China strikes back against US tariffs

General market commentary

The S&P 500 saw a sharp 9.1% drop last week amid concerns over the impact of US President Trump’s new tariffs on global trade and inflation. The US has introduced a 10% blanket tariff on all countries, effective April 5, alongside further duties on major trading partners like China and Japan. In response, China has imposed a 34% tariff on US goods, escalating the trade tensions and fuelling fears of a global economic slowdown. All sectors of the S&P 500 closed in the red, with energy, technology, financials, and industrials all suffering significant losses.

On the economic front, March’s nonfarm payrolls showed a solid increase of 228,000, though previous months' numbers were revised down, pointing to potential softness in the labour market. The unemployment rate rose slightly to 4.2%, which, while still low, suggests a cooling in job growth. Concerns about inflation also persist, with tariffs potentially pushing up costs for consumers as higher import duties are passed on. These factors, combined with global trade risks, contribute to an uncertain economic outlook.

Looking ahead, the upcoming earnings season could shed light on how companies are managing these challenges, with reports from major firms like JP Morgan Chase and Delta Air Lines due later this week. Economic data, including the consumer and producer price indexes, will also offer important insights into inflation and consumer spending. While market volatility is likely to persist, maintaining a long-term perspective and a disciplined approach will be essential as investors assess the evolving risks.

Latest market and economic update

Asian equities saw significant declines on Monday, with Japan's Nikkei 225 dropping 9% to a 17-month low, while China's Shanghai Composite and Hong Kong's Hang Seng index both lost around 6% and 9%, respectively. Other regional markets, including Australia, South Korea, and Singapore, also experienced sharp losses as escalating trade tensions and fears of a global slowdown weighed on investor sentiment.

U.S. equity futures are expected to open sharply lower later today, with Dow and S&P 500 futures down by around 4% and Nasdaq futures dropping another 5%, extending the recent downturn. The ongoing trade tensions, with retaliatory tariffs from China and the prospect of similar moves from Canada and the EU, continue to weigh heavily on investor sentiment.

European equities suffered heavy losses on Friday, with the Stoxx 50 falling 5.3% and the Stoxx 600 dropping 5.1%, marking an 8% loss for the week. Banks were the worst hit, with Deutsche Bank and Commerzbank tumbling 10.1% and 5.1%, respectively, while France's Societe Generale and BNP Paribas saw declines of 11% and 7.3%, amid heightened concerns over slowing growth and escalating trade tensions.

The US dollar index steadied around 103 on Monday, finding some footing after a volatile week. While the dollar edged up modestly against the euro at 1.0938 and other risk-linked currencies, it lost ground to traditional safe havens like the yen and Swiss franc amid rising uncertainty over the Fed's next move.

Oil prices dropped sharply this morning, with Brent crude falling 2.5% to $63.93 a barrel, amid growing fears of an economic slowdown driven by escalating global trade tensions. Concerns over weakening demand, particularly from China, and the potential for a global recession, were amplified by the US's imposition of high tariffs, leading Goldman Sachs to revise its oil price forecasts lower.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Efforts to reach a deal for the sale of TikTok’s U.S. assets were put on hold as China showed increasing resistance following President Trump’s recent tariff escalation. Despite initial approvals for the deal, including from ByteDance and U.S. investors, Beijing’s retaliatory measures and Trump’s steadfast tariff stance have complicated any potential agreement.

Eli Lilly and Novo Nordisk faced setbacks after the Trump administration decided to delay a Medicare regulatory update that could have expanded coverage for obesity drugs. The postponement leaves the future of obesity drug coverage for Medicare recipients uncertain, potentially affecting the companies' strategies and market expectations.

Shares of U.S. apparel and footwear companies, including Nike, Lululemon, and Crocs, surged on Friday following news that Vietnam is seeking to reduce tariffs to zero in exchange for a trade agreement with the U.S. President Donald Trump announced the outcome of a "constructive call" with Vietnam's General Secretary, fuelling optimism among investors in firms reliant on imports from the country.

Shares of GE Healthcare Technologies dropped 16% Friday following China's announcement of export restrictions on key rare earth elements, including gadolinium, which is crucial for MRI scanners. The move, a retaliatory measure against U.S. tariffs, could significantly disrupt GE Healthcare's supply chain.

European luxury shares fell sharply after China announced a 34% tariff on U.S. imports, retaliating against the new U.S. tariffs imposed by President Trump. Companies like Pandora, Swatch, and Burberry saw significant declines, while analysts warned that price increases might be necessary to offset the impact of U.S. levies, though this could hurt volumes.

Nissan is considering shifting some production of its U.S.-bound Rogue SUV from Japan to the U.S. in response to President Trump's escalating trade tariffs, with plans to reduce output at its Fukuoka factory. The move follows Nissan's decision to cut production of Infiniti SUVs at a Mexican plant, and the shift could impact local suppliers in the U.S. and Japan.

Meta Platforms plans to invest nearly $1 billion in a data centre project in central Wisconsin, aimed at boosting its artificial intelligence infrastructure. This investment is part of a broader push to expand AI capabilities, with Meta allocating up to $65 billion this year to enhance its AI infrastructure, despite concerns over the impact of U.S. trade tariffs.

Wedbush analyst Dan Ives reduced his Tesla price target from $550 to $315, highlighting the impact of rising tariffs and a worsening brand reputation, especially in China. He warned that Tesla's political associations and tariff-related cost increases could result in significant customer losses, particularly in Europe, and described the company’s current struggles as a “full-blown crisis,” with potential long-term consequences unless CEO Elon Musk addresses the issues.

BTIG upgraded Booking Holdings to "Buy" with a price target of $5,500, citing strong earnings visibility for the second quarter and an attractive valuation. The firm highlighted sustainable mid-teens EPS growth, opportunities in alternative accommodations and Connected Trip, and noted the equity is trading at a ~20% discount to large-cap internet peers, presenting a buying opportunity.

Bernstein analysts warn that tariff-related risks are affecting the lodging sector, with declines in flight bookings from Canada, Mexico, and France to the U.S. due to Trump’s tariffs, which could reduce inbound travel. While alternative destinations like Canada and Mexico may benefit, the analysts caution that risks to the U.S. lodging industry remain, especially with diminishing consumer confidence and potential backlash against U.S. brands.

Citi downgraded Leonardo SpA shares to Neutral from Buy, citing limited upside potential following a 70% rally this year, despite raising its target price to €48.4 due to higher European defence spending expectations and increased profit forecasts. The bank believes the market has already priced in significant growth, with little room for upside surprises, although further increases in defence budgets could drive the equity's long-term value higher.

Upcoming data and events

Key economic data releases in the United States today include the Consumer Credit report, which is expected to show an increase, providing insights into consumer borrowing trends. Additionally, Federal Reserve Governor Adriana Kugler is scheduled to speak, offering potential perspectives on the economy and monetary policy.

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