Concerns over the effects of US tariffs are driving stock market declines, with the S&P 500 dropping 9% over two days and futures down by 2.5%. China and the Eurozone are poised to respond with retaliatory actions as discussions for concessions emerge from Vietnam and Cambodia.
Swaps indicate a heightened possibility of the Federal Reserve easing monetary policy, with a 50% chance of a cut by May, rising from 30%. While stock performance declines, mixed results are observed in bonds; 10Y US Treasury yields increased by 1 basis point, and Bund yields fell by 5 basis points.
Foreign Exchange Market Stability
In the foreign exchange market, major currencies remain stable, though higher-risk currencies are struggling. The Australian dollar weakened by 0.3%, following a notable 5% drop earlier, marking a significant 1-day decline for the currency. The Mexican peso dropped 1.5%, while the Swiss franc and Japanese yen showed better performance today.
We’ve seen in recent days a pronounced decline across equity benchmarks, largely set off by renewed concerns around tariff action from the United States. The S&P’s 9% retreat over a 48-hour span, paired with an additional weakening in futures of around 2.5%, isn’t just a pullback from overheated levels—it’s reflective of uncertainty building around global trade responses that don’t seem to be easing.
The pressure’s not isolated to the US either. Europe and China are now actively preparing to answer back with their own trade measures, likely aiming to balance what they perceive as economic aggression. Elsewhere in Asia, Vietnam and Cambodia appear to be engaging diplomatically on trade terms, hinting at flexibility in policy that may cushion the volatility—but for the time being, the overarching mood hasn’t lifted.
Implications For Traders
From our spot in the derivatives segment, this all spells opportunity for measured repositioning. Traders should be particularly focused on the swap markets, which have quietly adjusted expectations for US monetary policy. That’s not just noise. The shift from a 30% to 50% implied probability for a Federal Reserve cut by May suggests growing conviction that easing is back on the table sooner than anticipated. We’d typically expect bond yields to follow a certain logic in that context, yet what we’ve got is a mixed outcome—short-term sellers in Europe pushed Bund yields down by 5 basis points, but longer US tenors saw mildly higher yields, with the 10Y adding 1 basis point. It’s not dislocation exactly, but a divergence worth being alert to.
The foreign exchange space offers further clues. Safe-haven behaviour remains in place, and currencies typically linked to global stability—the yen and the franc—are doing all right. On the opposite end, the risk-sensitive names are bearing the brunt. We’re monitoring the Australian dollar closely after it slid another 0.3%—this follows a steep 5% drop that came through in a single day. Moves like that aren’t routine and often require weeks to recalibrate. The peso performed similarly poorly, falling 1.5%, which aligns with its tendency to react sharply when geopolitical or trade tensions rise.
Volatility surfaces continue to reprice, especially in forward-looking contracts. This is not the time to stretch into far-out exposures without adjusting for a higher uncertainty premium. Instead, we lean into tactical hedges, particularly where options pricing hasn’t fully caught up to realised risk.
What we’re seeing here isn’t about market overreaction or irrational pricing—this is the market systematizing international decisions into probabilities and cost. Be conscious of liquidity pockets. Understand positioning shifts. Above all, don’t expect the rate complex to move in lockstep with equity sentiment right now—too many separate signals are at play. Preparation now, ahead of any policy changes or retaliatory announcements, is what will set us up best.
