China announced a 34% tariff on all US goods in retaliation, escalating the trade war and causing widespread selling across markets. Risk-off flows intensified ahead of US trading, leading to a sharp decline in stocks.
S&P 500 futures are down over 3%, and 10-year Treasury yields fell to 3.895%. The Australian dollar is among the hardest hit, dropping 3.6% to test levels below 0.6100, with expectations of rate cuts from the Reserve Bank of Australia.
Market Reactions
In commodities, gold rallied initially before experiencing volatility, while WTI crude oil dropped 8.3% to $61.02. Concerns about global growth are influencing these market reactions. Upcoming US jobs reports and speeches may further affect sentiment.
This latest move from Beijing jolted sentiment globally, driving a retreat from riskier assets with traders seeking safety. We’ve now seen a classic risk-off reaction—with money flowing quickly into perceived safe havens like US Treasuries and gold, although even those haven’t remained entirely steady. The tariff response pushed S&P futures down more than 3%, setting the tone for a harsh session ahead. There’s a sense, more than anything, that nobody wants to be caught on the wrong side of a sharp move just now.
Bond markets, true to form, signalled investor anxiety early. Ten-year yields fell rapidly, landing just below 3.90%—a level not seen for several months. That drop tells us capital is moving swiftly into lower-risk instruments. We don’t expect this to reverse quickly unless there’s a policy pivot or easing of tensions. Given these moves, it’s clear there’s fear that higher tariffs could hurt broader global growth, not just trade flows.
The performance of the Aussie dollar shows how quickly expectations can shift in rates markets. A 3.6% drop is far from common. Traders had already been whispering about the possibility of rate cuts down under—and now the speculation is becoming more widespread. The dive through 0.6100 shows markets may be pricing in quicker action from their central bank. There’s concern these tariffs could be the tipping point for softer demand across Asia-Pacific.
Gold’s reactions have been instructive. It surged early in the session, drawing in safe-haven buyers, before swinging lower again. These moves suggest shorter-term participants taking profits while underlying demand still simmers underneath. We find it telling that even in such a risk-off environment, nothing is moving in a straight line. Decent two-way flows remain, but the impulsiveness points to heightened uncertainty.
Crude Oil and Trader Expectations
As for crude, the 8% fall in WTI is one of the largest single-day drops we’ve seen this quarter. That tells us how quickly growth fears spread when global trade slows. With demand expectations downgraded and inventories still elevated, it’s hard to make a case for sustained price strength near-term. No one wants to be left holding long positions with reduced refinery margins and muted Chinese industrial activity in the backdrop.
Looking forward, traders have a narrow window to recalibrate. US labour market prints are due shortly. Historically, these matter more when uncertainty is rife, and we can’t recall a time in recent memory when clarity on the macro backdrop was more needed. Several Fed speakers are also slated to appear. These remarks frequently affect short-dated rate pricing, especially when markets are already uncertain.
Given the volatility, derivatives desks should revisit hedging ratios. Too many are leaning short gamma into wide markets—this only amplifies day-to-day swings. Price discovery in options markets will likely be patchy, and bid-ask spreads can widen. Risk parameters should reflect that. We might see an increase in event-driven strategies, particularly around central bank speaker events or surprise headlines in the trade spat.
We’re also watching implied volatility in equity options, which has already risen sharply with recent moves. If last week was a wake-up call, this week may be the stress test. Keep an eye on realised versus implied vol to identify pockets of dislocation—one of the few paths to edge when everything else feels like guesswork.
Lastly, don’t ignore cross-asset signals. Often the clearer tells come from rates or FX, before equities respond. Dollar strength amid Aussie weakness could pressure carry trades, especially those tied to EM rates structures. A few desks out there look a little too long risk—there’s not much room for error in market conditions like these.
