Wall Street Suffers Steepest Weekly Decline in Years Amid Escalating Trade Tensions | Weekly Market Analysis

Key events this week:

Wednesday, April 9, 2025

• New Zealand - RBNZ Interest Rate Decision
• USA - Crude Oil Inventories
• USA - 10-Year Note Auction
• USA - FOMC Meeting Minutes

Thursday, April 10, 2025

• USA - Core CPI (MoM) (Mar)
• USA - CPI (YoY) (Mar)
• USA - CPI (MoM) (Mar)
• USA - Initial Jobless Claims
• USA - 30-Year Bond Auction

Friday, April 11, 2025

• UK - GDP (MoM) (Feb)
• USA - PPI (MoM) (Mar)

Markets took a hard hit on Friday, capping off one of the most volatile weeks in recent memory, as investors reacted sharply to China’s latest round of retaliatory tariffs against the US. The move came just days after the Trump administration rolled out a new set of levies on Chinese imports, triggering fears of a deepening global trade war with potentially devastating consequences for the world economy.

The Dow Jones Industrial Average plunged by 2,231 points, a staggering 5.5% drop - its worst single-day performance in over three years. The S&P 500 wasn’t spared either, sliding 5.9%, while the tech-heavy NASDAQ Composite shed 5.8%. The swift sell-off followed China's announcement of a 34% tax on all US imports, effectively matching the new US tariffs on Chinese goods announced last week.

Market sentiment turned decisively negative as investors braced for a prolonged and economically damaging confrontation between the world’s two largest economies. Analysts warned that the tit-for-tat tariff war could quickly spiral into a broader crisis. JPMorgan revised its outlook, raising the probability of a global recession this year to 60%, up from its earlier 40% forecast, citing the mounting trade uncertainty.

According to JPMorgan, the newly announced tariffs would result in a 22-percentage-point increase in the effective average tariff rate. That equates to an estimated $700 billion in additional costs - roughly 2.4% of global GDP - effectively acting as a tax hike on consumers and businesses around the globe.

Thursday, Wall Street had already seen its biggest daily loss in five years, following President Trump’s initial tariff announcement targeting imports from major US trading partners. Investors were quick to price in the likelihood of aggressive retaliatory measures and the subsequent strain on global economic growth.

Commodities were not immune to the fallout either. Crude oil prices slumped to a four-year low, pressured by concerns that the trade war would weigh heavily on global fuel demand. Additional selling pressure emerged as several OPEC+ members unexpectedly accelerated plans to unwind production cuts, raising fears of oversupply.

Meanwhile, political instability in Canada ahead of the April 28 snap election and weak employment data from last week added pressure on the Canadian dollar. The USD/CAD currency pair extended its rally for a second consecutive session, benefiting from a risk-off mood and sustained US dollar demand. Further stoking volatility, Canadian Prime Minister Mark Carney confirmed that previously imposed retaliatory tariffs on US goods would remain intact. Moreover, he announced that Canada would implement 25% tariffs on all US vehicle imports that fail to comply with the USMCA trade framework, raising the likelihood of further friction between Ottawa and Washington.

The Japanese yen, a traditional safe-haven currency, found early-week support as traders fled riskier assets. Still, concerns that the US tariff barrage could negatively impact Japan’s export-heavy economy led investors to temper expectations for more aggressive policy tightening by the Bank of Japan. While the yen strengthened modestly, the USD/JPY pair managed to bounce back from its early-session dip, climbing closer to the key 145.00 level - just below the six-month low reached last Friday.

Despite ongoing uncertainty, signs of broadening inflation in Japan have kept the door open for additional interest rate hikes from the BoJ in 2025. Meanwhile, expectations of Fed rate cuts have weighed on the US dollar’s broader trajectory, especially amid falling Treasury yields and fears of a US economic downturn triggered by escalating trade barriers.

The euro also faced headwinds as the EUR/USD pair pulled back from its recent highs near the mid-1.1100s. After dipping to the 1.0880 zone during the Asian session, the pair struggled to regain traction. The market remains wary of further tariff tensions between the US and European Union. With the 27-member bloc already facing 25% import duties on key goods such as steel, aluminum, and autos, the European Commission is expected to release a list of retaliatory tariffs targeting US products later today. Such moves may bolster demand for the US dollar as a safe-haven asset, limiting the upside for the euro.

In Australia, the AUD/USD pair tumbled to its lowest level since the pandemic, falling to the 0.5985 area during Monday’s early Asian trading. The Australian dollar came under heavy pressure following China’s announcement of a 34% tax on all US imports - the harshest retaliatory move yet. As a country heavily reliant on trade with China, Australia’s economic prospects dimmed amid fears of reduced global demand. The AUD was sold off sharply, given its sensitivity to Chinese growth and commodity prices.

Economic data in the US added another layer of complexity. The March nonfarm payrolls report showed a stronger-than-expected increase of 228,000 jobs. However, February's figures were revised sharply lower, and the unemployment rate rose to 4.2%, up from the prior month’s 4.1%. These mixed signals fueled further uncertainty about the labor market’s true strength.

Fed Chair Jerome Powell struck a cautious tone in his Friday remarks, stating that the central bank is in no rush to adjust interest rates. He cited the potential inflationary impact of the administration’s trade policies, which may coincide with slower growth - making monetary policy decisions even more complex in the months ahead.

On the corporate front, tech giants and multinational firms with strong exposure to China took a heavy hit. Apple (NASDAQ: AAPL) was particularly affected, with its shares tumbling more than 7% on Friday. The iPhone maker, which relies heavily on Chinese manufacturing and supply chains, is expected to face a significant rise in production costs as a result of the new tariffs. Similarly, Qualcomm (NASDAQ: QCOM), Caterpillar (NYSE: CAT), and US-listed Chinese tech companies like Alibaba (NYSE: BABA), JD.com (NASDAQ: JD), Baidu (NASDAQ: BIDU), and PDD Holdings (NASDAQ: PDD) all saw sharp declines.

Market participants are keeping a close eye on upcoming economic releases, including Germany’s industrial production and trade balance data, as well as Eurozone Sentix investor confidence. However, trade developments are likely to remain the dominant market driver, with any new policy announcements or retaliatory measures capable of triggering another round of volatility.