Risk sentiment retreats as Trump prepares for fresh tariff decisions

Risk appetite is on the back foot again

The positive start to the week in risk sentiment is gradually reversing, as US President Trump maintains his tariff rhetoric. While reports point to a plethora of deals being negotiated with countries affected by reciprocal tariffs, the US President has requested a report on tariffs on critical minerals, paving the way for further announcements soon.

This is another episode in the US-China trade war, following Trump's decision to indefinitely ban Nvidia from selling specific chips to China. Meanwhile, the latter is still struggling to overcome its economic difficulties. The Chinese economy grew by 1.2% in the first quarter of 2025, below expectations for a 1.4% increase, despite both the March industrial production and retail sales releases producing upside surprises.

However, this data pre-dates the April 2 reciprocal tariff decisions and the subsequent US tariff hikes applied to Chinese imports, opening the door to an easier PBoC monetary policy stance going forward.

Fed Chair Powell speaks today

With stocks currently surrendering a portion of this week’s gains, euro/dollar edging towards 1.1370 again and gold recording another all-time high, the focus shifts to key US data and Fed speakers. The March retail sales report will be published today, with the market looking for another decent set of figures. More importantly though, there are Fed members scheduled to speak; Cleveland President Hammack and Kansas City President Schmid will be on the wires at 16:00 and 23:00 GMT respectively.

However, investors will be eyeing Fed Chair Powell’s speech at 17:30 GMT. At his April 4 speech, Powell poured cold water on expectations for a Fed rate cut, potentially contributing to the sizeable correction in US stocks. With Trump maintaining his aggressive stance against Powell, the Fed Chair is expected to remain mum about the Fed’s future actions, but highlight their readiness to act if needed, for example to support the bond market.

Interestingly, the Treasury International Capital (TIC) data for February will also be released today. The usually ignored report details the major foreign holders of Treasury securities. Market participants crave information on China and/or Japan shedding their massive Treasury holdings ahead of Trump’s tariff Armageddon.

Could the post-Easter performance of 2017 repeat?

Meanwhile, markets are also preparing for a short festive break. For the first time since 2017, Christians of different denominations will celebrate Easter Sunday on the same day. Interestingly, in 2017, US President Trump was also enjoying his first few months in charge. Back then, the S&P 500 rallied by 0.8% in the first week after Easter, while oil dropped a sizeable 7% in the same period.

UK CPI eases further

There are still three weeks until the next BoE meeting, but the market is already confident that a 25bps rate cut will be announced on May 8. Following yesterday’s positive claimant count figure and the decent average earnings growth, the March inflation report has not materially changed the outlook but produced some smiles from BoE doves. The pound, though, is losing ground against both the euro and the dollar today.

The BoC is closer to a rate cut than expected

The Bank of Canada will conclude its rate-setting meeting today, with the decision announced at 13:45 GMT. Despite the recent positive developments on the US tariffs front, there are strong concerns about a significant economic slowdown during 2025, especially as the country is preparing for the federal election on April 28.

Both economists and the market remain split about the possibility of another 25bps rate cut today, although yesterday’s weaker CPI report has probably tipped the scale in favour of the cut. Such a decision would probably ensure that the BoC stays ahead of the curve and provides further stimulus to a weakening economy.

Dollar/loonie has been dropping aggressively, and, oddly, a rate cut today might not act as a strong headwind to the recent trend, especially if the pair remains below the 200-day simple moving average at 1.4012.