Global market fluctuations, what is the impact of tariffs?

1. Market Review of This Week

This week, global risk assets have fallen sharply, primarily due to the impact of tariff policies.

The US stock market has suffered a heavy blow, with the S&P 500 index falling 10% over two days, marking the largest decline in nearly four years. The Dow Jones dropped 7.6% for the week, while the Nasdaq entered a technical bear market. The semiconductor sector performed particularly poorly, with related ETFs plummeting 16% in a week, the worst performance in over twenty years. Market panic is rising, with the VIX index briefly surpassing 40.

The performance of safe-haven assets showed divergence. The 10-year Treasury yield fell sharply by 32 basis points to 3.93%, marking a new low in nearly six months. Gold prices rose and then fell back, with a weekly drop of 1.7%. The US dollar index weakened, with a weekly decline of 1.1%.

The commodity market has generally declined. Brent crude oil plummeted 10.4% to $61.8 per barrel, resonating with OPEC+ production increases and demand concerns. The price of basic metal copper dropped sharply by 13.9%, marking the largest weekly decline in nearly two years. Iron ore also fell by 3.1%.

The cryptocurrency market exhibits complex performance. Bitcoin initially rose due to concerns over the credit of the US dollar, but then fell under the influence of a global sell-off of risk assets, demonstrating both safe-haven and risk attributes.

2. Tariff Policy Analysis

Although the market had anticipated this, the intensity and scope of the current tariff policy exceeded expectations. The main contents include:

1. Set a benchmark tariff of about 10% on traditional allies, which is basically in line with expectations.

2. Impose higher tariffs on specific countries, such as an additional 34% on China, 32% on Indonesia, 46% on Vietnam, 36% on Thailand, 25% on South Korea, and 24% on Japan. The EU is also subject to an additional 20%.

The political purposes of this policy are mainly two points:

1. Build legitimacy and seek support from Congress to pave the way for subsequent measures such as tax cuts.

2. Increase external negotiation leverage to accelerate the return of manufacturing.

Although the policy is simple and blunt, it leaves room for negotiation. Some countries have actively engaged in negotiations with the United States to seek a reduction in tax rates.

It is worth noting the countermeasures taken by China and the EU. China has adopted reciprocal countermeasures, and it is expected that the game of chess between the two sides will be prolonged.

After the tariffs are implemented, market concerns about recession risks have intensified, and the expected number of interest rate cuts for the year has risen to 4.

3. Employment Data Analysis

The non-farm employment data for March appears robust, but structural issues are emerging:

• The official unemployment rate is 4.2%, but the U6 unemployment rate is as high as 7.9%.
• The employment number for January-February has been revised down by 48,000.
• The unemployment rate has risen for two consecutive months.
• The average hourly wage growth continues to slow down.
• The labor participation rate remains at a low level.
• Part-time employment decreases, full-time employment rebounds.

The statistical methods have certain biases, which may underestimate the actual unemployment situation. Overall, the job market remains relatively robust, but signs of deterioration are accumulating.

4. Liquidity and Interest Rate Analysis

From the perspective of the interest rate market:

• The SOFR forward rate has declined significantly, indicating that the market expects the Federal Reserve may cut interest rates earlier.
• The 2-year and 10-year U.S. Treasury yields plunged in sync, reflecting the market's pessimism about the economic outlook.

Fed Chairman Powell spoke cautiously, acknowledging the risk of stagflation, but has yet to signal a shift towards easing, with policy entering a wait-and-see period.

5. Outlook for Next Week

The current market faces three major risks:

1. The uncertainty of the escalation of tariff countermeasures, especially regarding the attitudes of China and the European Union.

2. The lagging response of economic data and data gaps intensify the game between policy and the market.

3. The market lacks a clear and predictable policy path, and structural vulnerabilities are prominent.

The market pricing logic has shifted from "inflation pressure" to "high inflation + high tariffs leading to suppressed demand, anticipating a recession." The fluctuations in U.S. Treasury rates and risk assets corroborate the pessimistic expectations.

Suggestion:

• Maintain a neutral stance and respond cautiously to market fluctuations.
• Bitcoin has long-term potential as a "dollar liquidity proxy" and will benefit again if the Federal Reserve shifts to easing.
• Control leverage in the short term, waiting for policy easing and confirmation of market bottom signals.