Global Financial Markets in Turmoil: Tit-for-Tat Tariffs Trigger Multi-Asset Sell-Off

Global Financial Markets in Turmoil: Tit-for-Tat Tariffs Trigger Multi-Asset Sell-OffA historic multi-asset sell-off, spurred by panic over "tit-for-tat" tariffs, has left virtually no corner of the global financial market unscathed. From equities and commodities to cryptocurrencies, a widespread collapse has sent market sentiment to extreme levels of fear

Global Financial Markets in Turmoil: Tit-for-Tat Tariffs Trigger Multi-Asset Sell-Off

A historic multi-asset sell-off, spurred by panic over "tit-for-tat" tariffs, has left virtually no corner of the global financial market unscathed. From equities and commodities to cryptocurrencies, a widespread collapse has sent market sentiment to extreme levels of fear.

Market-Wide Crash: Stocks, Oil, Gold, and Cryptocurrencies Suffer

Early Monday in Asian markets, the global sell-off continued its momentum from the previous week. Futures on US equities, oil, cryptocurrencies, and precious metals all suffered heavy losses. US stocks, already down nearly 10% last week, saw further declines on Monday, with Nasdaq futures falling over 5% and S&P 500 futures down over 4%. Oil futures, which fell 10% last week, breached the $60/barrel mark for the first time since April 2021. Spot gold fell nearly 1.7% intraday, while spot silver dropped 3% at the open, following a 13% plunge last week. COMEX copper futures fell over 8% at one point.

The cryptocurrency market was equally hard hit, with Bitcoin and Ethereum plummeting over 6% and 12%, respectively, dragging other cryptocurrencies down with them. By 7:44 AM on April 7th, over 280,000 traders had liquidated positions totaling $852 million in the past 24 hours. US Federal Funds futures surged in early trading, with the December contract up 30 basis points, implying a 120 basis point (4.8 times) rate cut by the Fed this year. The Australian dollar fell 1.82% against the US dollar, hitting its lowest point since March 2020 at 0.5932. Nikkei futures dropped 3.1% to 31,310.

Soaring Fear Index, US Stocks Plunge into Bear Market

Investor risk aversion spiked dramatically. On April 3rd (EST), the VIX volatility index jumped 40%; on April 4th, it soared another 50%, surpassing 45 and reaching its highest level since April 2020. CNN's Fear & Greed Index plummeted to 4, indicating "extreme fear." US stocks rapidly entered bear market territory. By April 4th, the Nasdaq was down over 20% from its all-time high, officially entering a technical bear market; the S&P 500 plunged 5.97%, its largest single-day drop since March 2020; and the Dow Jones Industrial Average fell 5.50%, exceeding a 10% decline from its all-time high, entering correction territory.

Jerry Chen, a senior analyst at GAIN Capital, commented that the Nasdaq, heavily weighted with technology companies, is particularly vulnerable. Increased tariffs will raise supply chain costs and erode profitability, exacerbating weakening market confidence, potentially leading to continued pressure on the Nasdaq in the short term.

Why the "Sell Everything" Panic? Why Did Even Gold Suffer?

Anxiety over a global trade war gripped the market, leading many to question why even gold, the safe-haven asset, suffered. The key reason is that in the midst of extreme panic, investors facing significant losses were forced to liquidate gold to cover losses in other assets, similar to the global asset sell-off during the 2020 COVID-19 pandemic. Furthermore, concerns that precious metals might face additional tariffs had previously driven unusually high premiums for New York gold futures compared to major exchanges like London, prompting traders to rush large quantities of gold and silver to US warehouses. However, the inclusion of gold and silver on the "tit-for-tat" tariff exemption list eliminated this physical delivery premium, adding further pressure on precious metals.

Nicky Shiels, head of research and metal strategy at MKSPampSA, noted that the significant wealth destruction during the market selloff impacted even gold, despite its recent strong safe-haven status. Gold had previously experienced a sharp rally, driven by massive central bank purchases, robust investment demand, and Fed rate cut expectations, surging over 15% this year. While the tariffs dealt a temporary blow, future gold prices are expected to benefit from an increasingly volatile trade, macroeconomic, and geopolitical environment. Michael Hsueh, an analyst at Deutsche Bank, suggested that the drivers of gold's exceptional rise are likely to persist. Central bank gold purchases and continued inflows into gold ETFs will offer additional support, but silver and palladium will be affected by the negative impact of tariff policies on global economic growth.

The oil price crash is more easily explained. The "tit-for-tat" tariffs will naturally dampen global economic activity and thus reduce oil demand. Furthermore, the OPEC+ group's announcement of a larger-than-expected production increase of 411,000 barrels per day starting in May also significantly weighed on prices.

Dashed "Fed Put" Exacerbates Sell-Off

The sell-off intensified on April 4th, partly due to the dashed expectation of a "Fed put." Fed Chair Jerome Powell stated that the Fed would not rush to react to the Trump administration's sweeping tariffs nor to the market turmoil. He sought to downplay the expectation of a Fed intervention to mitigate the economic impact of Trump's policies through earlier rate cuts. Powell acknowledged that Trump's tariffs would raise inflation and slow economic growth, but that it was "premature" to adjust monetary policy. The Trump-announced "tit-for-tat" tariffs have created a "highly uncertain outlook" for the Fed. Assessing the potential economic impact of the tariffs will be difficult until there is greater certainty about the details.

The Fed will likely remain on hold in the near term, focusing on inflation control in the face of tariff threats. Powell warned that the "one-time price shock" from tariffs could generate secondary effects through supply chains, predicting price increases of 8%15% for tariff-sensitive goods like cars and electronics. Powell's tone was more cautious than in his March 19th press conference, when he described the inflationary impact of tariffs as "transitory." In 2019, the Fed cut rates before signs of economic weakness emerged. However, Powell implied the current situation would be different. Given persistently high inflation in recent years and the significantly larger tariff increases this time, the Fed is likely to wait for more pronounced signs of economic weakness before cutting rates. It is noteworthy that Powell continues to disregard Trump's repeated calls for rate cuts. Before Powell's speech, Trump urged Powell on social media to "stop playing politics" and immediately lower benchmark interest rates, citing a decline in US inflation. Following Powell's statement of patience in assessing the impact of tariffs, market expectations for the Fed to complete four 25-basis-point rate cuts were pushed back from October to December.

"Buying Opportunity" or "Death of the Bull Market"?

Following the market crash, some institutions began exploring "bottom-fishing" strategies. Michael Hartnett, a prominent strategist at Bank of America, suggested that the decline in equities, oil prices, bond yields, and the US dollar could trigger a revival in market risk appetite. Hartnett outlined three different S&P 500 index ranges and corresponding investment strategies. However, wary investors are unlikely to rush in. The ongoing tariff conflict remains a significant risk, alongside elevated recession risks. Some Wall Street firms believe the bull market is over. Emily Bowersock Hill, CEO and founding partner of Bowersock Capital Partners, declared the bull market dead, killed by Trump's tariff policies. While the market may approach a short-term bottom, concerns remain about the long-term impact of the global trade war on economic growth. Michael Arone, chief investment strategist at State Street Global Advisors, suggested that the Trump administration might be playing a "game of chicken" with its trading partners, waiting to see who blinks first. Market participants, however, are unwilling to wait and are selling first and asking questions later.

Even the typically impactful non-farm payroll report failed to alleviate market anxieties amid the prevailing risk-off sentiment. The US Bureau of Labor Statistics reported that non-farm payrolls increased by 228,000 in March, exceeding expectations of 140,000. The unemployment rate rose slightly to 4.2%, marginally above the forecast of 4.1%. Average hourly earnings rose 0.3% month-over-month, meeting expectations. Overall, the non-farm payroll report was relatively strong, but these figures reflect employment conditions in mid-March, before the full impact of the tariffs was evident. The future uncertainty surrounding the "tit-for-tat" tariffs may restrain business investment and hiring intentions. Given that... (The final sentence is incomplete in the original text.)