that the “tariff increases will be significantly larger than expected” after they were announced by President Trump and also said that the inflationary impact from tariffs could be “more persistent.” President Trump pushed Chair Powell to lower interest rates via social media commentary. Markets have increased their rate cut expectations to four 25bps cuts by the end of the year even amid the inflationary risks the tariffs pose.

Buried amid the noise of the tariff announcement, the March non-farm payrolls report came in stronger than expected at 228k jobs added thanks to strong private sector job gains. Government employment also increased. Jobs gains for both January and February were revised lower, however. Headline unemployment in the US ticked marginally higher to 4.2% while average hourly earnings were modestly faster at 0.3% m/m from 0.2% previously.

Inflation in Turkey eased to 38.1% y/y in March, from 39.1% a month earlier. The March print was slightly slower than market expectations for closer to 39%. On a monthly basis, inflation accelerated to 2.5% m/m in March from 2.3% in February. Inflation has been consistently heading lower in monthly prints and the central bank had been following with rate cuts but it had to intervene in markets with an emergency 200bps hike on March 20 to calm market anxiety following a sharp sell-off in the Turkish lira.

OPEC+ has shifted its market management strategy from a steady incremental increase in output to monthly announced targets, bringing forward higher output levels for May this year. According to OPEC, the production increase from those countries making voluntary additional cuts will be equivalent to three monthly increments of higher output and the “gradual increases may be paused or reversed” based on assessments of market conditions. That will leave oil markets grasping with additional volatility as they assess the negative impact on global trade of the tariffs announced by the Trump administration.

Today’s Economic Data and Events

• 08:15 SR S&P Global Saudi Arabia PMI Mar

Fixed Income

• Benchmark bond markets rallied last week as investor sought out haven assets. Yields on the 10yr US Treasury dropped 25bps to 3.9943%, their lowest level since October 2024 as markets price in US recession fears. Yields on the 2yr UST fell almost 26bps as markets raise expectations that the Fed will need to cut rates more than expected this year to offset any economic weakness in the US.
• British and German bonds also strengthened at the end of last week though most emerging market USD-denominated bonds weakened.
• GCC credit sold off at the end of last week with declines across all major geographies and categories.

FX

• Currency markets sank at the end of the week as the full impact of the new US tariffs took time to be absorbed. EURUSD dropped by 0.9% on Friday, its largest single-day loss since the US election last year though at 1.0956 it still managed a 1.2% gain for the week as a whole. USDJPY was higher by 0.6% on Friday at 146.93 though lower by almost 2% for the week while GBPUSD dropped by 1.6% on Friday and was weaker by 0.4% for the week at 1.2887.
• Commodity currencies were among the worst impacted last week with AUDUSD down 4.6% on Friday at 0.604 with a weekly loss of 3.9%. NZDUSD also endured a tough drop of 3.4% on Friday to close at 0.5596, down 2.1% for the week as whole. Relatively higher tariffs on many Asian economies will feedback more acutely to the Australian and New Zealand economies. The Canadian dollar by contrast fared relatively better with a 0.9% gain in USDCAD on Friday at 1.4219, though the Loonie still managed to strengthen last week.

Equities

• Friday saw another day of heavy selling in global equity markets as recession fears for many economies increased. The Dow Jones fell 5.5% on Friday while the S&P 500 and NASDAQ recorded closer to 6% declines. In Europe, the Euro Stoxx 50 fell by 4.6% while the FTSE 100 was weaker by almost 5%. Asian markets also ended the week in the red with the Nikkei down 2.8% on Friday while the CSI 300 fared marginally better with a 0.6% loss.
• Local markets also closed weaker on Friday with the DFM down by 1.5% and the ADX weaker by 1.2%.

Commodities

• Oil prices plunged at the end of last week with negative news from the tariff announcements compounded by OPEC+ plans to accelerate production increases in May. Brent futures fell 6.5% on Friday to USD 65.68/b while WTI was lower by 7.4% at USD 61.99/b. Both benchmarks were weaker by about 11% for the week as a whole.
• Metals markets also fared poorly last week with LME copper down 6.3% on Friday, aluminium down almost 3% and iron ore futures off by 1%. Precious metals failed to provide much relief with gold down 2.5% on Friday at USD 3,038/troy oz and large losses across the rest of the complex.