Can global trade be saved?

Markets in March

US equities markets have had a volatile March as investors seemed to be overwhelmed by the policy uncertainty created by the US President’s tariff threats and changes, the global response, and the widening geopolitical stance between the US, Europe and China. US survey data in March has indicated that consumers and businesses are more nervous about inflation and supply chain disruptions stemming from these policies. However, growth in Europe looks set to improve due to promises to increase defence spending across Europe. Germany’s removal of its debt brake and its commitment to infrastructure spending have also increased market optimism in Europe. US equity markets are all down as tech stocks have been hit particularly hard. The S&P 500 is -4.07% MTD, the Dow Jones is -3.16% MTD, while the Nasdaq 100 is -4.63% MTD. The NYSE is -2.12% MTD. European equity markets have continued to outperform US markets, with the STOXX 600 -1.52% MTD. 

In the bond market, Treasury yield curves steepened in March as investors demanded higher premium on rising inflation concerns and on promises of increased defence spending in Europe. There is likely to be continued volatility in bond markets, particularly in Europe as they adapt to the implications of such a significant increase in government debt entering the market and the potentially higher future borrowing costs over the longer term. Although there may still be room for cuts in the euro area and UK, the risks are skewed towards fewer rate cuts than previously anticipated.

The economic picture

The dollar index has been down in March and is approximately -2.70% MTD. The dollar fell over March due to some signs of weakening economic data and uncertainty over US tariff implementation. The US labour market moderated in February with the NFP increasing by 151,000 in February after upward revisions to the prior two months. The unemployment rate edged up to 4.1% in February from 4% in January. The labour participation rate edged down to 62.4%; it is still below the pre-pandemic level of 63.3%. The underemployment rate rose to 8.0% in February from 7.5% in January to its highest level since 2021. Average hourly earnings were up 4.0% y/o/y. Inflation eased to 2.8% in February 2025 from 3% in January with headline CPI rising by 0.2% m/o/m, down from January’s 0.5%, while core CPI, excluding food and energy, was up by 0.2% m/o/m, up from January’s 0.4%. Headline CPI came in at 2.8% y/o/y, down from January’s 3%, and core CPI came in at 3.1%, the lowest reading since April 2021.

On the growth front, the US economy is moderating and confidence is falling. The Flash Composite PMI in March came in 53.5, up from February’s 51.6 and a 3-month high. The Flash Services PMI came in at 54.3, up from February’s 51.0 and also a 3-month high. However, the Flash Manufacturing PMI came in at 49.8, down from February’s 52.7 and a 3-month low. As noted by S&P, business expectations for the year ahead fell to their second lowest since October 2022 as companies grew increasingly cautious about the economic outlook, often citing worries over customer demand and the impact of aspects of the new administration's policies. 

The nonfarm payroll increased by 151,000 in February after upward revisions to the prior two months. The unemployment rate edged up to 4.1% in February from 4% in January. The labour participation rate edged down to 62.4%; it is still below the pre-pandemic level of 63.3%.

Consumers are still feeling significantly less confident about the current state of and prospects for the US economy. The Conference Board's consumer confidence index fell by 7.2 points in March to 92.9. The Present Situation Index, based on consumers’ assessment of current business and labour market conditions, dropped 3.6 points to 134.5. The Expectations Index, which is based on consumers’ short-term outlook for income, business, and labour market conditions, dropped 9.6 points to 65.2, the lowest level in 12 years and well below the threshold of 80 that usually signals a recession ahead. The University of Michigan consumer sentiment survey showed that US consumer sentiment fell for the second month in a row in March. It fell to 57.4 from February’s 64.7. This is the lowest level since November 2022. This was due to concerns that President Donald Trump's plans for broad-based tariffs would hit households' purchasing power. Short-term inflation expectations rose to 4.9%, up 0.6 percentage point from February and the highest reading since November 2022. For the five-year horizon, the outlook jumped to 3.9%, up from February’s 3.5%, for the highest level since February 1993.

In the UK, headline inflation remains above the BoE’s target, with headline inflation in February coming in at 2.8%. Although this is a drop from January’s 3.0%, services inflation stayed at 5% in February which will be a concern for BoE policymakers. Core inflation fell to 3.5% from February’s 3.7%. This headline drop is likely to be temporary with the Bank of England (BoE) expecting inflation to rise towards the 4% mark later this year due to increasing energy and other utility prices. The BoE will have to balance rising growth fears and inflation expectations as well as the uncertainties surrounding the wider impact of US tariffs on the global economy. UK growth forecasts were downgraded by the Office for Budget Responsibility (OBR) to only 1% in 2025. Growing concerns around growth may be enough to convince policymakers to cut rates by another 25 bps in May, but the BoE is likely to choose to pause after that. 

The poor growth outlook may be attributed to the rise in employer’s national insurance contributions, due to take effect in April, which will force companies to cut jobs and increase prices. However, there was some good news for the government in March as there was an upturn in business activity in March. The S&P Global Flash Composite PMI rose from 50.5 in February to a six-month high of 52.0. However, the overall services expansion was largely concentrated on tech and financial services. The Flash Manufacturing PMI fell again in March, accelerating to the sharpest output loss recorded for nearly one-and-a-half years. It fell to 44.6 from 46.9 in February. As noted by S&P, the March data showed that new business contracted for a fourth successive month, suggesting that demand is continuing to fall (just at a reduced rate). However, consumer confidence is up with the GfK Consumer Confidence Index for March rising by 1 point to -19. Although this exceeded market expectations of -21, by remaining in negative territory, it reflects continuing consumer wariness. Expectations for the general economic situation over the next 12 months improved by 2 points to -29, while sentiment regarding personal finances for the year ahead fell by 1 point to +1.

The labour market is still resilient, but continuing high wage growth and the April rise in employment cost may come to worry the BoE. Weakness in the labour market, linked to a rise in national insurance contributions and generally muted growth dynamics, will slow the economy. The UK remains sensitive to inflation risks due to supply issues and inflation expectations. According to the Office for National Statistics, average pay excluding bonuses rose 5.9% in the three months through January. Private-sector pay growth eased slightly to 6.1% from 6.2%. The number of payrolled employees rose 21,000 in February and the unemployment rate remained at 4.4%.

In the eurozone, inflation fell to 2.3% in February 2025, down from 2.5% in January. Core inflation, which excludes energy and food, eased to 2.6% from 2.7% in January, marking its lowest level since January 2022. On a monthly basis, consumer prices fell 0.4% in February. Service price inflation contributed the most to euro area inflation (+1.66 percentage points). On the growth front, the March eurozone HCOB Flash Composite PMI edged up to 50.4 in March from 50.2 in February, a third successive marginal monthly expansion in business activity across the euro area. The HCOB Flash eurozone Services PMI Business Activity Index fell to 50.4 in March 2025 from 50.6 in February, missing the expected 51. However, manufacturing was up again with the HCOB Flash Eurozone Manufacturing PMI rising to 48.7 in March 2025, the highest in 26 months, up from 47.6 in February and exceeding forecasts of 48.2. As noted by S&P, new orders for goods continued to fall, down for a thirty-fifth successive month, the decline was only marginal and the smallest yet recorded over this near-three-year period. Although Services activity rose for the fourth month in a row, the pace of expansion cooled, suggesting a near-stalling of activity in the services economy. However, the euro-area economy managed to eke out some growth with GDP increasing 0.2% on a quarterly basis in the final three months of 2024, according to Eurostat’s third estimate. This was up from 0.1% in the second estimate, while also being ahead of the third quarter’s 0.4% growth.

On a positive note, the ECB wage tracker indicates average negotiated wage growth of 4.8% in 2024 and 2.8% in 2025. However, markets remain worried by imposition of trade tariffs from the Trump administration. There are still concerns around the US refusal to allow EU member states into the peace negotiations between Ukraine and Russia. 

Global market indices

US:
S&P 500 -4.07% MTD and -2.88% YTD
Nasdaq 100 -4.63% MTD and -5.21% YTD
Dow Jones Industrial Average -3.16% MTD and -0.21% YTD
NYSE Composite -2.21% MTD and +2.56% YTD

The Equally Weighted version of the S&P 500 is -2.59% so far this month, 1.48 percentage points higher than the benchmark.

The S&P 500 Energy sector is the top performer this month at +3.99% MTD, while Information Technology underperformed at -5.92% MTD.

On Wednesday, the technology sector experienced a renewed selloff as concerns surrounding potential tariffs prompted investors to reduce their exposure to riskier assets. Initial concerns regarding potential tariffs on a diverse array of products, encompassing automobiles and microchips, adversely affected leading equities such as Nvidia and Broadcom at the open.

The expected announcement of new tariffs on the automotive industry further fuelled selling pressure, ultimately leading to a -1.83% decline in the Nasdaq Composite index. The S&P 500 also saw a -1.12% decrease, while the Dow Jones Industrial Average experienced a more modest fall of -0.31%, or 132.71 points, closing at 42,454.79.

The negative sentiment extended into after-hours trading, with auto stocks declining following President Trump's confirmation of a 25% tariff on global automotive imports into the United States.

Earlier in the trading session, markets had briefly rallied on indications that the White House might be scaling back its initial tariff plans. However, investors remain cautious as the 2^nd April deadline approaches, when the White House is expected to unveil further details regarding new levies. This near-daily volatility in trade policy continues to create uncertainty for both investors and consumers.

Soft data has indicated that the White House's rapidly evolving tariff threats have negatively impacted consumer and business sentiment.

In corporate news, Dollar Tree announced its agreement to sell its Family Dollar business to a consortium of private-equity investors for approximately $1 billion. This news was well-received by the market, with Dollar Tree shares rising by +3.1%. The strategic rationale for the sale lies in the different market focuses of the two chains: Dollar Tree stores primarily serve suburban, middle-income households, while Family Dollar locations are more concentrated in urban areas.

Shares of Pfizer fell after The Wall Street Journal reported on an inquiry into allegations that the pharmaceutical giant may have delayed the announcement of its successful Covid-19 vaccine until after the 2020 election.

Europe:
Stoxx 600 -1.52% MTD and +8.10% YTD
DAX +1.28% MTD and +14.72% YTD
CAC 40 -1.00% MTD and +8.81% YTD
FTSE 100 -1.36% MTD and +6.32% YTD
IBEX 35 +0.64% MTD and +15.84% YTD
FTSE MIB +1.89% MTD and +15.21% YTD

In Europe, the Equally Weighted version of the Stoxx 600 is -0.56% so far this month, 0.96 percentage points higher than the benchmark.

The Stoxx 600 Insurance is the leading sector this month, up +5.55% MTD, while Travel & Leisure has exhibited the weakest performance at -9.54% MTD.

On Wednesday, within the STOXX Europe 600, the Oil & Gas sector demonstrated the strongest performance, primarily due to an increase in crude oil prices, which reached a three-week high. This increase follows the announcement by the White House of a 25% secondary tariff on countries purchasing oil or gas from Venezuela. However, gains in oil prices were partially offset by ongoing US maritime security arrangements in the Black Sea region amidst the conflict in Ukraine. Within the broader Energy sector, Siemens Energy has reportedly agreed to divest a majority stake in its wind energy business in India, while OMV AG announced an unsuccessful exploratory drilling operation in license PL 1109.

Basic Resources also exhibited positive performance relative to the wider market. Nevertheless, these gains were moderated by speculation concerning potential copper tariffs that may be imposed by the US administration. In corporate news, Anglo American is reportedly in preliminary discussions regarding a potential IPO for De Beers, according to press reports. Additionally, Glencore announced its intention to reduce coal production at its Cerrejón mine by 5 to 10 million pounds in response to declining coal prices.

Autos & Parts experienced significant declines, as investors expressed hope for greater flexibility regarding tariffs following indications from the White House that not all trade levies would be enforced by the previously stated deadline of 2^nd April.

In corporate news, Alibaba and BMW are reportedly planning a collaboration on AI tech for the Chinese market, while BYD has set a target of 800,000 international sales.

Health Care is currently trading at its lowest levels in two months. Technology and Chemicals also registered declines during the trading session.

Global:
MSCI World Index -1.54% MTD and +1.05% YTD
Hang Seng +2.36% MTD and +17.07% YTD

Mega cap stocks had a negative performance in March, with five of the Magnificent Seven registering double-digit losses YTD. Microsoft -1.77%, Alphabet -3.07%, Amazon -5.25%, Tesla -7.14%, Apple -8.40%, Meta Platforms -8.56%, and Nvidia -8.93%.

Energy stocks experienced a mixed performance this month, with the Energy sector +3.99% MTD. Shell +7.40%, ExxonMobil +6.23%, Chevron +5.89%, ConocoPhillips +4.08%, Apa Corp +1.93%, and Occidental Petroleum +1.86%, while Marathon Petroleum -0.25%, Energy Fuels -0.51%, Baker Hughes Company -1.28%, Phillips 66 -2.41%, and Halliburton -2.54%.

Materials and Mining stocks have also had a mixed performance so far this month. The Materials sector is -2.20% MTD. Gold is +5.62% MTD, while silver prices are +8.44% MTD and copper prices are +15.54% MTD. Sibanye Stillwater +40.98%, Celanese Corporation +16.14%, Mosaic +13.38%, Freeport-McMoRan +12.41%, Newmont Mining +10.62%, and Yara International +1.25%, while Albemarle -1.70%, and Nucor Corporation -7.40%.

Commodities

Gold is +5.62% MTD and +14.90% YTD. Gold prices decreased slightly on Wednesday as the dollar strengthened and US bond yields increased. Despite this downward pressure, concerns regarding the White House's newly imposed tariffs sustained prices above the $3,000 per ounce threshold.

Spot gold declined by -0.06% to trade at $3,019.21 an ounce, while US gold futures settled -0.10% lower at $3,022.50. The rise in the dollar index by +0.43% contributed to this decline, as it made gold more expensive for investors holding other currencies.

Gold's position as a safe-haven asset continues to provide underlying support amidst ongoing uncertainties surrounding tariffs and prevailing geopolitical risks. Traditionally viewed as a hedge against both uncertainty and inflation, gold is +14.90% so far this year, reaching an all-time high of $3,057.21 on 20^th March.

Market participants will now focus on the Personal Consumption Expenditures (PCE) index, regarded as the Fed's preferred measure of inflation, scheduled for release on Friday.

Oil prices have diverged in March with WTI -0.31% MTD and -4.71% YTD and Brent +1.26% MTD and -1.73% YTD. 

Oil rose on Wednesday, primarily driven by recent government data indicating a decline in US crude oil and fuel inventories during the previous week, according to the US Energy Information Agency (EIA). Adding to this upward pressure were growing concerns regarding a tightening of global oil supply, stemming from the US' threat of imposing tariffs on nations purchasing crude oil from Venezuela.

By the close of trading, Brent crude futures had risen by 83 cents, or +1.13%, to settle at $74.00 per barrel. Similarly, US WTI crude futures concluded the session up by 43 cents, or +0.62%, at $69.73 per barrel. Earlier in the day, both benchmarks had reached session highs, exceeding a $1 per barrel increase.

The concerns about global supply were amplified by developments on Tuesday, when trade in Venezuelan oil to its largest buyer, China, reportedly stalled. This followed the US President's warning of potential tariffs on countries continuing to purchase oil from Venezuela. On Monday, the US President signed an executive order authorising a blanket 25% tariff on imports from any country that buys Venezuelan crude oil and liquid fuels. This action came after the US imposed sanctions targeting China's imports of oil from Iran last week. 

Analysts anticipate that the discount on Venezuela's oil exports could escalate to as much as 35%. Furthermore, the challenges in commercialising this oil could lead to significant bottlenecks, potentially resulting in production shutdowns of up to 400,000 barrels per day (bpd), representing over half of Venezuela's total exports. This situation could also lead to a substantial loss of revenue for Venezuela, estimated at $4.9 billion, or over 10% of its GDP.

Given that oil constitutes Venezuela's primary export and China is already subject to US import tariffs on other goods, Chinese traders and refiners were reportedly awaiting guidance from Beijing on whether to cease their oil purchases from Venezuela.

In response to these developments, it is likely that both China and India will increasingly turn to purchasing sanctioned crude oil from Russia, which may be perceived as a less scrutinised and risky alternative compared to Venezuelan crude.

EIA report: US crude stockpiles fall amid increased refinery activity. According to the Energy Information Administration's (EIA) report, US crude oil inventories declined last week as refiners continued to increase their production levels. This decrease was accompanied by drops in gasoline and distillate stockpiles.

Specifically, crude oil inventories fell by 3.3 million barrels, reaching a total of 433.6 million barrels for the week ending 21^st March, as reported by the EIA. This reduction was supported by an increase in refinery crude runs, which rose by 87,000 barrels per day. Consequently, refinery utilisation rates saw a slight increase of 0.1 percentage point, reaching 87% of total capacity. This marks the third consecutive week of increased utilisation as refiners emerge from their seasonal maintenance periods.

The EIA also reported a decrease in US gasoline stocks, which fell by 1.4 million barrels to 239.1 million barrels during the same week. The product supplied of gasoline also saw a slight decrease, falling to 8.6 million bpd from the previous week's 8.8 million bpd.

Similarly, distillate stockpiles, encompassing diesel and heating oil, experienced a decline of 420,000 barrels, settling at 114.4 million barrels for the week, as indicated by the EIA data. In the aviation sector, the US product supplied of jet fuel, an indicator of demand, decreased to 1.4 million bpd, marking the lowest level since February 2024, according to the data.

Net US crude imports saw an increase of 845,000 bpd last week, as reported by the EIA. Additionally, crude oil stocks at the Cushing, Oklahoma, delivery hub also experienced a decrease, falling by 755,000 barrels.

Currencies

The dollar had a tough March due to uncertainty over the Trump administration’s tariffs that will result in higher inflation. The dollar index is -2.70% MTD and -3.52% YTD. The GBP is +2.36% MTD and +2.89% YTD against the USD. The EUR is +3.49% MTD against the USD and +3.68% YTD.

The dollar strengthened against both the euro and the yen on Wednesday, reaching a three-week high against the former, as market participants anticipated an announcement from the US President regarding potential auto tariffs. 

This anticipation created a sense of unease among traders, who were weighing the possibility that these trade levies could negatively impact US economic growth and potentially trigger a resurgence of inflation. 

Later in the trading day, President Trump announced the imposition of a 25% tariff on global automotive imports into the US, fulfilling a previous pledge to levy duties on cars and trucks from other nations.

This announcement had an immediate impact on the euro, which weakened significantly.The euro ended the day -0.50% at $1.0737, its lowest point since 5^th March and its sixth consecutive day of decline against the dollar. This move came despite the EU's trade commissioner, Maros Sefcovic, meeting with top US trade officials on Tuesday to try and avert substantial US tariffs on EU goods scheduled for the following week.

Earlier on Wednesday, the dollar had received a slight boost following the unexpected rise in US durable goods orders for February. The dollar index increased +0.43% to 104.66.

Fedspeak offered differing perspectives on the potential economic consequences of tariffs. Minneapolis Fed President Neel Kashkari expressed uncertainty about their impact, suggesting they could either push up prices, potentially necessitating higher interest rates, or slow economic growth, potentially requiring lower borrowing costs.

St. Louis Fed President Alberto Musalem, indicated growing concerns that US inflation might remain above the Fed's 2% target or even increase further in the near term, with rising import taxes posing a risk of more persistent inflationary pressures.

Across the Atlantic, the British pound fell to a two-week low, influenced by weaker-than-expected inflation data and the latest fiscal statement from British finance minister Rachel Reeves.

This decline in the pound was accompanied by a fall in gilt yields after the UK's Debt Management Office announced plans to issue fewer bonds than anticipated in the 2025 - 26 fiscal year, which eased market concerns about a potential increase in bond supply. The British pound ultimately closed down -0.55% at $1.2874. Earlier data revealed that British inflation had slowed to an annual rate of 2.8% in February, down from 3.0% in January.

Against the dollar, the Japanese yen weakened by -0.42% to ¥150.52. BoJ Governor Kazuo Ueda stated on Wednesday that the central bank would need to raise interest rates if persistent increases in food costs led to broad-based inflation. However, he cautioned that underlying inflation remained below the central bank's 2% annual target. The Bank of Japan is widely expected to implement its next interest rate hike in July. Adding to this perspective, new BoJ board member Junko Koeda noted that the country's real interest rates are currently ‘extremely low’ amidst accelerating inflation supported by robust wage growth.

Cryptocurrencies

Bitcoin +2.67% MTD and -7.07% YTD to $86,863.02.
Ethereum -10.39% MTD and -39.96% YTD to $2,009.16.

Bitcoin was -1.08% on Wednesday and Ethereum was -2.67%. Cryptocurrencies have recovered somewhat in March with the Bitcoin price adding around 10% since its early March lows. However, it remains well off its peak of almost $110,000 set in January as uncertainty over US tariffs including inflation effects and when the Fed may cut rates again, unsettled investors.

Although crypto prices fell early in March on news that an executive order from President Donald Trump to establish a US strategic Bitcoin reserve would not trigger a wave of large-scale government purchases of digital assets, there has been some positive signals regarding cryptocurrencies from the US administration including the testimony to the Senate by Paul Atkins, President Donald Trump's pick to run the SEC. He pledged that regulations under his leadership would benefit the crypto sector and prevent politics from "stifling" capital formation. In his remarks to the Senate he said, "A top priority of my chairmanship will be to work with my fellow Commissioners and Congress to provide a firm regulatory foundation for digital assets through a rational, coherent, and principled approach." In addition the Securities and Exchange Commission (SEC) Crypto Task Force, under the leadership of Commissioner Hester Pierce, held its first meeting in Washington, DC on 21 March and plans to hold four more meetings with the next roundtable discussion in the series, “Between a Block and a Hard Place: Tailoring Regulation for Crypto Trading” expected to take place on 11 April with other roundtables on crypto custody (25 April 25), tokenization (12 May), and decentralized finance (6 June 6). 

Note: As of 5:30 pm EDT 26 March 2025

Fixed Income

US 10-year yield basis points +15.3 MTD and -22.5 basis points YTD to 4.347%.
German 10-year yield +39.6 basis points MTD and +44.9 basis points YTD to 2.803%.
UK 10-year yield +21.4 basis points MTD and +16.6 basis points YTD to 4.729%.

US Treasury 10-year bond yields are +15.30 basis points (bps) MTD.

US Treasury yields experienced a slight upward movement on Wednesday as investors carefully assessed the possibility of exemptions from the US President's proposed tariffs, alongside signals from Federal Reserve officials indicating a cautious approach to future interest rate reductions.

Earlier in the week, the US President had suggested that not all threatened tariffs would be implemented on 2^nd April, and that certain countries might receive exemptions. This indication offered some temporary relief to investors who had been concerned about the potential inflationary impact and the negative effects on US economic growth stemming from aggressive US trade policies.

However, this initial optimism was tempered later in the trading session when the same US President announced the imposition of a 25% tariff on global automotive imports into the US, fulfilling prior commitments to penalise foreign manufacturers of cars and trucks.

In terms of specific yield movements, on Wednesday’s session the 10-year Treasury yield reached 4.347%, marking an increase of +2.6 bps from the previous day. Conversely, the two-year yield stood at 4.010%, a decrease of -2.4 bps, resulting in a marginal increase of +0.3 bps for the month to date. On the longer end of the curve, the 30-year yield showed a significant increase for the month, rising by +19.5 basis points to 4.703%.

On the economic data front, the US Commerce Department's report on durable goods orders for February, released on Wednesday, showed stronger figures than anticipated. However, the same report revealed an unexpected decline in new orders for key US-manufactured capital goods during February. This data followed the release of a Conference Board survey on Tuesday, which indicated a sharp drop in US consumer confidence to its lowest point in over four years this month.

In the bond market, the Treasury Department sold $70 billion in five-year notes on Wednesday. The auction experienced lukewarm demand, with the 4.1% yield settling slightly above the prevailing market rate at the bidding deadline. The bid-to-cover ratio was 2.33x, representing the lowest level since May 2024.

The German 10-year yield is +39.60 bps in March to 2.803%, while the UK 10-year yield is +21.40 bps MTD to 4.729%. The spread between US 10-year Treasuries and German Bunds has fallen -26.5 bps from 180.9 bps at the end of February to 154.4 bps now.

Current sentiment in the Fed funds futures market suggests that the Fed is most likely to resume its programme of interest rate cuts in June, with a 61.3% probability of doing so, up from 53.3% last week. According to CME's FedWatch Tool, markets priced in 63.1 bps of rate cuts this year on Wednesday, compared to 65.1 bps a week ago, and 59.8 bps a month ago.

Italian bond yields, a benchmark for the eurozone periphery, are +37.3 bps this month to 3.903%. Consequently, the spread between Italian and German 10-year yields currently stands at 110.0 bps, -1.9 bps from 111.9 bps at the end of February.

Across the Atlantic, eurozone government bond yields remained relatively stable on Wednesday, as markets exhibited caution due to the looming threat of US tariffs and their potential repercussions for economic growth.

The German 10-year bond yield edged up by +0.2 bps to reach 2.803%. Earlier in the week, on Tuesday, it had touched a one-week high of 2.831%, driven by optimism regarding potential US tariff concessions that encouraged investors to move towards riskier assets. 

So far this month, the German 10-year yield has increased by +39.6 bps, primarily a result of Germany's ambitious plan to significantly increase spending in an effort to revitalise growth and increase their defence capability within Europe and NATO.

Suggestions of stronger growth in Europe implies that the risk-reward balance likely favours higher yields heading into Q2, however, the ongoing uncertainty surrounding US tariffs remains a significant headwind that cannot be disregarded.

The ECB has not yet committed to any specific decision regarding interest rates at its upcoming meeting in April. Upcoming economic data, including inflation figures for Spain and France due on Friday, will play a crucial role in shaping the ECB's policy considerations.

The German 2-year bond yield, which is more sensitive to ECB rates expectations, saw a slight decrease of -1.5 bps on Wednesday, settling at 2.131%. Current market expectations indicate that the ECB deposit rate will be approximately 1.98% by the end of 2025. 

Italy's 10-year bond yield experienced a marginal increase of +0.6 bps, reaching 3.903% on Wednesday.

In the UK, the 10-year government bond yield declined by -3.2 bps to 4.729%. This movement followed the announcement of spending cuts and a downward revision of growth forecasts by Chancellor of the Exchequer Rachel Reeves in her Spring fiscal statement on Wednesday. Notably, the yield remained largely unchanged from its level prior to the statement, after having dipped in the morning session following the release of weaker-than-anticipated UK inflation data.

Note: Data as of 5:00 pm EDT 26 March 2025

What to think about in April 2025

Tariffs are coming at a point where liquidity can exacerbate shocks. On Wednesday evening, President Trump signed an executive order establishing permanent tariffs on automobiles not manufactured within the US. These auto tariffs are scheduled to take effect on 2^nd April, with duties to be collected starting from 3^rd April. The President announced that the initial tariff rate would be 2.5%, subsequently increasing to 25%, with no exemptions. These tariffs will not apply to auto parts produced in the US. White House Staff Secretary Will Scharf estimated that the auto tariffs would generate $100 billion in annual revenue.

Furthermore, the President stated that reciprocal tariffs would be applied to every country beginning on 2^nd April. However, he emphasised that these reciprocal tariffs would be very lenient and, in many instances, the tariff rate would be lower than what the US is currently being charged, according to Bloomberg news. This aligns with press reports suggesting that the reciprocal tariffs would be more targeted in their application compared to initial plans. President Trump also reiterated that lumber and pharmaceutical products would be subject to tariffs. It's worth noting that Bloomberg had also reported this week the possibility of the White House imposing tariffs on copper imports within the coming weeks.

In addition, concerns regarding the potential economic repercussions of the ongoing global trade war are contributing to a reduction in liquidity within US equity markets. This development presents a significant challenge for institutional investors and carries the risk of amplifying volatility across broader markets.

This phenomenon is evident in the trends observed across several widely monitored measures of market liquidity. According to Bloomberg news, data compiled by Deutsche Bank AG indicate that liquidity in S&P 500 stock-index futures, as gauged by the most actively traded contract, has reached a two-year low. Similarly, the five-day moving average of Citigroup Inc.’s liquidity index, which is calculated based on futures volumes for the S&P 500, is also currently near its lowest level in the past two years.

The Fed previously highlighted this issue in its Financial Stability Report published in November, noting within its overview of financial system vulnerabilities that “liquidity in financial markets was generally low and can become strained during periods of volatility.”

Key events in April 2025

The potential policy and geopolitical risks for investors that could affect corporate earnings, stock market performance, currency valuations, sovereign and corporate bond markets and cryptocurrencies include:

16-17 April ECB Monetary Policy Meeting. ECB President Christine Lagarde has stated that while the process of disinflation remains “well on track,” the eurozone is particularly exposed to shifts in tariffs, weakening confidence in the ECB’s projections. Although policymakers are likely to be more confident about growth in the euro area following Germany’s removal of its debt brake and its new spending package, continuing US trade tensions, uncertainty over a peace deal in Ukraine and the expected rise in European defence spending, which may be inflationary, may mean that the ECB will only have up to two more cuts this year.

21-26 April World Bank and International Monetary Fund Spring Meetings, Washington, DC. Global policymakers will come together to discuss the inflation outlook, growth trends and wider geopolitical developments.

23-24 April G-20 Finance Ministers and Central Bank Governors Meeting, Washington DC. This is the second G-20 Finance Ministers meeting under the leadership of South Africa.

30 April-1 May Bank of Japan Monetary Policy Meeting. The BoJ held rates at 0.50% in March but expects underlying inflation to converge toward its target. However, Governor Kazuo Ueda has said that the BoJ will keep raising interest rates if prospects of higher wages lead to broader price hikes.

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