S&P 500 broad market index futures are up
by 4.1% this week, reaching 5,297 points, but volatility remains exceptionally
high, leaving markets vulnerable to sharp swings on Friday. Volatility reached
7.0% on both Wednesday and Thursday, highlighting just how fragile investor
sentiment is amid escalating geopolitical and economic tensions.
The surge in market turbulence was triggered
by U.S. President Donald Trump’s aggressive tariff offensive, which failed to
bring China to heel. Following his so-called “Liberation Day” on 2 April, Trump
imposed 34% tariffs on Chinese imports. Beijing swiftly retaliated with its own
34% levies on U.S. goods. Trump’s subsequent ultimatum for China to reverse its
stance was ignored, prompting a sequence of tariff hikes—first to 104%, then
125%, and finally to 145%. China responded in kind, imposing tariffs of the
same magnitude. While the battle could technically continue, there is now
little political or economic rationale to do so. Many countries seeking
exemptions have already sent conciliatory signals to Washington, while China
and, to some extent, the European Union have stood firm.
The chaos reached a peak on Wednesday, forcing
the U.S. administration into a surprise move—a 90-day pause in tariff
enforcement. The decision came as a shock to many, including senior White House
officials who reportedly first learned of it from the media. However, some
large investors appeared to anticipate this shift. Over the past three weeks,
they offloaded $29.7 billion worth of SPDR S&P 500 ETF Trust (SPY) shares,
only to reinvest $16.1 billion, mostly on Monday. That same day, billionaire
investor Bill Ackman issued a stark warning, calling the escalating trade war a
path to an “economic nuclear winter” and urging for a 90-day tariff truce. His call
proved timely. By Wednesday’s close, those bets had netted a 10% return—about
$1.6 billion—as the S&P 500 posted its largest daily gain since World War
II. Whether this was brilliant foresight or a well-informed gamble remains open
to speculation.
What comes next remains unclear. Markets need
time to stabilise, but the U.S. may have exposed its vulnerability, especially
as Treasury yields soar. The People’s Bank of China appears to have launched a
large-scale sell-off of U.S. debt, pushing yields on 10-year Treasuries from
3.88% to 4.49%—a sharp move with serious implications for the U.S. federal
budget.
This is unfolding against a backdrop of easing
inflation. U.S. consumer prices fell to 2.4% year-on-year in March, down from
2.8% the previous month, boosting expectations for multiple interest rate cuts
by the Federal Reserve—possibly between three and five this year. However,
Treasury yields continue to climb, defying economic logic in the face of
falling inflation and tariff easing, suggesting ongoing stress in debt markets.
Friday’s Producer Price Index (PPI) release is
unlikely to shift market sentiment significantly. Focus is now on how the Fed
will position itself to support a monetary easing cycle. The Q1 2025 earnings
season also kicks off on Friday, with JPMorgan (JPM) reporting first. The
bank’s results will be closely watched, especially given its earlier warnings
of a potential U.S. recession in the second half of the year.
The S&P 500 now appears to be trading
within a bullish formation, with near-term targets at 5,300–5,400 points.
Should it break above this range, a further advance to 5,850–5,950 could
follow. However, this scenario hinges on improved diplomatic engagement—most
notably a potential meeting between President Trump and Chinese President Xi
Jinping.
In commodities, Brent crude has dipped below
the critical $68–70 per barrel support, touching $60 before rebounding to
$63.80. Recession fears and deepening trade tensions continue to weigh on
prices. While the next support lies at $58.00–60.00, there is potential for
recovery back toward $68.00–70.00, especially if trade negotiations resume.
Still, OPEC+ output increases could cap the upside.
Gold has soared to a record $3,227 per troy
ounce amid safe-haven buying. However, at these elevated levels, profit-taking
is likely, with nearby support at $3,150–3,180 and resistance at $3,250–3,380.
A technical reversal is possible if prices fail to break higher.
In the currency market, the U.S. Dollar
experienced a flash crash after Trump declined to extend the 90-day tariff
pause with China. The drop is strongly linked to the ongoing Treasury sell-off.
Once this pressure subsides, the Dollar is expected to stage a sharp rebound.
Meanwhile, the EURUSD surged to 1.14700—the highest since February 2022—before
facing a potential retracement toward 1.06000–1.07000.