11 Apr TLR Week in Review: April 11, 2025

Week in Review (April 4–11, 2025)

Welcome to this week’s edition of The Lonely Realist Week in Review. In one of the most tumultuous weeks in recent memory, global markets were whipsawed by escalating trade tensions and policy shifts, set against a backdrop of otherwise solid economic data. A broad U.S. tariff offensive and swift retaliation from China dominated headlines, sending shockwaves through equities, bonds, and currencies worldwide. Safe-haven assets surged as investors sought stability amid uncertainty, while central banks weighed responses to mounting recession risks. This report dissects the week’s major developments in politics, economics, and markets – and offers perspective on the road ahead – with a focus on implications for U.S. and global financial markets.

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This article is provided for educational and entertainment purposes only. It does not constitute financial or investment advice. Please conduct your own research and consult a qualified professional before making any investment decisions.

Global and U.S. Political Developments

The week’s defining story was a dramatic escalation – and partial de-escalation – of the U.S.-China trade war. Early in the week, President Trump surprised markets by imposing sweeping import tariffs: a 10% blanket duty on most goods entering the U.S., plus punitive levies of up to 125% on Chinese imports and 25% on goods from close allies like Canada, Mexico, Japan, and the EU. Announced on April 2 (dubbed “Liberation Day” by the White House), these tariffs aimed to reset global trade relationships but instead sowed chaos. Businesses worldwide scrambled to reconfigure supply chains as foreign leaders braced for a potential breakdown in global trade. Even U.S. allies were not spared – tariffs on key partners took effect mid-week, fueling diplomatic strains and prompting WTO officials (past and present) to call for urgent reforms to defend free trade.

Mid-week, pressure within Trump’s own party mounted as the market fallout grew. Prominent Republican lawmakers openly questioned the strategy amid fears of recession, with one senator lambasting the situation as “amateur hour” during a contentious hearing with Trump’s trade representative (Trump pushed global economy to the brink with tariffs — and then pulled back). By Wednesday afternoon, facing a plunging stock market and intense pushback, Trump abruptly announced a 90-day pause on many of the new tariffs (excluding the across-the-board 10% tariff). This surprise policy reversal – delivered via social media with little coordination – stunned even his own officials but instantly triggered a relief rally on Wall Street. The White House insisted the retreat was always part of a grand negotiation strategy, referencing “The Art of the Deal,” even as observers noted the volte-face came after markets “cratered” and bond markets flashed warnings.

Abroad, China responded in kind. By Friday, Beijing hiked tariffs on U.S. imports to 125%, retaliating “punch for punch” in line with Trump’s own hardball approach. Chinese leaders vowed not to back down further but also signaled they would not escalate beyond this for now. The tit-for-tat measures between the world’s two largest economies have effectively placed mutual trade embargoes on many goods, threatening to upend supply chains built over decades. Other nations maneuvered to mitigate the fallout: Vietnam moved to prevent Chinese goods from being rerouted through its ports to evade U.S. tariffs, and Japan, Taiwan, and the EU hurried to the negotiating table to seek exemptions or new bilateral deals.

Beyond trade, other political developments flickered in the background. In Washington, the Supreme Court allowed (at least temporarily) the Administration’s stricter policies on deportations and public-sector firings to proceed – a legal green light that in normal times might have drawn more attention. Congress, for its part, advanced an omnibus legislative package aligning with Trump’s agenda, consolidating multiple initiatives into what some described as one “big, beautiful bill”. Internationally, geopolitical tensions remained elevated. Russia-U.S. relations stayed in focus as President Putin met with Trump’s special envoy in St. Petersburg for marathon talks (Trump Tariffs Live: China heats up US trade war by raising tariffs to 125%, Wall Street ends week higher | Reuters), and Middle East conflicts simmered (a humanitarian crisis deepening in Gaza, and persistent warfare in Ukraine). However, none of these issues moved markets as profoundly as the trade saga, which has clearly become the dominant macro driver and policy wildcard for investors worldwide.

Economic Indicators and Central Bank Moves

U.S. economic data released this week painted a picture of resilience – at least before the tariff shock. The March jobs report showed nonfarm payrolls surged by 228,000, handily beating expectations, and unemployment ticked up only slightly to 4.2% as more Americans entered the labor force. Wage growth remained moderate at 3.8% year-on-year. Yet economists were quick to warn that these backward-looking indicators “feel dated” in light of the sudden trade escalation, which has “fundamentally altered the economic outlook”. Business confidence, which had already been softening, is now at risk of a sharper downturn as companies assess tariff impacts on costs and supply chains. Surveys out late in the week showed early signs of strain: the University of Michigan’s consumer sentiment index plunged in April to 50.8 (from 57.0), its lowest since the 1980s, with one-year inflation expectations spiking to multi-decade highs. Consumers are clearly registering concern that “tarifflation” – rising prices due to import levies – will squeeze their pocketbooks in coming months.

Inflation data were mixed. Headline consumer price figures (CPI) for March (released mid-week) remained relatively contained, but the Producer Price Index showed a jump in industrial metals prices, reflecting the tariffs on steel and aluminum that have been in effect for the past month. Upstream price pressures like these could foreshadow broader inflation if tariffs persist. Indeed, some economists cautioned that tariffs might soon push consumer inflation higher, complicating central bank policy just as growth slows. “Tarifflation will be much more important for the outlook than backward-looking data,” noted one chief economist, warning that sustained duties could add significantly to inflation in the second half.

Central banks are navigating this crosscurrent of strong pre-shock data and uncertain prospects. In the United States, the Federal Reserve has shifted to a dovish bias this year, and markets have been anticipating rate cuts. At one point early this week – as equity turmoil and a bond sell-off hinted at a possible hard landing – futures markets were pricing in four or more quarter-point Fed rate cuts in 2025, with an initial cut as soon as May. However, after Trump’s tariff pause on Wednesday tempered the immediate worst-case fears, traders trimmed those bets. The consensus now sees the Fed likely waiting until June to begin easing, and perhaps delivering a total of 75 basis points of cuts in 2025 (three quarter-point moves). Fed officials’ rhetoric remains cautious: Boston Fed President Susan Collins said she expects to hold rates “for longer” given still-elevated inflation, but acknowledged a cut “may still be on the table” if the economy falters. With the trade conflict injecting downside risk, Fed Chair Jerome Powell and colleagues will face a delicate balancing act – they do not want to encourage further inflation via preemptive cuts, but they also stand ready to support the economy if job market conditions deteriorate or financial stress worsens.

Elsewhere, central banks are also on alert. The European Central Bank (ECB) meets next week amid mounting signs of strain in Europe’s economy from the U.S.-China rift. The euro’s surge (see below) reflects, in part, market expectations that the ECB might cut interest rates again to shore up confidence (Morning Bid: Capital flight fears sink dollar | Reuters). In emerging markets, policymakers are watching the Fed and the dollar closely – any unexpected tightening of U.S. financial conditions could spill over. Notably, officials in export-driven economies (e.g. Germany, South Korea) warned that a protracted trade war could force downgrades to growth forecasts, and the IMF’s upcoming Spring Meetings (later in April) are expected to feature intense discussions on coordinated responses to the trade-driven slowdown. For now, global central bank stances have shifted firmly toward accommodation, with an emphasis on flexibility as new data and developments unfold.

Market Performance and Sentiment Trends

Financial markets navigated extreme volatility this week as they reacted to each twist in policy. The U.S. stock market experienced wild swings reminiscent of the 2008 crisis. By mid-week, the S&P 500 recorded a 9.5% gain in a single day – its biggest one-day jump since October 2008 – after Trump’s tariff reconsideration fueled hopes of de-escalation. This stunning rally came immediately after the index had flirted with bear-market territory: prior to the rebound, the S&P had fallen nearly 20% from its February peak amid escalating tariff threats. The celebration proved short-lived; on Thursday, the S&P 500 sank 3.5% as reality set in that a full trade resolution remained elusive. By week’s end, major indices were off their mid-week highs but, remarkably, managed to notch modest net gains for the week (Trump Tariffs Live: China heats up US trade war by raising tariffs to 125%, Wall Street ends week higher | Reuters). The Dow Jones Industrial Average and Nasdaq Composite followed similar roller-coaster trajectories – blue-chip multinationals initially sold off on trade worries, then rebounded; tech stocks outperformed during the relief rally (as lower interest-rate prospects buoyed growth stocks) before succumbing to another bout of profit-taking. In short, sentiment has been see-sawing: relief that the absolute worst-case trade outcome might be averted is tempered by recognition that 90 days of further brinkmanship lie ahead.

(image) Chart: S&P 500 volatility spiked as the index whipsawed this week. The benchmark’s 9.5% jump on Wednesday (its biggest since 2008) was followed by a partial pullback, leaving it ~14% below its February record high.

Market internals reflect a growing sense of caution. The Cboe Volatility Index (VIX) – Wall Street’s “fear gauge” – spiked as high as the mid-50s intraday and remained around the 40 level by Friday, more than twice its long-term median (Wall St Week Ahead Broadening asset volatility intensifies worries for tariff-tossed US stocks | Reuters). Such elevated volatility indicates investors expect choppy waters ahead. Trading desks reported widening risk premiums and a rotation toward defensive assets. Notably, U.S. Treasuries did not play their usual safe-haven role this week – instead of rallying, government bonds sold off sharply. The 10-year Treasury yield surged to ~4.5%, up over 50 basis points on the week, marking the steepest weekly rise in yields in over four decades. This highly unusual tandem of falling stocks and falling bond prices (rising yields) underscores investors’ angst specifically about U.S. policy: typically during equity sell-offs, Treasuries and the dollar strengthen, but “our markets are not acting as such” this time, one strategist noted. Instead, fear of foreign capital flight from U.S. assets – as a reaction to protectionist policy – has led to both a weaker dollar and weaker Treasury prices. Analysts pointed out that overseas investors hold a fifth of U.S. equities and large portions of U.S. bond markets (Morning Bid: Capital flight fears sink dollar | Reuters), so any retreat by them can significantly move markets. Indeed, data showed foreign investors dumped U.S. stocks and credit at a record pace this week: U.S. equity funds saw $6.5 billion in outflows and high-yield (“junk”) bond funds had nearly $16 billion pulled – the largest weekly junk-bond exodus on record (Morning Bid: Capital flight fears sink dollar | Reuters).

Across sectors, trade-sensitive industries bore the brunt of volatility. Industrial and automotive stocks (e.g. major equipment manufacturers and carmakers) tumbled early in the week on concerns about supply disruptions and higher input costs, only to partially recover on hopes for negotiated exemptions. Export-centric firms from Europe and Asia, such as machinery and luxury goods makers, also underperformed. By contrast, defensive sectors like utilities and consumer staples held up relatively well, as investors sought earnings stability. Financial stocks (banks) initially slumped alongside yields early in the turmoil, but as yields rebounded and yield curves steepened, some bank shares found support. This will be tested imminently: first-quarter earnings season kicks off with major U.S. banks reporting results, including JPMorgan and Morgan Stanley, which will shed light on lending trends and any early tariff impacts. Broadly, corporate guidance will be critical – investors are “looking for companies that have the confidence and desire to invest through this cycle,” as one portfolio manager said. Any signs that CEOs are delaying capital expenditures or see materially lower demand could spark further selling.

Despite the recent beating, U.S. equities year-to-date remain above last year’s lows, thanks to the strong rally in early 2025 prior to the trade war flare-up. However, they are well off their highs (the S&P 500 is ~14% below its record). Valuations have adjusted downwards with the volatility – the forward price/earnings multiple on the S&P has compressed, reflecting higher risk premiums. Investor sentiment is fragile: measures of bullishness in surveys slid to multi-year lows this week, and market technicals are in flux. The consensus among analysts is that markets will remain in a “highly sensitive” news-driven state, reacting sharply to any trade negotiation updates or policy signals in the days ahead.

To summarize the market moves at a glance, the table below highlights the weekly performance of key asset classes:

Note: Price levels as of market close on April 11, 2025. Change refers to approximate weekly move. BTC = Bitcoin price in US dollars.

Commodities, Crypto, and Currencies

Commodities sent a clear signal that growth expectations have deteriorated. Oil prices fell sharply on fears that a U.S.-China trade freeze will sap global demand. Brent crude and WTI each lost roughly 5–10% this week, with WTI sliding into the mid-$60s per barrel range (a far cry from the $80+ levels seen before the trade war rhetoric ramped up). Traders largely shrugged off potential supply-side disturbances, focusing instead on the potential for a synchronized slowdown in the U.S., China, and beyond. Oil’s decline came even as the dollar weakened, underscoring that this move was demand-driven. In contrast, gold shined as the ultimate safe haven. Bullion surged above the $3,200/oz mark for the first time ever, and is now up ~23% year-to-date. The spike in gold reflects both flight-to-safety and a hedge against a depreciating dollar and rising inflation risk. Other precious metals followed suit to a lesser degree, while industrial metals were mixed – copper prices dipped on growth worries, but steel and aluminum saw price support due to the U.S. import tariffs (as evidenced by the uptick in the U.S. PPI mentioned earlier).

In currency markets, the U.S. dollar had its toughest week in years. The Dollar Index (DXY), which measures the greenback against major peers, plunged to its lowest level in three years. The dollar’s weakness was most pronounced against traditional reserve currencies: the euro jumped to its highest value since early 2022 and the Swiss franc hit a 10-year peak. The Japanese yen – often a haven in times of stress – also gained ground, though its appreciation was somewhat tempered by Japan’s own concerns about export competitiveness. Currency strategists noted that normally a severe equity sell-off would boost the dollar (as global investors seek the safety of U.S. assets), but this week the opposite occurred, highlighting concerns of foreign capital flight in reaction to U.S. policies (Morning Bid: Capital flight fears sink dollar | Reuters). Essentially, if the U.S. seeks to slash its trade deficit via tariffs, it may also scare off the capital inflows needed to fund that deficit – a recipe for a weaker dollar.

Meanwhile, emerging market currencies had a rocky week. The Chinese yuan slid modestly in offshore trading after China’s tariff retaliation, though any larger devaluation talk was muted by the People’s Bank of China’s steady guidance. Currencies of export-oriented Asian economies (Korean won, Singapore dollar) softened on the trade outlook, and some Latin American currencies came under pressure due to broader risk aversion.

The crypto market saw mixed dynamics. On one hand, major cryptocurrencies like Bitcoin (BTC) remained historically high in price and even drew some attention as an alternative hedge. Bitcoin’s decentralized nature and capped supply have led some investors to view it as “digital gold,” attractive during times of fiat currency debasement. As the dollar weakened and market volatility spiked, BTC initially held its value near the $80K level – showcasing a degree of resilience. However, crypto was not immune to the broader move toward reducing risk. Data on fund flows showed large redemptions from Bitcoin investment products (about $155 million this week) and additional outflows from Ethereum funds. This suggests that many institutional investors chose to raise cash across the board, including trimming crypto exposures. Bitcoin’s price briefly dipped mid-week (testing a technical support around $78K) before recovering to end around $82K. Ethereum (ETH) mirrored this pattern, falling below $1,500 at one point and then rebounding above $1,550, though notably ETH/BTC relative performance hit a 5-year low as Bitcoin outpaced it. In summary, crypto-assets are straddling dual roles: they are benefitting from renewed interest as non-correlated stores of value, yet they are also risk assets that can be sold in a dash-for-cash. This week’s net result was roughly a wash for Bitcoin – steady in the storm – but with continued high intraday volatility.

Forward Guidance and What to Watch

After an extraordinary week, investors are looking ahead to navigate the coming weeks and months, which promise to be equally eventful. Below are key areas and events to watch, along with an outlook based on current trends:

• Trade War Trajectory: The U.S. Administration’s 90-day tariff pause sets a new countdown. By early July, markets expect either progress in trade talks or a re-escalation. Any indications of negotiations between the U.S. and its trading partners (especially China) will be market-moving. Corporate feedback will be critical here – as U.S. companies report earnings and speak on conference calls in coming weeks, listen for commentary on supply chain adjustments, pricing strategies (pass-through of tariffs), and demand from China. If companies start announcing tangible impacts (factory slowdowns, shifting production out of China, etc.), it could pressure policymakers to find an off-ramp. Conversely, signs that the U.S. is doubling down – for instance, if the Administration pushes new measures like restrictions on Chinese tech or currency interventions – would heighten investor anxiety. For now, the baseline assumption is that neither side wants to trigger a severe recession, so behind-the-scenes negotiations may slowly inch forward. However, given the unpredictability shown (“does anybody understand the strategy?” as one senator quipped (Trump pushed global economy to the brink with tariffs — and then pulled back)), markets will react swiftly to any tweet or headline. Expect continued headline-driven volatility with each trade-related development.
• Monetary Policy & Inflation: Central bank communication in the weeks ahead will be closely scrutinized. The Federal Reserve’s next policy meeting (early May) will be a focal point – by then the Fed will have more evidence of how the trade conflict is affecting the economy. If financial conditions remain volatile or if data deteriorate, the Fed could signal an earlier and/or larger rate cut. Futures are currently pricing the first cut in June, but this could shift. Fed officials will also update their economic projections in June; any downgrade to growth or inflation forecasts would reinforce the dovish tilt. Importantly, watch for Fed commentary on market functioning. The unusual sell-off in Treasuries has drawn attention – if liquidity in normally safe assets is thinning due to foreign retrenchment, the Fed might consider tools to stabilize the bond market. In Europe, the ECB meeting next week will indicate if Eurozone policymakers intend to cushion the blow from reduced global trade. A rate cut or other easing (e.g. extending refinancing operations) is on the table if conditions warrant (Morning Bid: Capital flight fears sink dollar | Reuters). Likewise, central banks in China (PBoC) and other Asian economies may introduce stimulus (rate cuts, reserve requirement reductions) to support growth if export orders drop. On the inflation front, keep an eye on the next U.S. CPI and PCE inflation reports – any sign of accelerating prices due to tariffs (“tarifflation”) could complicate central bank easing plans, creating a tricky stagflation-like mix. At the moment, the bond market’s inflation expectations remain relatively anchored, but that could change with successive data prints.
• Economic Data and Corporate Earnings: Beyond inflation, upcoming U.S. data releases will be critical to gauging whether the economy can absorb this shock. April consumer sentiment (already flagged in preliminary form) and April manufacturing PMIs (due later this month) will provide early reads on confidence and activity post-tariffs. Retail sales for March (due next week) might still show solid consumer spending – though markets may discount that as “pre-shock” data. More forward-looking will be weekly jobless claims and any anecdotal evidence of layoffs or hiring freezes in industries affected by tariffs (e.g. retail, manufacturing). On the corporate side, Q1 earnings season will ramp up: in addition to banks, results from major industrials, tech giants, and consumer companies will flow in over the next several weeks. Analysts expect relatively soft earnings growth this quarter, but guidance will matter more. If executives generally express optimism that the tariff issue will be resolved and demand will hold up, that could calm markets. However, widespread cautious guidance or uncertainty – for example, companies not providing full-year forecasts due to unknown tariff outcomes – would reinforce a defensive market stance. In particular, multinational firms and exporters are in focus: their stock prices could swing on any mention of tariff costs or supply chain shifts.
• Market Technicals and Flows: Given the stressed market conditions, technical factors could amplify moves. The elevated VIX means options markets are pricing big swings, which can force systematic strategies (like risk-parity funds or volatility-targeting funds) to reduce equity exposure. There were also reports of large options bets placed right before the tariff pause announcement, raising questions about market timing and even potential insider trading. Regulators and exchanges may heighten surveillance, but for investors the takeaway is that liquidity may be thinner and intraday moves sharper than usual. Watch the level of the 10-year yield – around 4.5%, it is at a threshold some see as problematic for stocks (higher borrowing costs, and bonds becoming more attractive relative to equities). If yields keep climbing toward 5% without a Fed intervention, that could pressure growth stocks and interest-rate-sensitive sectors (housing, utilities). Conversely, if bond yields settle or drop, that might give equities a breather. The U.S. dollar bears watching as well: its recent slide has been rapid. A continued dollar drop could support U.S. exporters and lift commodity prices, but if it turns disorderly (a rapid loss of confidence in the dollar), that would be destabilizing. Most likely, currency markets will be guided by Fed expectations and risk sentiment – any hint of Fed cuts sooner will push the dollar down further, whereas any cooling of trade tensions could stabilize it.
• Global Political Risks: Outside of the U.S.-China trade battle, several geopolitical factors simmer in the background. The Ukraine-Russia war remains a source of headline risk, particularly for European energy markets, though it has been ongoing for over a year now and markets have partially adapted. Any significant escalation or breakthrough in that conflict could influence commodity flows (especially natural gas to Europe). In the Middle East, the humanitarian crisis in Gaza and broader instability could affect investor sentiment and, if conditions worsen, potentially oil prices depending on geopolitical alignments. On a more positive note, diplomatic engagement continues: this week’s meeting between Russian President Putin and the U.S. envoy (Trump Tariffs Live: China heats up US trade war by raising tariffs to 125%, Wall Street ends week higher | Reuters) hints at behind-the-scenes efforts to manage great power frictions. Also noteworthy, relations between the U.S. and Europe might evolve as Europe seeks to navigate between U.S. and China – for instance, Spain’s Prime Minister visited Beijing this week, a reminder that global alliances may be shifting in response to trade realignments. Any major political developments – be it U.S. domestic politics (e.g. legislative fights, regulatory actions on Big Tech or other industries) or international (elections, sanctions, etc.) – could add another layer of volatility.

Looking further out, by the end of this month the landscape may be clearer. The IMF/World Bank Spring Meetings (late April) will offer a big-picture assessment of global growth, and potentially coordinate a response if the trade war is deemed a significant threat to the world economy. The outcome of those meetings, along with G20 finance discussions, could produce headlines about fiscal stimulus or coordinated trade facilitation efforts. Investors should be prepared for a news-heavy environment in which each day’s developments could shift the prevailing narrative from “risk-on” to “risk-off” and vice versa.

In conclusion, the past week has been a wake-up call that the relatively low-volatility, accommodative environment of early 2025 has given way to a far more uncertain regime. Policymakers have introduced substantial new risks, and markets are adapting by pricing in larger downside possibilities even as underlying economic fundamentals (for now) appear solid. A neutral, vigilant stance is warranted. We expect continued elevated volatility, with global markets oscillating in reaction to policy signals and data releases. In the near term, downside risks (policy missteps, faltering confidence) are balanced against upside potential (policy compromise, central bank support). As always, diversification and a focus on quality assets with strong balance sheets remain prudent. The coming weeks will test the market’s mettle – and likely present opportunities for the nimble, long-term investor amid the turmoil. Navigating the remainder of the month and quarter will require keeping one’s eyes on both macro indicators and political developments, as the line between the two has never been more intertwined. Staying informed and agile will be crucial as we move into the next phase of 2025’s market journey.