Markets have recently seen fluctuations due to tariff changes, yet the underlying issues remain. Although the worst-case economic scenario has been averted, tariffs continue to pose challenges for many countries.
The S&P 500 and Nasdaq experienced significant gains, reflecting temporary optimism. Nonetheless, the US-China trade relations, now at the centre of tariffs, suggest that resolution may take time, with tensions likely to persist.
Effective Tariffs Impact
Effective tariffs are at their highest since the 1930s, indicating potential economic strain ahead. The possible recession raises questions about the nature of recovery and growth prospects.
The future largely depends on US-China negotiations, as optimism exists that deals may emerge. However, expectations of a rapid economic rebound, as seen post-Covid, may not materialise in this scenario.
What the existing content outlines is a snapshot of ongoing economic disruption tied predominantly to tariff measures. The United States and China are central to these developments, where their discussions, or lack thereof, continue to steer wider global sentiment. We know now that while a financial crisis akin to the early years of the Great Depression has likely been avoided, the strain is not removed—merely shifted into new forms. It’s not a collapse we face, but a grinding pressure that drags across borders and markets.
From our view, the recent uptick in the S&P 500 and Nasdaq doesn’t so much reflect strength as it does a pocket of temporary relief. Traders capitalised on the surge, yes, but much of it appeared speculative rather than rooted in new information. Gains like these, detached from clear economic improvements, suggest that caution remains warranted. Markets enjoy rallies during uncertain periods; it’s not the first time enthusiasm has outpaced concrete resolutions.
A broader concern stems from the level of effective tariffs. Not seen this high since the 1930s, they now stand as both symbol and substance. A throwback to trade wars past, these figures serve more as a hurdle than an incentive. For anyone trading on expectations for growth or smooth policy transitions, they represent friction that cannot be shrugged off. This is a different playing field to what we saw following Covid, when government stimulus and consumer demand created faster recoveries. Here, the dynamic is slower, and arguably less predictable.
Future Market Dynamics
While Lighthizer and Liu remain involved behind closed doors, their progress, or rather the perception of progress, continues to sway sentiment. Tariff reductions or new terms could trigger swift directional changes, but for now, there’s no indication of this arriving in the near-term window. The lack of clarity adds to the weight traders must carry. Betting on a timeline attached to political negotiation leaves very little room for error in positioning.
What has become clearer in recent weeks is that assumptions of sharp rebounds may be misplaced. This market doesn’t mirror the volatility after pandemic lockdowns—it carries a more grinding pace, a less forgiving rhythm.
For those operating in our space, it means adapting not just to signals, but to the pace at which changes roll through. Reactions will need to be more measured. Event-driven positioning must account for delays as much as surprises. Volatility plays remain viable, but entries require tighter discipline.
Spread strategies, once helpful in more fluid environments, demand closer attention. We’re seeing reduced premiums in standard deviations that once offered ample room for manoeuvre. With implied volatility readings not aligning cleanly with realised movement, short-term direction has become harder to price reliably.
As for longer-dated contracts, hedging strategies should reflect more uncertainty—not less. While there’s temptation to assume conditions will rectify as talks progress, such assumptions now sit on shakier ground. A one-week bounce should not overwrite a six-month macro trend.
More broadly, the data inputs we depend on—manufacturing activity, consumer sentiment, cross-border shipping trends—all point to a more inertial shift in global trade dynamics, rather than a positive pivot.
We’re not looking at markets that reward only optimism. They respond more keenly now to risk management and timing precision, rather than directional bravery. Panicking leads to traps, but latent confidence without support also has fewer legs to stand on.
Remaining nimble may sound simplistic, but week-on-week changes in bid-ask depth reveal how rapidly sentiment turns. Taking each statement or headline at face value has become an unreliable approach. More is demanded: interpretation, caution, and positional restraint.
As we watch the next wave of official comments from either side, pay closer attention to detail than tone. The words used in final paragraphs or footnotes often carry more guidance than a headline ever will.
