China’s Additional Tariffs on US Goods
China’s decision to tack on a further 34% tariff across the broad spectrum of US imports is more than just a tit-for-tat gesture—it serves as a sharp reaction to Washington’s newly rolled out tariff measures. This tit-for-tat escalation, coming into effect on 10 April, instantly amplified market anxiety across global trading desks. It caught some by surprise, especially given the prior expectation that Beijing might opt for a more reserved approach.
Following the announcement, volatility crept in. S&P 500 futures sliding 1.5% is not merely a number; it shows a decent pullback in equity appetite. This isn’t the sort of dip typically brushed off as profit-taking. The magnitude implies risk re-evaluation from institutional players. Investors clearly headed towards lower-risk assets. That’s underlined by the 15 basis point drop in 10-year Treasury yields. A fall of that size in such short order suggests a rapid repositioning, particularly by fund managers needing to hedge exposure. Fixed income markets, as often is the case in geopolitically routed episodes, maintained their role as a safety valve.
On the foreign exchange front, the dollar slipped against the yen, now sitting at 145.80 from 146.30. That isn’t insignificant. This sort of move in the USD/JPY pair—especially in quiet pre-US hours—suggests that traders are pricing in more than just short-term nervousness. This time it’s a reflection of deeper caution. The yen, with its perceived safe-haven status, typically attracts buyers when participants seek to steer clear of higher beta assets.
From our standpoint, this week’s price behaviour points to a clearer narrative: traders were too comfortable with expectations of economic cooperation through the spring. That repricing happened swiftly. And we are now dealing with knock-on effects in vol markets and rate forwards, which look less confident about the near-term path of policy. Futures in both interest rates and equity indices continue to imply steady implied vol across major tenors, hinting at a market bracing for further headline risk.
Market Reactions and Future Outlook
Powell’s recent tone, measured and slightly non-committal, may now be challenged by these shifting expectations and the broader pushback from abroad. The Treasury market response is telling. We’ve started to notice a steepening bias re-emerging in the curve. That wasn’t visible last week, when flattening trades dominated across macro portfolios. Flattening is often a sign of lowered inflation expectations and steady hands at central banks. A steepener here may speak to re-evaluated policy risks or heightened uncertainty in funding costs and overseas demand. Either way, there’s a pricing shift.
For options strategies, implied volatility in S&P 500 weeklys has risen in tandem with the futures decline. The move appears focused in the near-dated expiries, rather than being distributed across the curve. That implies market participants are preparing for a noisy few sessions, rather than recalibrating long-term trajectories. What we’ve seen in delta-hedging activity confirms this view, as gamma hedgers rebalanced aggressively on the downside in Monday afternoon sessions.
Term structure in interest rate swaps has also nudged wider at the front end. This normally occurs when traders grow unsure of short-term central bank direction or credit conditions. Given the current CPI and PPI data calendar, this move likely ties into assumptions about how inflation prints may now matter more than previously thought. Particularly if trade tensions upset supply chains again or disrupt pricing channels in core goods.
None of this is caught in isolation, as the CDS spreads for several EU and Asian banks widened marginally on the same tape. We’d interpret that as noise rather than direct stress, but it reflects a common caution brewing across asset classes.
Actionable steps now lean on clarity. Traders should not anchor to last week’s narrative or dismiss this as a fleeting bout of volatility. With tape bombs not being ruled out, a more nimble approach makes sense. Risk exposure should be recalibrated in shorter bursts, particularly if trading directional deltas in equity or rate futures. Maintain hedges that can be adjusted early in the Asia/Europe window, especially if funding currency moves continue to show signs of tension.
That said, it’s worth noting that correlation structures are beginning to skew again. Cross-asset beta, particularly between tech-heavy US indices and fixed income, has shifted back toward negative divergence. It’s a useful tell when gauging how serious the current dislocation is—and whether support levels being tested are real, or simply temporary bids.
In our setups, we’ve been tilting more to tactical allocation rather than thematic positioning. There’s little utility in marrying long-duration directional plays with so much tethered to political back-and-forth. Instead, quick rotation trades, light correlation pairs, and medium vol skew strats are drawing more attention on the desks.
As the developments continue to pressure multiple asset lanes at once—from currencies to bonds and back into equity implieds—the pricing tells us one thing very clearly: this is a market seeking cash balance and positional breathing room. That isn’t fear, necessarily. But it certainly isn’t conviction.
