Global market round-up – uncertainty and volatility reigns

Markets reacted very negatively to Donald Trump’s trade strategy, unveiled at the start of April. The proposed tariffs were much higher and wide-ranging than many had expected, with the aggressive nature of the policy stoking fears that the US could fall into a recession.

Equity markets have rebounded from their early-April lows after a series of concessions, amendments and policy reversals from President Trump. The initial market sell-off was sharp and broad-based. However, as April progressed, some rapid changes in policy from Washington softened or delayed concerns over some of the more damaging proposals. The president removed or postponed a series of measures on various sectors and companies as the economic impact became clearer. The introduction of the so-called ‘reciprocal’ tariffs – which the Trump administration considers necessary to balance a country’s deficit with the US – was suspended for 90 days for bilateral talks to be held.

Movements in bond markets also put pressure on President Trump to ease his tough policy position. Interest rates on 10-year US treasury bonds rose sharply in the wake of the announcement, contrary to what normally happens when equity prices fall – and investors seek safety in treasuries. The move may have potentially meant higher interest rates for US consumers just as tariffs were pushing up prices. Like equities, bond markets remain volatile. Unlike the dollar, gold has benefitted as a safe-haven trade, with the price of the metal propelled to new all-time highs.

Tariffs turbulence

In the first week after the policy announcement, tariffs on Chinese goods were raised to 145% after Beijing responded with retaliatory measures against US imports – but moves have since been made to help US businesses that are positive for Chinese exporters too. Smartphones and electronic components imports have been removed from tariffs to avoid significant price increases for US consumers and to maintain corporate supply chains.

In early May, Washington and Beijing seemed to be making progress and each country eased the sky-high tariffs on the other. However, as the month progressed the talks failed to make progress. The Trump administration ordered US companies that offer software used to design semiconductors to stop selling their services to Chinese groups, angering Beijing. President Trump said that he plans to double tariffs on steel imports from 25% to 50%. US Treasury secretary Scott Bessent said talks between the US and China were “a bit stalled”, suggesting that the two sides have made little progress since they sat down in Geneva.

This heightened unpredictability has created a difficult situation for market participants as it makes forecasting the economic outlook and corporate profits challenging, if not impossible. It has also created difficulties in boardrooms globally, as senior business leaders face complex decisions about whether they can carry on investing to generate future growth amid this cloud of economic uncertainty. Any sharp slowdown in corporate spending is likely to have a deleterious economic impact.

A foggy picture

It is this lack of clarity on the outlook for economies and corporate profits that is driving the elevated volatility – and it has raised the chance of a US recession. For volatility to reduce, markets need more clarity. Indeed, the US economy contracted in the first quarter of 2025, but this was mainly due to a surge in imports ahead of the expected introduction of tariffs. Imports are a subtraction from the final gross domestic product (GDP) figure and companies rushed to ship goods to avoid the extra costs. It is in the upcoming quarters that we will start to see the real impact of President Trump’s policy on the wider economy. Nevertheless, the negative growth means speculation of a “Trump recession” has mounted significantly.

The first-quarter reporting season is coming to an end amid this backdrop of significant uncertainty. In general, earnings in the quarter were better than expected but many companies have trimmed their full-year guidance due to the tariff uncertainty. Volatility is likely to continue for many months until the details of the trade policy have been finalised and the policy could end up being stricter than the market currently expects.