So called 'Liberation Day' tariffs announced by the Trump's administration on Wednesday evening had a substantial negative impact on financial markets during yesterday’s session. From a minimum 10% tariff on all countries, up to an accumulated tariff over 50% on China, investors began to price in slower growth as global trade starts to adapt to the tariffs shock.
In the US, a generalized flight to safety weighed on sovereign bond yields, and equities registered the largest one day losses in years. The 10 Year bond yield fell to nearly 4%, and the 2 Year bond yield fell by 18bps, signaling investors' expectations that an economic slowdown could trigger policy rate cuts earlier. S&P500 and Nasdaq fell by 4.8% and 6.0%, respectively.
Market sentiment in the euro area was similar, as sovereign yields decreased, the German bund especially, and equities closed sharply lower, with CAC 40 leading the losses. In FX markets, the euro appreciated against the dollar, up to values not seen since October 2024, and commodities fell, with Brent oil down by 6.4% on expectations of lower demand.