Markets were volatile in April, as the implications of the US administration’s new trade policy had an impact on shares, bonds and currencies. The month started with President Donald Trump’s announcement of a set of tariffs that were broader and more punitive than expected.
Equity markets sold off after the announcement and the VIX index – which measures investors’ expectations of volatility and is sometimes referred to as a ‘fear index’ – spiked to its highest level since the pandemic. However, shares recovered a lot of their losses after Trump softened the US approach. He announced a 90-day pause in the implementation of ‘reciprocal’ tariffs for countries that had not yet adopted retaliatory measures, and the removal of tariffs on a range of products.
US/China trade tensions also eased somewhat after the US administration softened its tone. The shock to investors’ confidence triggered by the ‘Liberation Day’ tariff announcements on 2nd April also affected bond markets. The yield* on 10-year Treasuries (US government bonds) reached a peak of 4.6% on 11th April, before settling at 4.2% by the end of the month. A strengthening of the Japanese yen and the euro versus the US dollar also helped to lift global bonds into positive territory in US dollar terms.
Gold was the key beneficiary of April’s uncertainty, with the price hitting a new all-time high at $3,500 per ounce on 22nd April. Commodities shed some of their year-to-date gains as metals weakened and oil prices fell by 16% amid rising recession fears and a decision from OPEC members to boost supply.
In our multi-asset portfolios, we remain underweight** equities as the longer-term implications of
US trade policy for economic growth, business and consumer confidence remain unclear.
United Kingdom
The start of April was a tumultuous time for global markets in general and the UK was no exception. Trump announced a 10% tariff on UK goods exported to the US. This was relatively modest compared to what the administration said it would levy on products from other nations.
Nevertheless, the UK market still suffered as investors digested the news, with the FTSE 100 falling about 10%. However, as Trump softened his tone on tariffs, the FTSE 100 recovered somewhat to end the month only 0.7% down. Looking ahead, the defensive qualities of many of the companies listed on the FTSE 100 could potentially provide some shelter from further volatility in the markets, as investors look for possible safe havens.
“However, shares recovered a lot of their losses after Trump softened the US approach.”
United States
Escalating trade tensions and the expected impact of tariffs caused volatility in US equity markets. US consumer confidence has taken a hit, amid price rises and inflation pressure, and businesses are being forced to consider how higher costs will squeeze margins, as well as the impact of potential supply chain disruption.
US economic growth (as measured by gross domestic product or GDP) unexpectedly contracted by an annualised 0.3% in the first quarter of 2025. This was largely due to an increase in imports, as businesses brought forward purchases of overseas goods ahead of tariffs.
Europe
The US tariff announcements and concerns about escalating trade wars caused a sell-off in European equities at the beginning of April. However, the temporary 90-day tariff reprieve saw some level of stability return, although uncertainty remains. April saw another 0.25% interest rate cut in Europe, with the European Central Bank highlighting that the outlook for growth has deteriorated due to the rising trade tensions.
Japan
Geopolitical developments, and tariffs in particular, also resulted in significant swings in Japanese equities. The week following ‘Liberation Day’ saw the TOPIX Index, which represents Japan’s largest firms by marketing capitalisation, record two of its top 20 best daily performances since 1968 (+8.1% and +6.3%), and one of its worst (-7.8%). Overall, the TOPIX finished the month up by 1.6%.
At its monetary policy meeting held at the end of the month, the Bank of Japan (BoJ) left interest rates unchanged at 0.50%, as widely expected. However, it downgraded its forecasts for economic growth and core inflation – which excludes food and energy – for 2025 and 2026. Despite this, the BoJ reaffirmed its commitment to normalising monetary policy and indicated that it will consider further rate hikes if economic conditions evolve as anticipated.
Asia and Emerging Markets
After the announcement of US tariffs of 145% on Chinese imports, which sparked swift retaliation, tensions eased later in April thanks to signs of US willingness to negotiate. Chinese equities rebounded strongly, bolstered by solid 5.4% GDP growth in the first quarter and tech resilience following the unveiling of DeepSeek’s artificial intelligence model. While broader emerging markets (EMs) lagged – China, Brazil and Mexico outperformed, partly due to indications of less aggressive US trade measures. Trade talks remain murky, with significant speculation around likely outcomes for India, South Korea and Japan. However, China remains the key focal point. Innovation in the country appears to be accelerating in response to US tech restrictions. Meanwhile, the impact of various domestic stimulus measures remains mixed. Still, with improving sentiment and business confidence readings, China may be turning a corner, unlike many EM peers, which have struggled year to date.
Fixed Income
Ever-hopeful investors had significantly underestimated the level of the tariffs that would be announced by Trump. In addition, the formula used to calculate the ‘reciprocal tariffs’ – which was widely ridiculed – did not improve the mood of markets. US Treasuries – widely viewed as the ‘safest of all safe assets’ began by rallying, but this quickly turned to a sell-off. A likely explanation is that market volatility triggered selling among short-term investors and those using borrowed money.
Source: Morningstar Direct