Risk assets are currently facing pressure as traders adopt a cautious approach ahead of the US reciprocal tariffs announcement on Wednesday. A recent report indicated that higher tariffs, potentially reaching 20%, are being considered, compounding negative sentiment from the latest University of Michigan consumer sentiment survey, which revealed increased long-term inflation expectations.
The upcoming tariffs plan is central to market focus, although important US economic data will also be released tomorrow. The environment remains risk-off, with commodity currencies declining while the US dollar, Swiss franc, and Japanese yen show stronger performance. US indices are trading near their lows, and bitcoin is nearing potential new lows.
Market Sentiment Driven By Tariff Concerns
This update highlights how market participants are pulling back from exposure to risk-linked assets, mostly due to upcoming tariff announcements from Washington. There’s speculation that these new trade measures could include rates as high as 20%, not a minor adjustment given the context. Simultaneously, recent figures from the University of Michigan suggest inflation is expected to stick around longer than previously assumed, which doesn’t ease the tension. Together, these developments are setting quite a cautious tone across financial markets.
The expected announcement mid-week seems to be the primary driver behind the flight to safety. Traders appear to be holding positions lighter than usual in assets like equities and certain commodity currencies — those typically tied tightly to global economic momentum. Meanwhile, currencies known for holding value during turbulent times — such as the Japanese yen and Swiss franc — are being favoured. The dollar is also attracting steady buying, likely as a safer alternative rather than on changing interest rate bets.
Given this backdrop — where the preference is shifting clearly towards stability — we’ve seen US stock indices lingering close to their recent lows. Tech-heavy indices haven’t managed to shake off the weight of yield concerns and tightening liquidity expectations. Of note, bitcoin seems unable to find footing in this environment, with current levels hovering not far off near-term support. Digital assets, in general, are being treated more like growth stocks when liquidity is dwindling, rather than stores of value.
At this point, any optimism about near-term upside looks thin. Markets are unlikely to reward risk until there’s resolution around tariffs or a beat on key data tomorrow. The way we see it, the balance of risks tips towards preserving capital rather than stretching for returns.
Defensive Positioning And Volatility Trends
Traders using derivative tools to manage exposure will need precision over scale in this phase. Short-dated options are catching attention now, with implied volatilities ticking higher — particularly around sectors most exposed to global supply chains. Positioning is staying defensive. Equity futures are shaping up to open low again, and anything dependent on strong consumption data might continue to underperform.
As for rates, longer-term inflation risks, as suggested by the Michigan numbers, justify more caution around fixed-income positioning. The bond market is still exhibiting some scepticism about the Fed’s ability to ease later this year, which keeps duration trades tricky. Real yields are firm. That leaves the playbook fairly tight; remain selective and look to manage downside risks more actively while macro uncertainty is still in play.
