Market Bloodbath In Response to Trump's Tariffs

President Trump’s “Liberation Day” came with a wave of new tariffs that will boost average levies to their highest level in more than a century.

The new average US tariff rate above 20% could lead to a global recession, according to economists.

The 10% additional tariff on all imports is set to take effect on Saturday, with the specific “reciprocal” tariffs scheduled to take effect on April 9. Refer to the table below for a detailed breakdown.

Commodities came under pressure even though energy, aluminum, steel, gold, copper, lumber, and other metals were all, so far, exempt from the new tariffs. Canada and Mexico were also spared from the new round of tariffs.

Bloomberg Link

Price Summary

Nearly all asset classes were down materially on Thursday.

Notes: Non-trading hours show as straight line. Timestamp for charts is 10:25 AM CT.	Notes: Non-trading hours show as straight line. Timestamp for charts is 10:25 AM CT.

Oil:

West Texas Intermediate crude traded 7% lower or $5.12/Bbl to $66.62/Bbl as of 9:00 AM Central.

• Oil and oil products were exempt from the new tariffs but received a double blow from OPEC+, which announced it will add more than 400 MBbl/d of supply to the market next month, while tariffs led to increased fears of a growth slowdown.
• The WTI 3-2-1 crack spread has fallen by more than $2/Bbl, as falling product prices hit refiner margins, indicating weaker oil demand.
• While oil was exempt and physical flows may remain unchanged, it's likely that crude was caught up in a broader asset liquidation, with traders rushing to sell all “riskier” assets that are more closely tied to global growth.
• Oil at $66/Bbl is near the lowest level observed since 2021.
• Today’s price decline is the most since 2023.

Natural Gas:

NYMEX Henry Hub was up 10c to $4.15/MMbtu.

• US natural gas is more insulated than oil when it comes to tariffs.

NGLs:

• According to Kpler, NGL demand and exports could be hit by a weakening of petrochemical demand.

Equities:

 The S&P 500 was down 3.6%. Nasdaq moved 4.01% lower.

• Textile, apparel, and luxury good producers were hit the hardest.
• Impacts have been the largest in companies with extensive overseas value chains.

Oil Products:

US Diesel prices fell 6.2% to $2.17/gal.

Gasoline RBOB was down to $2.15/gal or 7.37%

• Crack spreads were down across the board in the US.
• Weaker economic growth can lead to depressed demand for crude products such as gasoline and diesel.

Interest Rates:

 The US 10-year Treasury fell 2.38% to 4.032%.

• The market is now pricing in four rate cuts from the Federal Reserve.
• Higher rate cuts from the ECB and Bank of England are also being priced in.
• The ECB said the tariffs are expected to “negatively influence the euro-area’s GDP growth rate with a first estimate of the order of 0.3% to 0.4% in the first year.”
• Bond market moves are being driven by concerns that global economic growth could slow significantly.
• Nomura said, “In the US, inflationary pressures will be immediate, with the hit to growth only later.” Meanwhile, Europe is facing a “negative hit to GDP growth and deflation from goods dumping.”
  • Goods dumping could occur if China redirects goods from the US to Europe.

US Dollar:

The dollar slumped by 2.7 points or 2.6% to 101.5 on the index.

• The US dollar has plunged to the lowest level since last October, in the worst one-day move since November 2022.
• All G-10 currencies rallied vs the dollar, as financial markets appear to be showing concern about weaker US growth and an erosion of the dollar’s status as a safe-haven.
• A weaker US dollar could amplify tariff effects.
  • A drop in the US dollar index often precedes a rise in US import prices.
  • This is supportive of inflation and could make it difficult for the Federal Reserve to decide whether to cut rates.

Effect on Energy Flows

Oil and gas, so far, are exempt from the latest round of tariffs. Secondary tariffs, previously announced for Venezuela, are likely to deter countries from purchasing Venezuelan crude, potentially redirecting the country’s heavy crude into global energy trade.

Even with energy imports exempt, a potential decrease in global energy consumption could indirectly affect trade flows. For example, if China’s economy slows due to the effect of tariffs, petchem demand for products like propane and ethane could wane, altering where products land and reducing price.

Effect on Macro or General Economy

The tariffs could dampen global economic growth and lead to increased inflation. Consumers may face higher costs for a wide range of products. Financial markets have reacted negatively to the announcement, with major stock indices declining by over 3%.

The market impact is likely to get worse as retaliation is expected from trading partners. Treasury Secretary Scott Bessent urged other countries to avoid retaliatory tariffs when speaking with Bloomberg. “I wouldn’t try and retaliate,” he said. “As long as you don’t retaliate, this is the high end of the number.”

Despite Bessent’s warning, China vowed to respond in kind, and the EU is also readying plans to retaliate. Japan and Korea have previously said they would also respond to tariffs, in unison with a Chinese response.

Everything is set up for a potentially painful global trade war. The effect of China's tariffs would likely be a 2% hit to GDP and contraction in the country’s exports, according to Arthur Kroeber, a partner at Gavekal Dragonomics. (Bloomberg)

This is a fluid situation, and these terms are subject to change.