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Market Reactions Ahead of Liberation Day Tariffs

As the Trump administration prepared for Wednesday’s Liberation Day tariff imposition on pivotal US trading partners, it was perhaps disheartening for the White House to witness Wall Street experiencing a chaotic retreat last Friday. The stark drop on trading screens painted a vivid picture of market sentiment, with key indices reflecting significant losses.

A Widespread Market Decline

The S&P 500 succumbed to a 2% decline, while the Dow Jones Industrial Average fell 1.7%. Most notably, the technology-heavy Nasdaq compound faced a staggering 2.7% drop. These substantial downturns indicate that investor confidence may be faltering in light of anticipated economic shifts.

Awash in red – S&P 500 components on Friday (LSEG, Reuters)

Europe’s Response to US Tariffs

Across the Atlantic, European markets, which find themselves at the mercy of US tariff policies, managed to sustain less devastation than their American counterparts, yet still experienced a notable dip. The European markets recorded a collective decline of approximately 1%, while the UK’s FTSE 100 index showed resilience with a minimal drop of just 0.1%.

Futures Predictions and Australian Market Trends

Looking ahead, futures trading signals a predicted fall of more than 1% for Australia’s ASX 200 this morning. Analysts are closely monitoring these developments, particularly given the recent turmoil on Wall Street, which seems to be driven by dual concerns: the heightened threat of rising inflation and an observable slowdown in economic growth. These two factors are often intertwined and have historically been linked to stagflation, creating a challenging environment for investors.

Economic Worries Impacting Consumer Sentiment

A recent survey highlighted that consumer fears related to escalating inflation now stand at levels not seen in two and a half years, suggesting that these economic anxieties are permeating public perception. Notably, consumer spending figures fell short of expectations, and the Personal Consumption Expenditures (PCE) inflation rate—considered the Federal Reserve’s favored measure—rose modestly from 2.6% in February to 2.8% in March.

Expert Insights on Economic Downturns

ING’s chief international economist, James Knightley, articulated concerns that today’s economic data only intensifies fears of stagflation. He emphasized, "We are moving in the wrong direction, and the concern is that tariffs threaten higher prices, which means the inflation prints are going to remain hot. This will constrain the Fed’s ability to deliver further interest rate cuts."

Treasury Yields and Currency Fluctuations

In light of increasing stagflation fears, US Treasury yields experienced a decline, and the US dollar weakened against both the Euro and Japan’s Yen. Conversely, the Australian dollar found itself at a disadvantage, down 0.3%, responding more as a victim of the prevailing risk-off sentiment in global markets.

Impact on Commodities

The fear of reduced growth also exerted downward pressure on oil prices, with Brent crude decreasing by 0.5% to $US73.6 per barrel. However, oil prices demonstrated resilience overall, remaining elevated for the week.

Gold has emerged as a favored asset amid uncertainty, closing Friday’s trading session up nearly 1% to reach an impressive new record high of $US3,084—marking the 18th occasion this year that gold has achieved a new peak, averaging a record high approximately every five days. Meanwhile, copper prices saw an uptick, while iron ore slipped by 0.3% to settle at $102.20 per tonne after an impressive week in which it outperformed other major commodities, showing a remarkable 3.5% gain.

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