April Shockwaves: How Tariffs Triggered Market Chaos

The first two weeks of April have shown volatility spikes across all asset classes not seen in over twenty years. Equities, commodities and currencies are all seeing massive moves and wider than usual daily ranges now.

Wide daily ranges are generally a sign that markets have got something “wrong.” Generally, the market will be positioned a certain way (long for instance) and as the market continues to grind higher, those who are already long simply clean up their profits.

When there are large sentiment changes, however, those who are long seek to exit out of their positions and this, in addition to new shorts sees markets move further than they usually do.

Markets generally behave efficiently when market information is broadly disseminated. This is why central banks around the world have been more open with offering “forward guidance” on where they think monetary is headed. The U.S. FOMC initiated their “dot plots” in 2012 to give markets an idea about where the FOMC sees U.S. interest rates for the following year and has become something the market eagerly awaits at the conclusion of each FOMC meeting.

The reason for the recent volatility comes down to one word; tariffs. U.S. President Trump won the election based on tariffs, but many in the market didn’t actually believe he would implement them. He then announced them, paused them, changed them and implemented them and just this week, paused them again for 90 days.

Tariffs have a huge impact on markets as they add cost to end users purchases. This filters into inflation. Additionally, “spot tariffs” or tariffs based on products rather than a country specific tariff could increase input costs for American companies that need to input materials or products for their own goods.

For instance, most computer chips used by American companies are imported from overseas. This includes the computer chips used by American defense manufactures.

Additionally, in retaliation to the tariffs labeled on it, China has banned the export of “rare earth” minerals. These rare earth minerals are crucial in drone, robotic, electronic and defense industries. China has about a 90% market share in these minerals and their export ban will have a major impact on the companies that use them.

As it stands now, the U.S. has paused all tariffs except for those on China. The reports coming out of Washington are that Trump will be using this 90 day pause to attempt to hammer out trade deals with the U.S.’s 15 largest trading partners.

In the first two weeks of this month, we have seen broad Dollar weakness, with the EUR/USD hitting its highest level since February 2022 and the USD/JPY hitting its lowest level since September last year. The S&P500 has also hit its lowest level since January 2024.

Gold has also caught a safe haven bid, screaming higher above US$3,200/oz.

We expect some volatility normalization over this 90-day tariff pause period, with broader Dollar weakness expected to be the bias. This is due to the inflationary implications of the tariffs.

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