A look back at markets in April when the announcement of “Liberation Day” tariffs by President Trump sparked significant stock market volatility, while the US dollar weakened and gold hit a new all-time high.
US
US shares fell in April, underperforming most other regions. Equities experienced significant swings following “Liberation Day” on 2 April, which saw President Trump announce sweeping tariffs on imported goods. The tariffs were larger and broader based than expected (a 10% tariff rate on all US imports and higher “reciprocal” tariffs for countries with which the US has a large trade deficit). The new tariffs were later suspended for 90 days for most countries while negotiations take place, and this helped shares recover.
Markets were also rattled by worries over the ongoing independence of the Federal Reserve (Fed) although these fears were calmed mid-month when Trump stated he had “no intention” of firing Fed chair Jay Powell.
Data showed that the US economy contracted by an annualised 0.3% in Q1. US inflation (as measured by the Consumer Price Index figure from the Bureau of Labor Statistics) fell to 2.4% in March from 2.8% in February.
Energy was the weakest sector amid lower crude oil prices. Other sectors registering declines included healthcare, financials, and materials. The top-performing sectors were consumer staples and information technology.
Eurozone
Eurozone shares were slightly positive in April. As in the US, energy was the weakest sector. Defensive areas of the market, including consumer staples and utilities, outperformed.
The eurozone economy grew by 0.4% quarter-on-quarter in Q1, according to an estimate from Eurostat. The European Central Bank cut interest rates by 25 basis points (bps) and said the outlook for growth had deteriorated given the US tariff announcement.
In Germany, incoming chancellor Friedrich Merz struck a deal to form a coalition government with the Social Democrats (SPD). The German Ifo business climate index rose slightly in April to 86.9, up from 86.7 in March.
UK
UK shares were slightly weaker in April, with the energy sector again the main laggard while the defensive utilities sector was the top performer. The more domestically focused FTSE 250 index outperformed the more internationally focused large-cap FTSE 100 index.
Inflation fell to 2.6% in March, down from 2.8% in February, according to the Consumer Prices Index released by the Office for National Statistics. Data showed that UK annual public borrowing was £14.6 billion more than expected in the year to March.
Japan
In Japan, the Topix index registered a small positive return in yen terms. The Nikkei 225 performed better, gaining 1.2%. Japan secured priority tariff negotiations with the US in the wake of “Liberation Day”, although no deal had been concluded by month’s end.
Many Japanese companies began announcing their full-year earnings and providing guidance for the next fiscal year. One positive development stood out: the volume and scale of share buyback announcements to date have significantly exceeded those of the previous year, which was itself a historic high.
Emerging markets
The MSCI Emerging Markets (EM) index registered a small positive return for the month, outperforming developed markets, helped by a weaker US dollar. Mexico was the top-performing market in the MSCI EM index as it faced no new trade tariffs on 2 April. Brazil was notably strong, aided by local currency strength. India also continued to perform well, supported by easier monetary conditions following the Reserve Bank of India’s 25bps interest rate cut, improving inflation outlook, and a weaker US dollar. South Africa gained, helped by record-high gold prices.
China underperformed the MSCI EM index, posting the second biggest losses among its EM peers. China responded to the trade tariffs announced by President Trump with its own levies. Turkey fell the most in US dollar terms given a weaker currency, ongoing inflationary pressure, and an unexpected interest rate hike mid-month.
Asia ex-Japan
The MSCI Asia ex Japan index rose in April. Top performing markets included Thailand and the Philippines, while China underperformed. By sector, the top performers were consumer staples and utilities, while consumer discretionary and materials were laggards.
Global bonds
There was marked divergence within global government bond markets. In the US, the Treasury yield curve steepened, with yields falling in shorter maturities but rising at the longer end of the curve (yields move inversely to price) as weak survey data reinforced the narrative of subdued economic growth coupled with higher inflation.
In Europe, yields fell across all eurozone markets and in UK gilts. The European Central Bank lowered borrowing costs by 25 bps again in April, bringing the deposit rate to 2.25%. The key message was that disinflation is “well on track”, while growth uncertainty has increased. While the Bank of England did not meet in April, market expectations for a cut in May increased. Survey data has weakened significantly, reflecting a combination of trade uncertainty and the impact of higher taxes.
Asian government bond yields fell in line with European markets. In China, manufacturing survey data has already started to show signs of a heavy hit from the escalation in trade conflict with the US.
Credit markets have experienced significant fluctuations since the new tariffs were announced. In the US, investment grade credit (IG) spreads – representing the yield difference between government bonds and credit – widened sharply on the announcement in what was a traditional “risk-off” move. A subsequent improvement in risk sentiment on the back of softer political headlines drove a partial retracement in spreads. Overall total returns were flat on the month, with energy the weakest sector, reflecting the sharp fall in oil prices.
In the US high yield (HY), the energy sector was also a notable drag on the overall market. Although, despite significant spread widening on the month, total market returns were positive. It was a similar pattern for euro and sterling-denominated credit, with spreads peaking at their year-to-date wides before contracting back to elevated levels in both IG and HY. Total returns were positive in both and outperformed their US counterparts.
The US dollar weakened against all major currencies, reacting to US policy uncertainty and concerns over its economic impact. Within G10 currencies, the Swiss franc outperformed, benefiting from its safe-haven status amid market volatility. Similarly, the defensive nature of the Japanese yen saw the currency supported by a flight-to-safety bid early in the month. Some of the JPY appreciation was later reversed on an improvement of risk sentiment and on expectations that the Bank of Japan would pause further rate hikes.
Commodities
The S&P GSCI Index fell in April, led lower by the energy component. Crude oil prices fell amid worries over the impact of trade tariffs on global economic growth, while additional oil supply from OPEC also served to depress prices. The industrial metals component also fell in April amid growth concerns.
Precious metals registered a positive return, driven by gold. Worries over tariffs and their potential impact on economic growth saw investors turn to assets perceived as safe havens, such as gold, which hit a new all-time high during the month.
The agriculture component also gained with cocoa and coffee posting the strongest advances.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
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