Stocks lower, dollar weaker

Equity markets have reacted badly to Donald Trump’s announcement of reciprocal tariffs, which looks set to kick off a ‘trade war’ that will have a negative impact on the global economy. Government bonds are rallying as investors eschew risk and expectations for central bank rate cuts harden, while the dollar has lost further ground after  weakening ahead of yesterday’s announcement. The euro is trading at $1.0950 this morning while sterling has hit a new 2025 high of $1.31, leaving EURGBP little changed at £0.8350.

Asian equity markets were in the red overnight, with the Nikkei in Japan off around 3%, and European stocks are down more than 2% at the start of play this morning, while the futures markets are pointing to falls of 3-4% in the main US indices at the open later today. In government bond markets, US 10-year yields are down around 6bps to 4.05%, while equivalent German and UK yields are about 7bps and 9bps lower at 2.65% and 4.55% respectively. Oil prices have fallen, with Brent down more than $2 to just over $72.5 p/b.

The US administration is imposing a 10% tariff on all countries (effective April 5), which will apply to the UK for example, but there are much higher rates (effective April 9) for those countries with which the US runs large trade deficits in goods, including the European Union (20%), Japan (24%) and China (34%, which is on top of the 20% previously announced). Pharmaceuticals and semi-conductors, both of which have loomed large in Trump’s tariff threats to date, are exempt (for now at least), though the previously announced 25% tariff on autos is effective from today. The tariffs may be “increased if trading partners retaliate” or “decreased if trading partners take significant steps to remedy…trade arrangements with the US.”

While the focus today will be on the fall-out from Trump’s tariffs announcement, economic data scheduled include final services PMI readings for March in the main economies; producer prices in the Euro area; and jobless claims and the ISM services index in the US.