On Tuesday, 25% tariffs on goods imported from Canada and Mexico came into effect, as well as the additional 10% on Chinese imports. However, it wasn’t long before the Trump administration rolled back, announcing a one-month reprieve for goods from its neighbours covered by the US-Mexico-Canada trade agreement. Instead of welcoming the temporary exemption, this sparked a sell-off in equities owing to the uncertainty surrounding trade policies. Indeed, on Thursday, the Nasdaq Composite entered correction territory, down 10% from its recent peak.
For the week, the major indices saw sharp losses, with the S&P 500 down 3.1%, marking its biggest weekly decline since September. The Dow Jones Industrial Average fell 2.4% and the tech-heavy Nasdaq Composite lost 3.5%. Losses were slightly trimmed at the end of the week as stocks digested comments from Federal Reserve Chair Jerome Powell, which indicated that the central bank was willing to take a more cautious approach to monetary policy easing. The yield on the 10-year Treasury yield edged slightly higher, ending at 4.32%.
The pan-European STOXX 600 started the week by hitting yet another all-time high; however, it was later impacted by trade policy concerns. For the week, the index dropped 0.7%, snapping a 10-week winning streak. Regional performance was mixed, with the German DAX outperforming, up 2%, France’s CAC 40 seeing a modest gain, and the UK FTSE 100 slipping 1.5%. In Germany, an agreement was reached between Friedrich Merz’s alliance and the Social Democrats to exempt defence spending above 1% of GDP from its constitutional borrowing limit, create a €500bn infrastructure fund and loosen debt rules for states. This prompted a sharp sell-off in German bonds, with the yield on the 10-year Bund surging by 0.31 percentage points on Wednesday, its biggest move since 1997.
The sell-off extended to Japan, with the yield of the 10-year Japanese government bond rising to 1.53%, its highest level since 2008. This was also fuelled by growing expectations of additional interest rate hikes from the Bank of Japan this year. The yen benefited from investors seeking safe havens amid the increased uncertainty, sending it higher against the US dollar. This, in turn, impacted stocks, with the Nikkei 225 dropping 0.7% for the week. Bucking the wider downtrend, Chinese equity markets managed to log gains. There was optimism surrounding the annual the National People’s Congress, with China setting a growth target of around 5% for this year. The Shanghai Composite advanced 1.6% and the Hang Seng surged nearly 6% amid ongoing enthusiasm around artificial intelligence.