The evolution of financial markets over the past week reflects a renewed appetite for risk among investors. Global stock markets provide a clear illustration of this trend, with a broad-based rally across all major financial centers, following New York’s lead with a gain of more than 4%. Growth stocks, particularly in the technology sector and discretionary consumption, posted the strongest performances, while more defensive stocks lagged. This indicates that recession fears continue to ease following Donald Trump’s U-turn on reciprocal tariffs.
The renewed risk appetite is also evident in the bond market. Over the week, US high-yield bonds outperformed government bonds. Overall, so-called risk assets have recovered a significant portion of the sharp decline recorded during the first half of April.
The US dollar remains the sole exception, continuing to hover near recent lows, notably against the euro, as investors fear that the US administration may encourage a depreciation of its currency to support the country’s reindustrialization efforts.
After a promising start to the year, the announcement of new tariffs on "Liberation Day," April 2nd, erased much of the gains accumulated by Asian markets. The impact of these tariff measures introduced by the Trump administration varies according to the degree of economic openness of the countries concerned.
Economies highly dependent on exports, such as Vietnam, Malaysia, and Taiwan, appear more vulnerable than those more oriented toward domestic demand, like India. India, in fact, demonstrated notable resilience during this period of volatility, rebounding after a correction phase that occurred at the end of last year.
Although most Asian countries have been granted a temporary reprieve from tariffs until early July, the standoff between Washington and Beijing is intensifying, with announced tariff rates reaching 145% for the United States and 125% for China. These levels represent an entirely different magnitude compared to the tariffs imposed during the 2018 trade tensions. In this context, while uncertainty persists, the likelihood of a tariff de-escalation seems to be growing day by day. Such prohibitively high tariff levels are hardly sustainable for global value chains.
A swift resolution is increasingly necessary to avoid severe economic repercussions for the world’s two largest economies. The real question now centers on each side’s ability to withstand the economic, financial market, and consumer-related costs arising from the conflict. In the coming weeks, the exhaustion of existing inventories is expected to lead to price adjustments and/or a compression of corporate profit margins, fully exposing the economic impact of the trade crisis. The risk of consumers facing empty shelves poses a political threat to the Trump administration. Already, the significant drop observed in container shipping volumes serves as an alarming early indicator of the challenges ahead for international trade.
However, a positive development is emerging: President Trump appears to be adopting a more measured and flexible stance than previously anticipated, as evidenced by his reversal on reciprocal tariffs and more moderate comments toward the Federal Reserve chairman.
Meanwhile, as investors await to see which side will yield first, market sentiment toward Asia, and China in particular, remains relatively depressed. This risk aversion could limit further downside potential and offer an attractive source of diversification for portfolios, especially in a context of the gradual depreciation of the US dollar.
After a sharp decline at the beginning of April, the US technology stock index experienced an equally spectacular rebound, erasing all of its losses. Despite significant selling pressure, it is now showing a positive performance (+0.5%) for April. Since the start of the year, the decline has narrowed to just 10%.