- Interest futures collapsed to fresh lows after Trump implemented reciprocal tariffs.
- The trade war between China and the US raged, with both countries hiking tariffs.
- Data on Thursday revealed cooler-than-expected US consumer inflation.
Interest futures extended losses on Friday as the trade war between the US and China raged. Uncertainty about the US economy has caused most investors to dump US assets and flee for safety in gold and other haven assets like the yen. The decline continued despite recent data showing softer-than-expected US consumer and wholesale inflation.
On Wednesday, interest futures collapsed to fresh lows after Trump implemented reciprocal tariffs on most US trading partners. The move caused widespread fear of a global trade war and likely recession. As a result, investors were dumping most assets and buying traditionally safe assets like gold.
However, the market reversed soon after when Trump announced a 90-day pause on most of these tariffs. The relief allowed interest futures to close well above the day’s lows. Nevertheless, the trade war between China and the US only escalated, keeping risk appetite low.
Additionally, although the tariff pause brought relief, it also created more uncertainty about Trump’s policy moves. The on-and-off nature of his tariffs has eroded investor confidence in US assets. Consequently, the downtrend continued on Friday.
Meanwhile, the trade war between China and the US raged on. By Friday, Trump had imposed a 145% tariff on Chinese imports. On the other hand, China imposed a 125% tariff on US imports. This conflict casts a dark shadow over the global economy. China and the US are the largest economies. Moreover, analysts predict a looming recession in the US and China will hurt most other countries.
US CPI (Source: Bloomberg’s ECAN)
Elsewhere, data on Thursday revealed cooler-than-expected US consumer inflation. The CPI fell by 0.1% in March, compared to expectations of a 0.1% increase. Meanwhile, the annual figure increased by 2.4%, missing forecasts of a 2.5% rise.
Moreover, data on Friday revealed that wholesale inflation was also softer than expected in March. These reports pointed to more policy easing by the Fed. Typically, the reports would be bullish for interest futures because of a decline in Treasury yields. However, market participants are more focused on tariffs. Moreover, Powell has often said that the central bank will take its time to assess the impact of Trump’s tariffs before making any moves.
