US Stock Futures Dip As Trump Steps Up Tariff Threats, Nikkei Falls: Markets Wrap

Financial markets have been struggling with how to price in the on-again, off-again tariff campaign instigated by Trump so far in his second term. While markets responded to the April 2 “Liberation Day” announcements by selling risk assets and even US Treasuries, those moves have now almost all reversed as the president delayed many of his threatened levies

The EU had been trying to conclude a tentative deal with the US to stave off higher tariffs, but Trump’s letter punctured the recent optimism in Brussels. The US president did, however, leave an opening for additional adjustments. The EU is now preparing to step up its engagement with other countries hit by Trump’s tariffs, according to people familiar with the matter.

“Why would any country enter into a trade deal with the US after seeing how Mexico and Canada have been treated a few years after signing the USMCA?,” Win Thin, global head of markets strategy at Brown Brothers Harriman, wrote in a note to clients. “At some point, markets will react to what we see as an ongoing erosion in US policy credibility.”

Elsewhere, Trump and his allies’ criticism of Jerome Powell’s handling of the expensive renovation of the Fed’s headquarters — with some administration officials building a case to remove Powell from the Fed’s Board of Governors — may also weigh on markets at the start of the week. 

Late on Sunday, Trump repeated his criticism of Powell and said if the Fed chair stepped down, that would be a “good thing.” Deutsche Bank AG strategist George Saravelos said the potential dismissal of Powell is a major and underpriced risk that could trigger a selloff in the US dollar and Treasuries. 

“If Trump were to force Powell out, the subsequent 24 hours would probably see a drop of at least 3% to 4% in the trade-weighted dollar, as well as a 30 to 40 basis point fixed-income selloff, Saravelos said.

Focus in Asia will soon shift to Chinese trade data to gauge the impact of US tariffs and the potential of front-loading of shipments. China’s gross domestic product report is also due this week, along with a slate of key data including inflation readings in Europe and the US.

The second quarter earnings season is also due to begin this week, with Wall Street expecting the weakest reporting season since mid-2023. It comes at a time that corporate credit ratings downgrades are becoming more frequent  

“The upcoming Q2 earnings reporting season will test the market’s balance between momentum and value,” Bob Savage, head of markets macro strategy at BNY, wrote in a note to clients. “Global equity holdings look vulnerable to outside shocks – and are unlikely to find much comfort in rate cuts or trade tariff extensions.”

Some of the main moves in markets: 

Stocks

• S&P 500 futures fell 0.4% as of 9:17 a.m. Tokyo time

• Japan’s Topix fell 0.2%

• Australia’s S&P/ASX 200 was little changed

• Euro Stoxx 50 futures fell 1.2%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was unchanged at $1.1689

• The Japanese yen rose 0.2% to 147.16 per dollar

• The offshore yuan was little changed at 7.1718 per dollar

Cryptocurrencies

• Bitcoin was little changed at $119,143.87

• Ether fell 0.6% to $2,975.8

Bonds

• The yield on 10-year Treasuries advanced one basis point to 4.42%

• Japan’s 10-year yield advanced three basis points to 1.530%

• Australia’s 10-year yield advanced three basis points to 4.36%

Commodities

• West Texas Intermediate crude was little changed

• Spot gold rose 0.4% to $3,367.91 an ounce