Stocks slide, bonds bid as tariff turbulence drains any semblance of market mojo

Market wrap

Global equities extended their losing streak into a fourth consecutive session as the volatility engine that is Trump’s reciprocal tariff threat continued to drain risk appetite. With “Liberation Day” (April 2) looming, money managers worldwide are pulling back—de-risking portfolios while others are sitting on their hands, unwilling to commit fresh capital until the tariff fog clears.

The mood? Edgy. Positioning? Defensive.

Investors aren’t just reacting to the initial auto tariff volley and the unknowns around reciprocal tariffs—the real jitters stem from the potential second-order effects of a drawn-out trade war: slower global growth, crimped capex, and waning consumer confidence. The unknown tariff rubric is simply applying the angst.

FX markets right now feel like they’re walking a tightrope—caught in a tug-of-war between rising bond bids and growing global risk premiums tied to tariff fallout. On one side, the tariff shock narrative paves a potential road to economic carnage abroad. Conversely, the escalating unpredictability of the White House's broader policy is starting to dent confidence in the dollar itself.

What we’re seeing isn’t a panic-driven dump, but rather a measured, persistent dollar bleed—a slow leak that signals traders are beginning to question the “safe-haven” narrative in a world where the U.S. might be the epicentre of policy risk. The greenback isn’t collapsing; it’s recalibrating under pressure, which is quite unusual.

And then there’s gold—the anti-dollar, anti-chaos asset of choice—ripping through $3,100 like it wasn’t even there. With central banks loading up, COMEX inventories strained, and a relentless safe-haven bid from Asia, this isn’t just a hedge—it’s a full-blown modern-day gold rush.

Traders aren’t just pricing fear—they’re repositioning for a slower macro world where the Fed may still be forced to cut, even with inflation remaining uncomfortably sticky. That’s the stagflation kicker.

Bottom line? Until we get clarity on tariffs, this is a risk-off regime with gold glittering, bonds catching a safe-haven bid, and stocks nervously eyeing every tweet out of Mar-a-Lago.

FX in a holding pattern ahead of tariff D-day

The FX market is effectively parked in neutral, awaiting clarity from what could be one of the biggest macro catalysts of the quarter: President Trump’s April 2 unveiling of his long-telegraphed “reciprocal tariffs.” Until then, traders are playing defense—not because they lack conviction, but because the tariff rubric itself remains opaque.

Despite the announcement of a 25% global tariff on all auto and auto-parts imports (effective April 3), price action across G10 FX has been muted. With the exception of the SEK, all G10 currencies have moved less than 1% versus the USD. That’s not complacency—it’s hedging paralysis in the face of complexity.

The Trump administration has laid out a tangled matrix of factors to determine tariff levels: tariff differentials, sales taxes, non-tariff barriers, currency alignment, and a grab bag of what it deems “unfair trade practices.” With no clarity on how these inputs will be weighted or translated into tariffs, pricing outcomes ahead of the announcement is guesswork—and markets hate guessing games.

Expect Broad Tariff Sweep—with Asia in the Crosshairs

My base case: a broad-brush tariff package targeting all of the U.S.’s key trading partners—with larger trade deficits attracting harsher penalties. The USTR has already scoped out its field of fire, having concluded its comment period on 11 March for trade practices involving the G20 and top U.S. goods deficit countries. That includes:

Asia-heavy exposure: China, Vietnam, Taiwan, Japan, Korea, India, Malaysia, Indonesia, Thailand.

EU players: Germany, Ireland.

North America: Canada, Mexico.

Others: Brazil, Argentina, South Africa, Russia, Saudi Arabia, UK, Turkey, Switzerland, Australia.

This list covers 88% of U.S. goods trade. Notably, 9 of the 21 are in Asia—where we expect the most acute FX repricing risk post-announcement. The surprise inclusion of the UK, despite its $12bn goods trade surplus with the U.S. in 2024, raises eyebrows—though GBP strength since Trump’s November win suggests the market still sees Britain dodging the brunt of the fallout.

Dollar positioning: The firepower is gone – For now

The DXY’s 6.5% drop from its January highs to the March lows wasn’t just about tariffs. Half that move came in a three-day window amid German fiscal stimulus headlines, fresh Chinese policy, and a run of softer U.S. data. Dollar weakness was driven by macro, not protectionism.

Meanwhile, CFTC positioning data tells its own story—leveraged funds have unwound nearly 75% of their long USD exposure since mid-January. Net dollar longs are now the lightest they’ve been since October. And with EUR/USD hugging multi-month highs, it’s clear the dollar is no longer a crowded long. That opens the door for a tactical bounce, especially if markets start pricing in more non-U.S. economic risk premium or the second-order tariff fallout shifts focus away from just U.S. economic fragility.

After some back and forth this morning—outside of the tester-long EURCAD (via two legs), which is up 75 pips since Friday’s entry, which I will cut today or continue with the tight trailing stop—I’ve come to the conclusion that now’s not the time to hold any monster dollar positions, long or short. I flagged this over the weekend: the landscape is just too murky heading into Tariff D-Day, and FX is offering more noise than signal. This is one of those weeks where capital preservation trumps conviction.

That said, we’re still long a boatload of physical gold—held in THB, which has been a decent kicker given the metal’s bid and the baht’s recent softness. It’s the one trade I’m content to sit on while the macro fog thickens.

Where’s the pain most likely to hit?

If the U.S. focuses its reciprocal tariffs on deficit delta, the most at-risk currencies would be:

• Asia: China, Vietnam, Taiwan, Japan, South Korea, India.

• Europe: Germany, Ireland.

• North America: Canada, Mexico.

The fastest-growing trade gaps in 2024 were seen in Taiwan (+52%), Ireland (+33%), and South Korea (+27%)—a red flag for short-term downside risk in those FX pairs if the White House opts to get granular in its targeting.

Bottom line: Markets are bracing for a tariff bombshell—but the lack of visibility on the mechanism, magnitude, and duration has frozen positioning. If Trump delivers a broadside—especially aimed at Asia—expect vol to spike, USD to firm, and risk assets to wobble. But until the curtain lifts, FX is stuck in tactical limbo.