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1. International investors are shifting money away from U.S. assets.

The S&P 500 tumbled 3.5 percent on Thursday, signaling renewed investor concern about the worsening trade war with China and the destabilizing effects of President Trump’s tariff policies.

Where is all this capital going? Well, for one thing, the Euro: it climbed another 2%.

2. The message from the bond market.

In the government bond market, U.S. Treasuries started to sell off again, with the yield on 10-year Treasuries climbing to around 4.4 percent, the highest since February.

This behavior is very unusual.

The fundamental explanation is that global investors might be changing how they view the U.S.

“The global community and central bank reserve managers are just a bit more hesitant when it comes to adding to Treasury exposure.” There were recent fears that China might try to retaliate against Trump’s tariffs by selling some of its own bondholdings. There is no evidence that it has, but the possibility has highlighted the risks to the U.S. of trade war morphing into financial war.

According to the Wall Street Journal, traders also pushed gold futures to a new all-time high, the biggest move up in front-month contracts since 2020. Edward Harrison, Senior Editor at Bloomberg, wrote yesterday that the Trump administration's sudden knee-jerk moves on trade are undermining the country's position as a good, old, trustworthy place to keep your dollars safe. Jason Thomas, head of global research at Carlyle Group, noted that since early 2022, gold has strongly outperformed inflation-protected Treasurys, suggesting that gold is now the world’s preferred safe-haven asset.

3. The worst-case scenario of a total trade war is avoided for now, but tariffs disruption is here to stay.

“The stock market rebound was a combination of speculative investors needing to cover short positions, less fear of recession and stagflation and optimism that tariff rates will ultimately end up lower than they are threatened today,” says Bill Adams, chief economist for Comerica Bank.

Adams adds that businesses will be relieved that trade policy could be less disruptive than expected earlier this week, but still sees a huge overhang of policy uncertainty to weigh on investment in the next few months.

“Also, 125% tariffs on Chinese imports will be a huge problem for many businesses if they stay in place,” he says.

“Even if the tariffs are permanently suspended, damage has been done to the economy via a permanent sense of unpredictability in policy.” 

The VIX curve remains in the stress zone for now.

4. The message from the oil market.

The 4-day drop of 12% in the S&P is astounding, but oil prices (WTI chart from Bloomberg below) fell even more, by about 20%.

Both are part of a significant market repricing of the growth outlook for the global economy.

5. Inflation cooled unexpectedly in March but tariff impact looms.

While President Trump already called for more rate cuts ahead of Thursday's CPI report, it's unlikely that the Fed will make any moves before its next regularly scheduled meeting in May.

After all, the relief offered by the latest inflation reading could very well be short-lived. Experts are all but certain that the blanket tariffs announced over the past few weeks will have a significant impact on consumer prices in the United States - an effect that we'll likely begin seeing in the data for April.

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