Morning wrap (07.04.2025)

Chinese tariff retaliation on Friday deepened the sell-off on Wall Street (S&P500: -6%, DJIA: -5.5%, Nasdaq: -5.8%, Russell 2000: -4.4%). Futures on U.S. indices suggest the declines will continue in today’s session.

Jerome Powell emphasized on Friday that the Fed still does not need to rush into changing interest rates, even in the face of tariffs that will significantly impact growth and inflation. Bookmakers on Polymarket raised their recession risk estimates to 65%.

Yanis Stournaras (ECB) sees tariffs as a source of deflationary risk for the Eurozone. The money market is pricing in an 86% probability of a rate cut in the Eurozone in April.

Trump announced that he will not change tariff policies toward China until the trade deficit is reduced. Nearly 50 countries contacted the White House over the weekend about negotiating retaliatory tariffs, according to ABC News.

‘Not intentionally engineering a sell-off. Sometimes you need to take medicine’, the U.S. president responded when asked about the stock market outlook (Reuters).

Losses in the Asia-Pacific region are not slowing down. The Hang Seng Index (HK.cash: -10.8%) is experiencing its biggest one-day drop in 16 years. Other markets also fell: Shanghai SE Composite (-6.35%), Japan’s Nikkei 225 (-6.95%), South Korea’s Kospi (-5.25%), and Australia’s S&P/ASX 200 (-4.25%).

China ‘has room’ to ease monetary policy to support the economy following the escalation of the trade war, according to Xinhua News Agency. Credit default swaps in China widened by an average of 22 basis points, the largest single-day move since the “COVID March” of 2020.

In the forex market, we’re seeing a correction after Friday’s strengthening of the dollar (USDIDX: -0.4%). “Safe haven” currencies, the Swiss franc and Japanese yen, are gaining the most (USDCHF: -0.9%, USDJPY: -0.65%), followed by the euro (EURUSD: +0.25%) and pound (GBPUSD: +0.1%). Meanwhile, Antipodean currencies (AUDUSD: -0.46%, NZDUSD: -0.57%) and Scandinavian currencies (USDNOK: +0.55%, USDSEK: +0.65%) are depreciating. USDCAD is trading flat.

Precious metals are rebounding after recent losses. Gold is up 0.13% to $3,042/oz, and silver is up 2.17% to $30.23/oz.

Brent and WTI crude oil contracts continue to decline by about 2.2%, with natural gas (NATGAS) also down 2.1%.

Key cryptocurrencies are giving up Friday’s gains. Bitcoin is down 2.3% to $77,000, and Ethereum is down 2% to $1,543. Contracts on Ripple (-8.8%), Dogecoin (-6.1%), Solana (-5%), and Chainlink (-3.3%) are also falling.

Among the key macroeconomic data expected today: industrial production in Germany and retail sales in the Eurozone.