“Liberation Day” revisited

2 April 2025 was a fateful day for investors worldwide, as markets were rocked by President Trump's "Liberation Day" tariff announcements. 

These measures, aimed at “liberating” America and revitalising the US manufacturing sector back to its heyday, sparked widespread fears of recession, domestically and among trade partners. The introduction of higher reciprocal tariffs in the subsequent days, considerably more brutal for partners like China and Canada, further plunged markets into chaos, triggering a sharp slump in asset prices globally.

After a week of back-and-forth tariff exchanges, with investors anxiously watching the markets tumble, the reciprocal tariff D-day on April 9 brought some unexpected relief as the Trump administration announced a 90-day suspension on higher tariff rates for most countries, prompting trade partners like the EU to match the suspension on their retaliatory tariffs. 

This pause also included electronic appliances such as TV sets and washing machines, which accounted for nearly half of US imports from China in 2022, offering investors a glimmer of hope that the trade war might be resolved

Most threatened tariffs remain under consideration, however, setting the stage for a “US versus the Rest of the World” standoff. Investors are watching closely to see which measures will be conceded and which will be held firm.

Safe haven or stormy seas? The UST dilemma

Amid the stock market chaos, the surprising movement of US Treasuries caught investors off guard. Known for their haven status and backed by the strength of the American government, these assets unexpectedly saw rising yields and declining values during the current times of stress. This behaviour suggested that investors were factoring in additional risk, viewing the US as facing financial challenges rather than as a reliable guarantor.

Similarly, the US dollar is experiencing a comparable situation – once a textbook safe haven during times of stress, bolstered by America's purchasing power, it is now losing investor confidence. 

The U.S. Dollar Index (DXY Index) fell below the 100 mark for the first time since July 2023, marking the end of the prolonged USD strength that had persisted since 2022. This contrasts sharply with its recent history, where it managed to rise by 7% in 2024 despite two Fed rate cuts.

The key driving factor behind this overall loss in investor confidence is the American economy’s uncertainties and concerns surrounding tariffs. According to the Yale Budget Lab, as of 9 April, the effective tariff imposed by the US on imports averaged 25.2%, marking the highest level since 1909. This has been criticised for reversing over a century of progress in free trade and globalisation. These tariffs are projected to cost an additional US$4,400 per household this year, significantly dampening American consumer and investor sentiment – in fact, the Michigan consumer sentiment index fell to levels last seen during the pandemic. 

Superpower shuffle

The push factor from the US prompted investors to seek alternative asset classes, with the EUR, the world’s second most liquid currency and a default alternative to the USD, being a prime choice. The Euro has surged over 9% against the USD since the beginning of the year (as of 7 May 2025), as global investors wary of US assets shifted their funds back to Europe. 

The desire for investor diversification is also evident in equities. Cooling off from its previous Magnificent 7-driven peak, US equity funds have experienced outflows for the third consecutive week (as of 2 May 2025). Notably, U.S. large-cap funds saw substantial net disposals totalling $14.06 billion, marking the largest weekly outflow in six weeks.

What now?

Despite all the noise since the initial Liberation Day and reciprocal tariff announcements over a month ago, as of 7 May, no concrete development has been made.  While it is encouraging to see US Secretary Treasury Scott Bessent, a market veteran, take a more active role in managing the impact of tariff announcements, many market observers believe that the uncertainty may linger for a long time, complicating the Fed's decision-making on rates, leaving trading partners, the Fed, and everyone in between in a state of uncertainty.

What’s in it for you?

In these uncertain times, investors face a challenging environment shaped by geopolitical tensions, economic shifts, and evolving policy decisions. While some may seize opportunities amid these changes, others might choose a more cautious approach due to ongoing uncertainties. Recent developments underscore the critical need for diversification across asset classes, regions, sectors, and managers.

Ultimately, it is extremely difficult to forecast the markets. Consider your investment objectives and risk tolerance before deciding to allocate a significant sum of money to your next investment.

Global equity

Equities faced a significant shock following the announcement of Liberation Day tariffs, sending waves through the market reminiscent of the 2020 COVID impact. However, stocks recovered much of their losses when President Trump announced a 90-day pause on reciprocal tariffs for countries that hadn't implemented retaliatory measures, alongside the removal of tariffs on various electronic products. This decision, coupled with a more conciliatory tone from the US administration, helped ease market tensions, particularly between the US and China.

Chinese stocks, initially hit by US tariffs on Chinese goods rising to 145%, experienced volatility before rebounding slightly as tensions eased towards the end of the month. This recovery was further supported by strong first-quarter GDP growth of 5.4%. Despite ending April in negative territory, Chinese equities continue to lead year-to-date.

The S&P 500 Index lagged behind many global peers, posting -0.7% in April. US data released in April indicated signs of economic moderation, with a confidence shock impacting investment and spending decisions, raising the risk of a recession by year-end.

In contrast, emerging markets demonstrated resilience and emerged as the top-performing region in April 2025, as countries like Mexico and Brazil celebrated the relatively less severe tariff measures announced by the US administration.

Global fixed income

Fixed income offered valuable diversification amid equity market losses, although it also experienced significant intra-month volatility and varied performance across global markets, with Europe outperforming the US.

Bond investors were taken aback when the US 10-year bond yield surged to nearly 4.5%, driven by concerns that the Liberation Day tariffs might undermine the US's safe-haven status, posing risks of capital outflows. This volatility even prompted the implementation of a 90-day pause to facilitate tariff re-negotiations. As uncertainties around tariffs and fears of recession intensified, the market began factoring in the possibility of multiple rate cuts in 2025, potentially totalling four 25-basis point reductions by year’s end.

Meanwhile, in the eurozone, bond investors found some relief as the European Central Bank reduced rates by 25 basis points, bringing the deposit rate down to 2.25%. The accompanying monetary policy statement highlighted that the disinflationary process was progressing well, while also recognising the challenges posed by deteriorating growth prospects amid escalating trade tensions. This development boosted investor confidence and provided support for European government bond markets throughout the month.

Commodities

In April, most commodity asset classes experienced declines due to demand concerns, largely driven by tariff announcements, with gold being the exception. Gold surged as investors sought a safe haven, surpassing the US$3,500 level before easing as market volatility decreased and the USD stabilised. Meanwhile, oil prices fell sharply amid fears of slowing global economic activity.