The escalation of the global trade war has pushed the latest macroeconomic readings into the background. Currently, the market's attention is entirely focused on the global trade situation and potential "retaliatory" tariffs in response to those announced by the Trump administration last Wednesday. This topic will likely continue to dominate the markets in the next week. Many issues remain unresolved, and it is possible that we will see further decisions from the U.S.'s trade partners in the coming days. Additionally, on Thursday, we will receive the CPI report for March from the U.S., and on Friday, the PPI report.
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The turmoil in international trade primarily affects globally operating companies. The US500 index is a basket of exactly such companies. A potential escalation of the conflict in the coming week will certainly impact the valuation of this index. We saw a relatively quick response from China last Friday. The European Union has also announced that if bilateral talks with the U.S. do not go as planned, it will present its own proposal for retaliatory tariffs. If other trade partners follow a similar path, and no options for a quick resolution of the conflict appear on the horizon, the negative sentiment in the stock market may persist.
USDJPY
In such a situation, we can also expect a return of the Japanese yen currency as a safe haven. We already observed initial reaction this week when the U.S. dollar lost value sharply, and the Japanese yen gained after Trump announced the list of tariff rates on Wednesday. Additionally, the market is also pricing in a return of the Fed to dynamic cuts, with almost five interest rate cuts of 25 basis points each priced in just for 2025. The key issue for the Fed remains the risk of inflation returning. Therefore, the CPI report for March, to be published this Thursday, will be an important one.
OIL
Rising risks of a slowdown and weakening trade ties between China and the U.S. are placing significant supply-side pressure on the oil market. Oil prices fell by more than 14% within two days of the tariff announcement on Wednesday evening. Concerns about a decline in global demand have dominated the market, even though energy was temporarily excluded from the U.S. tariffs. Although the current tariff exclusions protect the oil market from an immediate supply shock, the ongoing uncertainty surrounding the conflict escalation weighs on investor sentiment.
Due to the above factors, in the upcoming week we recommend monitoring instruments such as US500, USDJPY, and OIL. We believe that given the evolving situation related to global trade and the upcoming U.S. CPI report, these will be instruments worth watching.
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