US tariff policy has intensified, with 104% tariffs on China and additional levies taking effect. This has led to increased anxiety in the markets, resulting in a weaker USD, declining US Treasuries, and lower US equity futures.
European stocks have also faced significant losses, while crude oil prices fell by 4.5%. Conversely, gold prices are recovering after dipping below $3000 per ounce.
Market Dislocation Evident
There is evidence of dislocation in markets, as capital flows shift away from US assets. The DXY index has stabilised around 102, but further losses may lead it toward 99/100.
The Federal Reserve’s March FOMC meeting minutes will be released today, likely reflecting concerns about uncertainty in the market. A May rate cut is viewed as a possibility, although expectations regarding the ‘Fed put’ remain cautious.
The recent escalation in the United States’ tariff actions—most notably, a 104% duty on Chinese imports—has jolted markets and triggered widespread uncertainty. We’re seeing traders reposition in response to what appears to be a sharper shift in trade barriers. Unsurprisingly, this has prompted a wave of reactions: the US dollar’s recent pullback, measured through the DXY, has held near 102, but it appears to be under pressure. We shouldn’t dismiss the risk of it slipping further toward the 99-100 band, where it last stabilised during periods of stretched risk sentiment.
Government bonds from the US, particularly Treasuries, have seen sustained selling pressure. As yields rose, bond prices fell—an indication that investor confidence around US fiscal positioning may be weakening in the near term. At the same time, equity futures across the Atlantic followed the same course, with steep losses across tech and industrial sectors. This isn’t merely reactive—capital is shifting. There’s a broader rebalancing under way, driven by investor attempts to find assets less exposed to policy-driven volatility.
Oil’s sudden 4.5% decline points to softening expectations around global demand, possibly linked to fears that trade frictions could dampen activity across manufacturing-heavy economies. That said, there’s a rebound building in gold. After briefly falling below the $3000/oz mark, it’s now making an upward push—a sign that haven demand might be firming up again, particularly from asset managers seeking longer-duration hedges.
Global Risk Off Moves
In Europe, indices like the DAX and CAC experienced accelerated declines, mirroring weakness seen in US futures. This synchronicity signals the global nature of current risk-off moves, where no region seems immune to the ripple effects of policy discord. With capital flowing out of US equities and government paper, the question is where it’s being redeployed. Asian and Middle Eastern markets have seen inflows, most likely in selective sovereign debt and energy-linked assets.
The March FOMC meeting minutes, expected later today, are expected to highlight how senior officials interpreted the potential impact of policy noise on credit conditions. Powell’s team has thus far been restrained in offering direct intervention through verbal support, which has kept wider markets guessing. We’re watching for any remarks that suggest a readiness to act if tightening financial conditions start translating into weaker consumer or business activity.
The chance of a rate cut as early as May is now being priced into short-term futures with higher alignment, though caution remains. The assumption that the Fed will step in to protect equity valuations—the so-called “put”—hasn’t been abandoned, but participants now seem less eager to bet firmly on its immediacy. This adds a layer of complexity to positioning, especially for options traders and those managing structured volatility exposures.
This dislocation—particularly the divergence in how rate expectations and market pricing are moving—suggests to us that hedging strategies may need revisiting. We’re already observing higher put volume across index options, and skew remains elevated. Derivative traders will need to revisit gamma exposure, particularly in the near-dated expiries, as vol surfaces continue to steepen. The preference right now appears to be short delta with long tail hedges, especially across the S&P and NASDAQ.
Some of this readjustment can be traced back to the disappearance of yield differentials that had favoured the US dollar, but there’s also a reassessment happening on the macro level. The longer trade issues linger, the higher the probability that we’ll see continued rotation out of cyclicals and into duration-sensitive assets. Watch correlations—it’s becoming clearer that old patterns are breaking. We’ve reduced exposure to leveraged carry strategies, given the rise in implied vol across various G10 pairs.
Liquidity in key futures contracts remains relatively firm, but depth on the book is shrinking ahead of the FOMC release. We advise watching spreads in the 2y-10y zone and keeping a close eye on basis trades involving cross-currency swaps, particularly USD-JPY and EUR-USD. As always, we’ll be adjusting exposure with a view to how macro headlines are feeding through to implied volatility and dealer positioning.
