The Davy Digest - 7th April 2025

Equities declined by more than 10% last week as President Trump’s tariff announcement was more severe than expected. Trump imposed significant tariffs on a range of global goods: 34% on Chinese, 24% on Japanese, 20% on EU, and 10% on UK products, to name a few. Retaliatory tariffs from China exasperated the sell-off on Friday. Bond yields dropped on growth fears after the announcement, even as the US Fed faces the dilemma whether to cut interest rates as the economy needs, whilst inflationary pressures gather. Sentiment and confidence continues to fall, with the US ISM Manufacturing PMI declining to 49 vs 49.5 expected. Fear gauges also heightened last week, as the VIX index increased to 45 and US high yield credit spreads hit 450bps, both the highest levels since 2020.

In Europe, inflation slowed to 2.2% in March from 2.3% in February. ECB President Lagarde spoke last week, mentioning tariffs “quite often those escalations of tariffs…. lead to negotiation tables where people sit down and …. eventually remove some of those barriers.” In the UK, the global manufacturing PMI fell to a 17-month low of 44.9 in March, down from 46.9 in February. In China, the Caixin Manufacturing PMI rose to 51.2 in March from 50.8 in February.

Last week's highlights

	ISM Manufacturing PMI (01/04) - Declined to 49 vs 49.5 expected.  Tariff Announcement (02/04) - 10% baseline with “reciprocal” tariffs on top.  ISM Services PMI (03/04) - Dropped to 50.8 in March from 53.5 in February.  Nonfarm Payrolls (04/04) -  increased 228k, better than 140k forecast.
	Eurozone Inflation (HICP) (01/04) – Slowed to 2.2% in March from 2.3% in February.  ECB Speakers – Lagarde speech – “quite often those escalations of tariffs…. lead to negotiation tables where people sit down and …. eventually remove some of those barriers.”
	S&P Global Manufacturing PMI (01/04) -  Fell to a 17-month low of 44.9 in March, down from 46.9 in February. S&P Global Services PMI (03/04) - Final Services PMI 52.5 vs 53.2 expected.
	China Caixin Manufacturing PMI (01/04) - Rose to 51.2 in March from 50.8 in February.

Looking ahead to this week, markets will be focussed on any negotiations or rollbacks on the tariff front. The Federal Reserve will meet on Wednesday with markets expecting no change in interest rates, investors will pay close attention to any comments surrounding the potential inflationary impact of tariffs. US inflation figures are due out on Thursday. Eurozone retail sales are due out today, with the most recent release showing an unexpected decline in consumer spending. The Bank of England’s Lombardelli & Breeden are due to speak this week, investors will look for clues related to the May meeting where they are expected to cut rates. Finally, Chinese inflation data is due out on Thursday.

What's on the radar

	Fed Meeting (09/04) US Inflation (CPI) (10/04) Michigan Consumer Sentiment (11/04)
	Eurozone Retail Sales (07/04)
	Bank of England’s Lombardelli & Breeden speak
	China Inflation (CPI) (10/04)

Chart of the moment

Tarriffed with the same brush

Source: Davy, Bloomberg as of 03/04/2025 

• Tariffs announced last week were much more aggressive than expected, with a 10% baseline tariff and so-called “reciprocal” tariffs on top. 
• Formula underpinning Trump’s “reciprocal” tariff plan is the country’s trade deficit with the U.S., divided by its exports, then divided by two.
• The announcement triggered sharp declines in all major equity indices last week, investors will be looking for signs of negotiation and some deals, but some tariffs are likely here to stay.