Investors Brace for Volatility Amid Deepening Trade War
The U.S. dollar extended its slide, while 10-year Treasury yields slipped below the key 4% level on Friday, adding fuel to the debate over whether the greenback can still serve as a reliable haven in times of market turbulence. With risk assets selling off globally, hedge funds have flipped bearish on the dollar for the first time since September, increasing bets against it particularly versus the yen and the euro while positioning for heightened volatility into year-end.
In commodities, oil plunged further after OPEC+ stunned markets by tripling its planned supply increase for May, exacerbating downward pressure. Meanwhile, gold steadied after retreating from a record high.
Tariff Fallout Sparks Global Growth Fears
The unwinding of the U.S. exceptionalism trade, where investors favored American assets on expectations of outperformance, is in full swing as concerns mount that the most aggressive tariff hikes in a century will stifle economic growth. The market reaction ahead of Friday’s U.S. jobs report and Fed Chair Jerome Powell’s speech underscores growing unease over the trajectory of the world’s largest economy.
While President Donald Trump signaled a willingness to negotiate tariffs if other nations offer “something phenomenal”, his administration continues to use protectionist policies as leverage in trade and geopolitical negotiations. At Saracen Markets, we caution that the near-term consequence of these measures will likely be higher inflation, slower growth, and possibly even a U.S. recession.
Global Central Banks Under Pressure as Trade Tensions Escalate
The widening trade war is also reshaping rate expectations, with the Bank of England under pressure to cut rates further. Meanwhile, Bank of Japan Governor Kazuo Ueda warned that U.S. tariffs have injected fresh uncertainty into the global outlook and will weigh on economic expansion. The broader consensus is that tariffs will drag down both U.S. and global GDP growth, extending market volatility into the foreseeable future.
Markets Face a Defining Moment, Investors Cautioned Against Catching a Falling Knife
The situation echoes the seismic shift of 1971, when the U.S. abandoned the gold standard, but with immediate negative consequences. Some investors see opportunity in buying the dip, banking on the so-called “Trump Put” the idea that the president will backtrack on his policies if stock markets decline sharply enough to threaten his economic narrative.
However, traders should tread carefully. This is an epic market event, and there’s nowhere to hide from the ripple effects of escalating trade tensions. Patience and strategic positioning are critical in navigating this uncertain landscape.