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MARKETS

Despite flashes of conciliatory rhetoric from President Trump — yes, Tariff Man did wave a few olive branches — markets simply aren’t buying it. Investors remain gripped by tariff anxiety, unable to shake off the 34% across-the-board retaliation from China, possibly marking a point of no return. The narrative has now shifted firmly into tit-for-tat escalation, dragging the global economy toward the edge of a trade-driven recession.

The fear all along has been that Washington’s heavy-handed tariff regime could tip both the U.S. and global economies into a slowdown. With Beijing now responding in kind, those odds are getting repriced in real-time — and not in a bullish direction.

Currency markets delivered their verdict at the weekend.: nowhere is safe. The dollar, which had been wobbling, pulled off a dramatic turnaround heading into the weekend after a surprisingly strong March jobs report. Non-farm payrolls added 228,000 jobs, handily beating expectations and shrugging off the softer recent survey data. That lifted the 10-year yield from a low of 3.86% back above 4.00%, a sharp intraday reversal that helped stabilize the greenback — for now.

But the macro backdrop is getting darker. This NFP could very well be the last hurrah before the weight of collapsing sentiment, business anxiety, and consumer retreat starts to show up in the real economy.

Trade War 2.0 has officially detonated, and while China’s retaliation was widely expected, the scale — and the market fallout — has left bulls shell-shocked. The S&P 500 has shed a staggering $5.4 trillion in market cap in just two days, a drawdown that echoes the COVID crash and the post-Lehman panic.

Perspective check: the last time markets dropped this fast — 9.5% in two days — the Fed responded with a firehose: $500 billion QE, $1 trillion daily repos, and junk bond ETF buying. This time? Crickets. Powell, in his Friday appearance, all but confirmed what traders feared — the Fed is in no hurry to cut.

With inflation still running hot and the central bank boxed in by its own credibility, the Powell Fed simply isn’t positioned to deliver the same kind of shock-and-awe bailout it did in 2018–2020. That reality is starting to sink in. Even if rate cuts come, they’ll be later and slower than the market wants, because the Fed’s hands are tied by an inflation impulse it can’t ignore.

The end result? Traders are now recalibrating rate cut expectations once again, this time toward a less dovish, more delayed path, putting a fresh bid into the dollar and leaving risk assets exposed.

Bottom line: The Bulls needed a lifeline this week. Instead, they got a historic gut punch. And with the Fed sidelined, inflation still sticky, and trade war headlines getting nastier, we’re still not in correction time with nary a bull in sight.

FOREX MARKETS

As we’ve been flagging in our currency playbook this week, the  FX market will soon enter its multi-mask phase — lots of noise, plenty of whipsaws. However, under the hood, it’s still all about how traders front-run broader FX capital flows that’s the biggest narrative in FX market right now.. Ostensibly, this past week saw flows rotate out of the U.S. and into Europe, with a subtle but essential hint of repatriation back into Japan.

That said, we’ve likely moved into phase two of the trade war FX cycle, where the directional flows of “easy money” have been made, and the real battle now lies in managing stretched positioning amid the second-order effect through the economic data as it rolls out globally.

Dollar shorts are crowded, and that leaves the market hypersensitive to bad data abroad or resilient surprises out of the U.S., where the latter hit through the lens of a more sturdy US jobs report on Friday. This is part of the FX story when directional flow becomes the dominant narrative driver — and whiplash risk is real.

GOLD MARKETS

Gold is officially off the boil after a clean break below the key $3,050-75 level — what started as a drip turned into a dump as crowded longs bailed en masse to cover equity margin calls. Classic deleveraging. It was one of those “sell what’s green to pay for what’s red” moments that always seem to hit gold hardest.

Then came Friday’s stronger-than-expected NFP, which threw gasoline on the fire. Add in Powell’s refusal to even crack the door on near-term rate cuts, and suddenly the dollar caught a bid, yields perked up, and the trapdoor opened — stocks took another leg lower and gold followed.

But for long-term holders like me, this is just noise on the screen. Corrections like this are part of the game — and no, the gold bull run isn’t over. Paper traders might be slamming the panic button, but we physical buyers? We’re heading straight to the jewelry shop. Thai gold might be trading at a shockingly high ฿50,200, but that hasn’t stopped me from stacking.

I’ll even buy scrap today if I can get it at a discount, and I’m keeping an eye out for U.S. Eagles priced below spot in dollar terms. This isn’t the end — it’s just a reset. And resets are when the vault gets heavier.

OIL MARKETS

Yes, oil bounced off the intraday lows after a red-hot NFP print painted a slightly less apocalyptic view of the U.S. economy — but let’s not sugarcoat it: crude just had its most violent flush in years.

WTI cratered 14% in 48 hours, plunging toward $61 in a move straight out of the Covid-era playbook. Brent broke below $70, scraping its lowest levels since 2021. The catalysts? A brutal double tap: Trump’s tariff barrage ignited global recession fears, then OPEC+ dropped the hammer, tripling its May output hike. The message was unmistakable — quota cheaters were getting slapped, and the cartel wanted price lower. Period.

Commodities were torched across the board. Copper, nat gas, metals — all sold hard. But oil took the lead, blowing out of its comfy six-month range where OPEC curbs and spare capacity had lulled traders into a false sense of low-vol complacency. That illusion is now dead.

Vol has exploded. Bearish oil options just hit record volumes, WTI’s RSI collapsed into oversold territory, and CTAs flipped from 9% to 73% net short in a single session — a positioning swing we haven’t seen since the SVB implosion. Forecasts are being slashed on the fly. Everyone’s now staring down two massive oil bull black swans: a metastasizing trade war and an OPEC+ that’s caving to real-world economics.

That said — never ignore the snapback risk in oil. Rule #1 in crude: when positioning goes vertical, reversals can be brutal. I used this flush to cover our year-long Brent short right into the $65 target, locking in a monster run. With the U.S. still leaning on sanctioned barrels from Iran and Venezuela, there are still supply shoes left to drop — just not enough to fight OPEC’s heavy hand for now.

So, where are we heading? Flat into the weekend — out of everything except popcorn. Let the next move come to us. Oil just reminded the market how fast things can break.

But make no mistake — the coming weeks are set to be a white-knuckle ride for crude bulls. The market is staring down the barrel of a brutal double bind: rising supply and crumbling demand. OPEC+ is throwing more barrels into an already shaky market, just as global growth fears — turbocharged by escalating tariffs — begin to hit real consumption metrics. This isn’t a soft patch. It’s a structural shakeout. And with volatility surging, positioning stretched, and macro visibility murky at best, crude’s path forward looks anything but smooth.

WEEKLY RECAP

This week will go down in the books. Equities cratered in truly historic fashion, as President Trump’s so-called “reciprocal tariffs” landed far heavier than markets anticipated. The S&P 500 plunged 9.1%, with financials, energy, and tech all posting double-digit losses. A two-day drop of over 10%? That’s a 99th percentile event going back seven decades — rivaled only by Black Monday (1987), the GFC, and the Covid crash.

We’re now deep into correction territory: the S&P is off 17% from its February highs, while the Nasdaq has officially entered a bear market, down 23%. This wasn’t just a hit — it was a full-blown repricing of risk, policy, and growth.

We won’t rehash the wonky math behind the tariffs. Still, the punchline is clear: Canada and Mexico got lighter treatment under the USMCA umbrella, the EU’s 20% rate was digestible, but EM exporters got smoked — 46% on Vietnam, 32% on Taiwan, 25% on Korea. The retaliation was swift. China led the charge, and now the weighted average tariff rate on U.S. imports has surged past 20% — a level that overshoots even Smoot-Hawley during the Great Depression. That’s not just history echoing — that’s history screaming.

The carnage was broad-based, but valuation was the kill zone — high-multiple names got torched as the market yanked forward earnings pain and adjusted risk premiums higher. So, where did investors hide? Bonds. Balanced portfolios with duration exposure fared better, as 10-year Treasury yields sank nearly 30 bps, briefly dipping below 4.00%. Stagflationary crosscurrents muddy the picture — tariffs are inflationary, but recession fears are overpowering. Growth is losing the fight right now, and the bond market knows it.

Trump was publicly pressing for rate cuts by Friday, but the Fed wasn’t biting. Powell held the line, saying the Fed is “well positioned to wait for greater clarity.” Translation: no pivot, no panic, at least not yet. The Fed isn’t coming to the rescue — and the market is starting to realize it.

Bottom line: the playbook just changed, and traders are now navigating a regime of policy volatility, broken correlations, and impaired visibility. Buckle up. This isn’t over.

NUTS & BOLTS

The gloves are off. Tariff threats have officially turned into tariff reality, and markets are just beginning to price the fallout. This isn’t just a trade dispute anymore — it’s a full-blown systemic shock to the rules-based global order the U.S. spent 75 years building. That framework? It's now being shredded, reshaped, and retaliated against — in real time.

And if you think this is just headline noise for economists or policymakers, you’re about to find out otherwise. This hits everyone. It will bleed through your monthly budget, it will dent your retirement portfolio, and it will eventually shake your job security. This isn’t a supply chain hiccup — it’s a global repricing of everything from goods and wages to risk premia and capital flows.

The economic term for what’s now barreling down the tracks? Stagflation. High inflation. Slowing growth. A policy no-man’s-land that paralyzes central banks. It’s one of the most painful regimes households and investors can face, and if it intensifies, we’re talking 1970s-style misery — the kind that birthed an actual Misery Index just to capture how brutal it felt. In that decade, the S&P 500 returned a pathetic 1.7% annually — nominal. Adjusted for inflation? Even uglier.

The Fed, for now, is stuck in tightrope mode. Cut too soon, and they pour fuel on inflation. Stay in pause too long, and they send growth over the cliff. And with tariffs juicing CPI while choking demand, there’s no obvious off-ramp. Powell can’t rescue markets without sacrificing credibility — and markets know it. That’s why the Fed is standing pat despite Trump pushing for cuts. For now.

The probability of a recession within the next 12 months is surging — call it 65% and rising if the tariff structure remains intact. And unlike 2018 or 2019, when a dovish pivot could save the day, this time the Fed has no clean runway. Inflation is still well above target. Rates are stuck. Policy ammunition is limited. And the damage is no longer theoretical — $5.4 trillion in equity market value just got vaporized in 48 hours.

Bottom line? This isn’t a dip. It’s not a cycle. It’s a macro regime change. The golden era of globalization is in retreat, and what’s rushing in to fill the void is volatile, protectionist, and inflationary by design. This is the pain before the reset — and it’s already here.

CHART OF THE WEEK

President Trump’s new so-called “reciprocal” tariff regime landed with more bite than Wall Street was braced for. The plan would impose a weighted average tariff rate of 18.3% on U.S. trade partners — roughly 300 basis points higher than Goldman Sachs had modeled. While about a third of total imports will be exempt, the effective rate still jumps by 12.6 percentage points — a massive shock to the system that dramatically raises the bar for global trade friction. This isn't a tweak — it's a fundamental reset of U.S. trade policy with real teeth.

The tariff tidal wave keeps rising. According to Goldman Sachs Research, the cumulative impact of this week’s “reciprocal” tariffs — combined with earlier measures announced year-to-date — could drive the U.S. effective tariff rate up by 18.8 percentage points, blowing past prior estimates. In a note dated April 2, Alec Phillips and Elsie Peng acknowledge that eventual negotiations may water down some of the headline rates, but the risk of further retaliation, sector-specific escalation, and hardening trade rhetoric means the final impact could land well above the 15ppt increase Goldman had previously modeled.

Goldman outlines four key channels through which tariffs hit growth:

1. A tax-like drag on real disposable income and consumer spending;
2. Tighter financial conditions as markets reprice macro and policy risk;
3. Delayed or downsized business investment due to policy uncertainty;
4. A modest growth offset from a shrinking trade deficit — not nearly enough to balance the hit.

Even with modest fiscal tailwinds expected from corporate and personal tax tweaks later this year, Goldman warns these are unlikely to offset the growth drag from tariffs and immigration-related constraints.

On the inflation front, the math is simple but painful: every 1ppt rise in the effective tariff rate lifts core PCE inflation by ~0.1ppt. That means this tariff shock alone could add 1.8 percentage points to core prices — a major problem for a Fed already boxed in by sticky inflation and limited policy flexibility.

Bottom line: the tariff regime is evolving from a policy risk to a macro catalyst — and markets are only just starting to price the second-order effects.

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