Weekly Market Update for April 4, 2025
by Vinicius Crusius d’Avila, Research Associate
No way around it: US tariff announcements on Wednesday sent ripples across markets this week, with the S&P 500 down 9.1% and the Nasdaq down 10.0%. With investors turning away from risk and towards Treasuries, the 10-Year yield fell 24 bps to 4.01%, and the shorter-term 6-Month yield fell 12 bps to 4.12%. While the announcements lifted some of the policy uncertainty, the breadth and magnitude of tariffs – imposed on traditional allies and adversaries alike – took markets by surprise. This included levies of 20% on products coming from the EU and of 34% on products coming from China (the latter, combined with another 20% imposed in March, brought tariffs on Chinese imports to 54%).
The White House framed the tariffs as part of its vision to increase domestic manufacturing. Some economists had warned that other countries may respond by imposing tariffs on US goods, slowing down global trade. That happened this Friday, as China announced its matching counter-tariff of 34% on US products. The European Union is also preparing its countermeasures, which it may announce in the coming days.
Employment data released this week showed a still-resilient labor market. February’s JOLTS report registered 7.57M Job Openings (about 1% below expectations). March’s nonfarm payroll report was stronger than anticipated, with employers adding 228,000 jobs last month (versus the forecast of 130,000).
Taken in, the week’s economic news presented delicate challenges for monetary policy. Jerome Powell, Chair of the Federal Reserve, underlined that the economy remains “in a good place” as the Fed continues to watch economic indicators. According to Powell, with tariff increases being larger than expected, “the same is likely to be true of the economic effects, which will include higher inflation and slower growth.” Those economic trends pull in opposite directions, with higher prices typically compelling higher interest rates and slower economic growth advancing the case for lower interest rates.
In the meantime, Federal Reserve officials said there is “no hurry” to make further changes to interest rates. A strong labor market, as suggested by this week’s data, allows the Fed to wait longer to cut interest rates while keeping inflation under control. According to CME’s FedWatch tool, the market is currently expecting the Fed to cut interest rates by 25bps in June, with three more rate cuts by the end of the year.
Next week, many of the big banks will kick off the Q1 earnings season as JPMorgan, Wells Fargo, and Morgan Stanley report on Friday. Inflation metrics for consumers (CPI on Thursday) and wholesale prices (PPI on Friday) are also on the docket.
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