“Liberation Day” - Post event update

Riding the tariff storm in global markets

What was a highly anticipated event did not disappoint – and now the dust has settled its now clear the tariff rates are on the severe end of the anticipated outcomes. However, our initial view that severe tariffs might see initial USD strength and risk-off sentiment has not materialised, which we attribute to:

a) expectation for less severe implementation / off ramp
b) evolving market perception / confidence of the US
c) signs of fiscal tightening from Bessent

We note that this story is far from over, with the implementation schedule staggered throughout April and beyond, and potential for further negotiations in the coming days. This ongoing uncertainty adds to concerns around future US economic policy and could accelerate the reduction in overweight US positions from investors worldwide. EURUSD has rallied over 2% this morning (1.1101 at time of writing), perhaps reflecting repositioning in the EZ as a safe(r) haven, as well as a broader shift in sentiment towards the US.

Market impact

Although tariffs are on the higher end of expectations, the market seems more focused on growth implications rather than price effects, reflected in lower US interest rates in the medium to longer end. China is maintaining USDCNY despite the introduction of large tariffs (54%), whilst uncertainty surrounding the formula used for tariff calculation appears to be affecting market confidence in the US administration and the US safe haven / risk off mechanism traditionally seen. Treasury Secretary Bessent’s post-event communication highlighted fiscal tightening. While this may support the USD in the longer term, the near-term impact is less positive, particularly in comparison to fiscal expansion elsewhere.

After an initially muted reaction as the market digested the announcement, the dollar has weakened overall versus most major currencies. Along with the USD, US interest rates have fallen by around 8–12 bps in the medium to long end of the curve. This reflects concerns over US growth linked to tariffs, in tandem with the fiscal signals provided by Bessent. US S&P500 futures are approximately 3% lower following the announcement, with significant declines in companies reliant on international supply chains. These declines stem from higher import costs and continued uncertainty in policy direction.