Written by Andrew Gillham, Head of Fixed Income, TEAM Plc
The White House’s combative approach to economic and foreign policy sent US stocks sharply lower last week with the blue-chip S&P 500 and technology focussed Nasdaq indices falling 4.6% and 5.7% respectively.
The 90-day pause on implementing ‘reciprocal’ tariffs has provided a window for delegations from trading partners to visit Washington to begin negotiations was initially well received by investors but so far there are few signs that any country is close to a trade deal with the US.
However, it was the escalation of the US-China trade war last week which was front and centre of investors’ concerns. On top of the 145% tariffs imposed on all imports from China, President Trump announced further controls on exports of semiconductors to restrict China’s access to advanced artificial intelligence technologies.
Semiconductor giant Nvidia warned that the export controls will impact its earnings by $5.5 billion as its H20 AI chip will now require a licence to be sold to customers in China. The H20 chip was specifically designed to comply with export controls introduced by the Biden administration in 2022 which banned its more powerful H100 chip from being sold in China. Shares in Nvidia fell another 14% over the week and the company has lost $1.3 trillion of its market valuation since early January.
In retaliation, officials in Beijing have reportedly ordered airlines to stop taking deliveries of new jets manufactured by Boeing. China is a lucrative opportunity for China which is expected to double its fleet of commercial planes over the next 20 years to 9,600 jets to meet increased demand for travel.
Any hopes that markets might start the new week on the front foot were dashed by an early Monday morning post by the President Trump on his Truth Social platform calling the Federal Reserve chair Jerome Powell a “major loser”. In a fiery broadside, the president demanded that Powell “lowers interest rates, NOW”, citing slowing inflation due to lower energy and food prices.
The criticism of Powell added to concerns that the White House is trying to influence the Federal Reserve, undermining its critically important independence from the government. White House economic advisor Kevin Hassett has also revealed that the administration is looking into whether they can fire the Federal Reserve Chair, although Powell insists that he cannot be removed under law and intends to serve the rest of his term to May 2026.
Investors continue to seek some shelter from the market turbulence in safe-haven assets including government bonds and gold which briefly traded above $3,500 per troy ounce for the first time ever on Tuesday morning. The price of the precious metal has risen more than 30% so far this year and it has also surpassed the record set in 1980 on an inflation-adjusted basis, when it traded at $850 per ounce in the wake of the Iranian Revolution and oil crisis.
Elsewhere in commodities markets, Brent Crude rose to $66 a barrel, snapping a two-week losing streak, as traders covering short positions and it was reported that the OPEC+ cartel reduced production to 41 million barrels per day in March, led by declines in Libya and Iraq.
The European Central Bank cut its benchmark interest rate by another 0.25% to 2.25% on Thursday. ECB President Christine Lagarde cited the “exceptional uncertainty” confronting the Eurozone economy amid rising trade tensions and concerns that volatile markets are disrupting business investment. The seventh rate cut since June brings the deposit rate down to its lowest level in two years.
Aside from politics, the quarterly corporate earnings reports will likely be the key driver of markets in the week ahead. High-profile companies due to report include Google’s parent Alphabet, Boeing, IBM and Procter & Gamble.
