Global Risk Monitor: Weekly Update – April 11

The United States’ current tariff regime reveals not a strategic plan but an erratic response to market volatility, suggesting a governing philosophy resembling reactive day trading more closely than structured economic policymaking. As the week’s developments show, the absence of a coherent framework has amplified financial instability and is now beginning to erode the traditional safe-haven status of U.S. assets. The dramatic 50 basis point surge in U.S. Treasury yields—contrasting with a 4 basis point decline in German bunds and a 6.1% appreciation of the Swiss Franc—signifies an unsettling reality: capital is fleeing the U.S. in patterns more commonly associated with emerging markets in crisis.

This capital flight reflects growing investor anxiety over both the economic impact and political incoherence of U.S. trade policy. In particular, the decision to impose sweeping and massive tariffs on China —then abruptly exempting $390 billion in consumer electronics, including smartphones and chips —undermines confidence in policy predictability. As revealed in the Friday night tariff exemption announcements, the White House walked back its own levies under intense market pressure, with Apple, Nvidia, and Microsoft among the major beneficiaries​​. While this move will spark another positive market response early next week, it also reinforces the perception that policy is being dictated by equity indices, not long-term economic goals.

Meanwhile, U.S. credit spreads widened significantly, Treasury market volatility surged, and equities remain fragile despite a mid-week bounce. The broader implication is troubling: without a principled policy reversal, not merely ad hoc relief, U.S. markets may remain hostage to political instability and stagflationary risk. If change comes, it will be driven not by strategy, but by necessity.

Markets

U.S. Market Analysis

• Wild Rebound, but Breadth Collapses: U.S. indices bounced midweek (S&P 500 +5.7%, Nasdaq +7.3%), but participation was narrow—SPX breadth fell to 26.4% from 37.4%.
• Volatility High: The CBOE Volatility Index surged early in the week, peaking at 5-year highs before subsiding.
• Yields Spike: 10-year yields jumped from 3.99% to 4.51%. The yield curve steepened sharply.
• Credit Spreads Widen: IG spreads +8 bps to 102 bps; HY spreads +50 bps to 387 bps.
• U.S. Dollar Weakens: DXY briefly broke below 100, compounding uncertainty.

Global Market Analysis

• Europe: STOXX 600 –1.9%. Germany’s DAX –1.3%, Italy’s FTSE MIB –1.8%. Bunds rally. ECB signals concern over global trade risks.
• Asia:
  • Japan: Nikkei and TOPIX each down ~0.6%. Tariffs spook exporters; BoJ may delay rate hikes.
  • China: Shanghai Composite –3.1%. China raised retaliatory tariffs to 125%. GDP growth forecast cut to 4.1%.
• Emerging Markets:
  • Latin America: Mixed impact—some relief from tariff exemptions (e.g., metals), but vulnerable to commodity weakness.
  • EEMEA: Less exposed directly, but capital flow and FX volatility remain elevated.

Economics

U.S. Economic Overview

• Consumer Sentiment Collapses: University of Michigan’s Index fell to 50.8, lowest since 2022. Inflation expectations jumped to 6.7%—highest since 1981.
• CPI & PPI Soft, but Misleading: March CPI flat m/m, Core CPI +0.1%. PPI also declined, but these reflect pre-tariff conditions.
• Fed Outlook Muddled: Rate cut odds for June remain high, but hawkish commentary persists amid inflation uncertainty.
• Yield Moves Defy Inflation Prints: Bond yields rose despite soft data, suggesting market concern over structural risks—not cyclical weakness.

Global Economic Overview

• Eurozone: March CPI eases to 2.2%. ECB expected to cut rates Thursday. Recession risk rising.
• China: Tariff impacts to trim 1–3 pp off GDP. Beijing expected to roll out new fiscal stimulus.
• Japan: Tankan survey firm; BoJ cautious. Yen appreciated on global risk aversion.
• India: RBI cuts rates 25 bps. More easing likely as GDP downgraded.
• Mexico & Brazil: CPI supports further easing; Banxico likely to cut in May.

Week Ahead (April 14–18, 2025)

Key U.S. Events:

• Economic Data:
  • Tue (Apr 15): Empire State Manufacturing, Import/Export Prices
  • Wed (Apr 16): Retail Sales, Industrial Production, Housing Market Index
  • Thu (Apr 17): Housing Starts, Jobless Claims, Philly Fed Index
• Earnings:
  • Mon: Goldman Sachs, M&T Bank
  • Tue–Fri: J&J, BAC, Citi, UNH, Schwab, AXP, DHI, Comerica, and more

Key Global Events:

• China GDP: Wednesday—expected slowdown from late-2024 strength.
• ECB & BoC Rate Decisions: Thursday (ECB cut expected); Wednesday (BoC to hold).
• Tariff Watch: Any update on China-U.S. trade dynamics will drive markets.

 

 

Source: https://global-macro-monitor.com/2025/04/12/global-risk-monitor-weekly-update-april-11/