The Week Ahead

The Week Ahead: All eyes firmly on the White House

Asian stocks have tumbled and fallen sharply after there was no progress on US trade tariffs over the weekend. The Hang Seng is down 11% on Monday, the Nikkei is down 6% and the CSI 300 is lower by more than 7%. The lack of progress on individual deals between the US and its trading partners is seen as a green light to continue selling risk assets. European stocks are expected to extend declines on Monday, although the selling pressure is set to ease. The FTSE 100 futures are pricing in another 1.2% decline, and Eurostoxx 600 futures are pointing to a 3% loss.  US equity market futures are also pointing to sharp losses at the open.

There has been some ‘good’ news this morning. China is reportedly discussing brining forward stimulus measures to counter the effect of tariffs and boost consumption, although this only took a slight edge off the sell off. This market is looking for concrete action, not talk of action. The best panacea for financial markets right now would be a pause or reversal from the US on its tariff programme.

A buying opportunity on the cards?

At the start of a new week, instead of focusing on economic data and dissecting an extremely strong March payrolls figure from the US, traders and investors are assessing the chances of a stock market recovery after last week’s sharp sell off. After such sharp losses, this should be the buying opportunity of the century, however, as you can see above, early signs are not good on Monday. The dollar is up slightly this morning, but is still down sharply vs. the yen, the Swissie,  the pound and the euro. Stocks have taken fright once more after the Trump administration did not roll back on tariffs at the weekend.

The decline in risky assets including commodities and equities is staggering, the Nasdaq declined 10%, the S&P 500 fell more than 9% last week, the Eurostoxx index tumbled 8.5% and the FTSE 100 was down nearly 7% in just two days. Even the gold price is down by 3% in the past week, although it remains above $3,000 per ounce, as capitulation hit markets.

When will the sell off end?  

The main theme that is dominating global financial markets more than anything else is US trade policy uncertainty and the prospect of a negative global trade war, which will cause a global economic recession and spark another inflationary cycle. The focus now will be on individual bilateral trade deals, for example, Vietnam has offered to remove tariffs on US goods imports, which caused shares in Nike and Lululemon to surge more than 3% each on Friday, as they have large production centres in Vietnam. Although  TSMC still sold off on Monday, after Taiwan announced on Sunday that that they would offer the US 0% tariffs on all US goods imports, and they ruled out retaliatory tariffs on the US.

Will Trump pause tariff programme?

Perhaps the most interesting development from a trading perspective came from a post on X by Pershing Square CEO Bill Ackman. The hedge fund manager has close ties to the Trump White House, said that he expects President Trump to postpone the implementation of tariffs on Monday, to give him the chance to ‘make deals’. Ackman said that the President had used the April 2^nd announcement to get the world’s attention about US trade, however, he went on to add that this is an issue that cannot be resolved in a matter of days, so a pause would ‘make sense to give the President time to properly resolve this critical issue and to allow companies, large and small, the time to prepare for changes in their supply chains.’

Ackman sounded confident that Monday will be ‘one of the more interesting days in our country’s economic history.’ For sure, if there is an announcement that the President is willing to back track or to pause tariffs, then we think that the markets would likely engage in a wholehearted rally, especially stocks, but there could also be a decent increase in the price of oil, and bond yields could erase some of their recent losses. Of course, it is always risky to rely on a tweet for market advice. The White House officials who spook to the US media at the weekend, were less candid in their expectations, with typically bland comments from Treasury Secretary Scott Besant saying that he did not think that markets should be pricing in a recession, while Commerce Secretary Howard Lutnick doubling down on the necessity for tariffs. Besant also made a call for time, saying that trade negotiations needed to reverse decades of imbalances, which can’t be done overnight. So, maybe there is something in Ackman’s tweet.

The staggering market losses so far

It is unlikely that the President would want a repeat of last week, which was truly historic for financial markets. The S&P 500 lost $5.4 trillion in market value in two days. US stocks had their worst performance since Covid, the Nasdaq 100 entered a bear market, and Magnificent 7 lost more than 10%, which could pressure US tech magnates, who are big supporters of the President, to push for a pause in tariffs. The 10-year US Treasury yield fell below 4% and the US yield curve flattened as the prospect of a recession was priced in by the bond market. The gold price also tumbled, as cross asset de-risking weighed on markets. The fact that Fed chair Jerome Powell did not suggest that a rate cut was imminent also diminished demand for gold and weighed on its price.

In a sweeping market sell off, the only stocks on the S&P 500 that rallied last week included health insurers and Dollar General, which are considered recession proof. Tech stocks fared worse, with only 4 stocks rallying last week.  The UK fared better, as its defensive mix of stocks attracted plenty of interest. Utilities, insurers, big UK retailers like M&S and Next along with supermarkets, all bucked the global market trend and posted a gain last week. However, we could see last week’s winners come under pressure if there is a risk recovery this week.

Amidst the volatility in financial markets, it is worth remembering that there are several key economic events to watch out for in the coming days. Below we look at three events, other than tariffs, which will be important for the fundamental outlook for markets.

1, US CPI

Analysts are expecting a slight moderation in the US CPI rate for March. The headline annual rate for CPI is expected to be 2.6% vs. 2.8% in February, and the core rate is expected to be 3% down from 3.1%. The impact from US tariffs has upended prospects for US rate cuts for the rest of this year. There are now nearly 4 Fed rate cuts priced in by December this year, and interest rates are expected to end this year at 3.3%, this had been 3.56% at the start of this month.

We do not think that this week’s CPI data will have a big impact on the outlook for rates, instead that will be determined on President Trump’s next move on tariffs, as we mention above. However, a higher-than-expected reading for CPI on Thursday could ignite concern about the inflationary effects of tariffs, as this will be the first month of tariffs on Chinese goods and steel and aluminum feeding into the index. Several analysts are expecting a steeper monthly rate of inflation at 0.3%, which is not consistent with the Fed’s inflation target of 2%. The focus will likely be on core goods prices, if there is a large jump in core goods, then it could suggest both the impact of tariffs and people buying ahead of expected tariffs. Either way, they are both hindering the Fed’s ability to reach its mandate on inflation, which reduces the chance of Fed rate cuts during this period of market turmoil. This could exacerbate the market sell off further, especially if President Trump does not pause or roll back on some of his tariff plans.

2, UK GDP

February data may seem very stale after the recent rout in financial markets. However, we think that early 2025 data on the state of the UK economy, will give an interesting baseline about just how resilient the UK economy could be to any global trade war. The answer is probably not very resilient at all. The February GDP reading is expected to show a mere 0.1% expansion, suggesting that the UK economy started 2025 on a weak note after growth contracted by 0.1% in January.

Although there are signs that growth picked up in March, any recovery is now in jeopardy due to US plans to tariff all UK goods exports to the US at 10%. Over the weekend  companies like Jaguar Land Rover announced that they would pause all exports to the US due to tariff uncertainty.

The pound rallied vs. the USD last week and rose 1.4%. However, this was mostly down to a broad-based USD sell off after the announcement of tariffs and the large drop in US bond yields. We do not think that UK asset prices will move on the back of UK economic data in the near term, instead Trump’s latest salvo in his trade war will determine where global risk assets go next.

3, US earnings season

Q1 earnings season will kick off this week, with Delta Airlines and US banks the first to report results on Wednesday (Delta) and banks (Friday).

Analysts expect Delta earnings to dip in Q1 as demand is expected to fall after a strong few years for airlines. Economic uncertainty had hit demand before US trade tariffs were implemented, and it will be interesting to see what forward guidance this bellwether consumer stock provides in the current environment.

In the last 4 weeks, analysts have sharply cut their expectations for Delta’s earnings growth. Revenue estimates are down by 3% to $13.02bn, EPS estimates have fallen by 51% to $0.411.

On the banking side, JP Morgan will be the highlight, especially Jamie Dimon’s conference call. His thoughts on the impact of tariffs and the chance of a US recession could have more of an impact on financial markets than the results themselves. Morgan Stanley and Wells Fargo also report results.

JPM is expected to boost credit loss provisions, in a sign that the US’s biggest bank is expecting an economic downturn. However, trading revenue could help to protect profits in Q1. Optimism about a boost to deal making this year could be scaled back as M&A deals continue to remain thin on the ground. IPOs are also being pulled after the recent market turmoil, including Klarna’s much touted US IPO. In recent weeks, revenue and profit estimates for JPM have risen slightly, and the bank is expected to report revenue of $44.29bn for last quarter, with EPS at $4.61. The stock is looking extremely cheap on a P/E basis, after an 8% fall in JPM’s stock price on Friday and a 16% drop in the past 4 weeks. The stock is down 12% YTD, and its 12-month forward P/E ratio is significantly lower than the average for the S&P 500, at 11.51. Thus, any recovery in markets this week on the back of a change in stance from President Trump regrading tariffs, could see JPM stage a recovery.