Latest round of tariffs will come into effect on 5 and 9 April. Donald Trump announced the imposition of a 10% baseline tariff on all imports to the United States from 5 April. For countries with which the United States has the biggest trade deficits, higher, individualised reciprocal tariffs will take effect on 9 April.
The markets remain on tenterhooks ahead of today's long-awaited announcement of Donald Trump's reciprocal tariffs. This decision could heighten concerns about growth, both in the United States and at world level.
Risk assets were down again on Monday in the run-up to what Trump has dubbed Liberation Day on 2 April, when he is due to announce a raft of reciprocal customs tariffs, which would see the trade war take on a global dimension.
Hopes and fears surrounding US tariffs continue to keep the market on its toes. Yesterday, the hope that the next wave of US tariffs would finally be more limited and targeted, combined with a very solid US services ISM report, fuelled a rebound by US risk assets (led by US techs) and the US dollar, and pushed US bond yields higher in a pro-growth configuration.
After the very fragile post-FOMC rebound, Friday's session saw American indices (notably techs) extend their recovery, aided by more measured remarks from Donald Trump, who said “there’ll be flexibility” on reciprocal tariffs.
Thursday’s session was dominated by central bank meetings, with monetary policy decisions that were in line with expectations. The status quo prevailed in most cases, notably in Sweden (key rate kept at 2.25%), the UK (4.5%) and South Africa (7.5%).
Market sentiment was rather positive ahead of the FOMC statement, with European equities rising and € credit spreads tightening. In the wake of the monetary policy decision, equities rose and bond yields eased further after Jerome Powell indicated that the Federal Reserve saw no need for drastic action in the face of Donald Trump's trade war.
Now that the fiscal package has been voted by the Bundestag and that Trump and Putin have had a lengthy phone call on Ukraine, the markets’ attention will shift to the raft of central bank meetings scheduled this week, kicking off with the BoJ and Fed. The BoJ maintained a monetary status quo.
Friday's session was marked by the announcement that an agreement has been reached with the Greens in Germany, notably on the €500bn infrastructure fund, of which €100bn will be dedicated to the energy transition, but also on exemptions to the debt brake.
Four main risks associated with our scenario
At the same time, the US dollar is being negatively affected, especially since its nominal effective exchange rate suggests the currency is overvalued. The US dollar is penalised by concerns over US growth, with an increased risk of stagflation taking hold in the United States.
In the space of a few weeks, the situation in Europe has changed radically, notably as a result of JD Vance's Munich speech and the rapprochement between the United States and Russia over peace in Ukraine, as well as questionings about European security raised by Trump’s announcements. For European countries, these events have been an ‘electroshock’, and they quickly announced a plan to increase defence spending by up to €800bn.
The 25% tariffs on steel and aluminium announced by Donald Trump in February came into force on Wednesday. They affect a number of countries, but in particular Canada, Brazil, Mexico, Germany and several Asian countries.
Further escalation yesterday in the trade war between the United States and Canada. In response to the announcement of a Canadian surcharge on electricity exported to the United States, Donald Trump retaliated by raising tariffs on aluminium and steel by a further 25% to 50%, although he later retracted this decision.
The markets do not really seem to share Donald Trump's indifference to the short-term impact of his policies on the US economy.
American exceptionalism, the main market theme since Trump's election in November, is clearly in a bad way, stoking the idea that American soft power is on the wane. Trump is certainly not solely to blame for this gradual deterioration. Rather, it is the promise of a rebound that seems to be vanishing.
Busy end of week with European defence push, ECB monetary policy decision, US tariff pause and NFP. No let-up in the news flow as the week draws to an end. Friday will be marked by the publication of the February Employment Situation Report, with our US economists expecting 180 thousand job creations (see NFP Preview), while Thursday’s session was punctuated by an abundant news flow:
