By Amanda Cooper and Samuel Indyk
LONDON (Reuters) – U.S. President Donald Trump’s U-turn on tariffs has rained yet more volatility on markets, leaving investors skidding from stocks to safe-havens and back, and while previous crises have seen bigger moves, few have been this fast.
Trump said on Wednesday he would temporarily lower the hefty duties imposed on dozens of countries while ramping up pressure on China, igniting one of the most intense turnarounds for markets since the 2020 COVID crisis.
With volatility, it’s the speed of a move that can set alarm bells off. And April’s market swings have played out with roughly the same intensity as they did in 2020 and near that of the 2008 financial crisis, but in a fraction of the time.
Here’s how the moves have unfolded since Trump’s reciprocal tariff announcement on April 2:
1/ TO THE MOON?
Equity markets across the globe rebounded on Wednesday and Thursday after Trump’s pause. The S&P 500 soared 9.5% on Wednesday, its biggest daily gain since 2008, while Europe staged its biggest jump since March 2020 on Thursday.
But most major indexes remain below Trump’s “Liberation Day” announcement, and all have suffered some of their steepest falls in years.
Hong Kong shares slumped 13% on Monday, their biggest fall since 1997, while Europe’s STOXX 600 index and S&P 500 had their steepest three-day falls since the COVID-19 pandemic.
“We are seeing levels of uncertainty and levels of volatility that we haven’t seen since the global financial crisis,” said George Lagarias, chief economist at Forvis Mazars.
“These levels of volatility are not good for financial markets. It risks dislocations,” he added.
2/ BOND VORTEX
The U.S. bond market has found itself at the epicentre of the gyrations as investors, rattled about the impact of tariffs on the U.S. economy and the ensuing damage to the stability of U.S. assets, dumped Treasuries. Ten-year Treasury yields, which fell 30 basis points over the days following April 2, rose by as much as 25 bps at one point on Wednesday, before dropping almost as quickly once news of the pause hit. Yields soared by as much as 36 bps between April 2 and the high on April 9 and are now 14 bps higher. During the COVID crisis in early 2020, they fell as much as 120 bps before snapping back to trade some 100 bps higher when the worst of the crisis had passed.
3/ BUDDY, CAN YOU SPARE THE DOLLAR?
The dollar has not acted as the FX market’s safe-haven anchor and has fallen against a number of major currencies since April 1. It has lost almost 5% against the Swiss franc and nearly 3% against the Japanese yen and the euro. As far as volatility is concerned, traders have rushed to lock in protection against big price swings, not least because the winners and losers of the next set of tariff headlines may not be obvious. Against a basket of currencies, the dollar has had the kind of round trip since April 2 that it did during COVID, but again, in a fraction of the time.
4/ BANKING ON A REBOUND?
Global banks have had to contend with expectations of a shock to global growth and the prospect of accelerated rate cuts in the wake of Trump’s tariff plans, a combination that sent shares plunging, before rebounding with Trump’s pause.
The U.S. KBW Bank Index slumped almost 16% in two days, its biggest such slide since March 2020, while European lenders fell by their most since 2020, two days after “Liberation Day”.
That marked a remarkable turnaround for the sector that had previously benefited from higher interest rates, a robust U.S. economy and improved growth in Europe.
Markets quickly priced in rate cuts from the European Central Bank and the Federal Reserve due to increased recession risks but have since dialled back some of those expectations.
Banking shares have rebounded. The KBW Bank Index surged 9% on Wednesday, its biggest one-day jump since Trump’s re-election in November.
European bank stocks rallied almost 7% on Thursday, on track for their biggest one-day rally since a rebound in March 2022 after Russia’s invasion of Ukraine.
5/ AN EPIC BOUT OF VOLATILITY
There have been times when markets have moved more in one direction or another than now, but few periods with such speed. The VIX index, which reflects the extent to which investors are snapping up protection against volatility, has hit crisis levels. It jumped to a high of 60 this week, something that has happened in just three instances since the inception of the index in 1990 – a sharp market selloff in August, 2020 and 2008. The index has since dropped to closer to 35, meaning the rise and fall over the past three days has been one of the fastest on record.
(Reporting by Amanda Cooper and Samuel Indyk; Editing by Dhara Ranasinghe and Alex Richardson)
