Markets approached April with a mix of caution and hope. Everyone knew that tariffs were coming, but no one was sure how far Trump would go. It is fair to say that not many traders or economists expected tariffs this high. Maybe it was the hope that Trump was using them as a negotiation tactic. That may be partly true, but many of the tariffs now appear likely to stay. 

With that in mind, another busy month awaits the markets. Trade negotiations are in full swing, the FOMC meeting is coming in the first week, and U.S.–China tensions remain high. 

Macro View 

Trump announced a 10% global tariff on every country as a minimum. Initially, some of the key rates included 34% for China, 20% for the EU, 24% for Japan, 25% for South Korea, 46% for Vietnam, 32% for Taiwan, and 31% for Switzerland. The United Kingdom was spared the heavier measures and received only the minimum 10%. 

China and the U.S. have retaliated against each other multiple times. As of now, China’s final tariff rate on U.S. goods is 125%, while the U.S. has imposed a 145% rate on Chinese goods. By Trump’s own wording, this is almost an embargo. 

The Trump administration appears to recognize that this level of escalation is unsustainable for both the U.S. and China. Both sides have shown small signs of softening their tone to open the door for negotiations. This will likely be one of the top market-moving topics in May, with the potential for significant swings in both directions, creating wide, whipsaw-like price action. 

The higher-than-expected tariffs and the onset of a possible trade war sent shockwaves through global markets. The Nasdaq 100 dropped 25% from its February high but later recovered 61.8% of that decline. Gold surged to 3,500 before settling, and the bond market experienced extreme volatility. 

Beyond the tariff risks, geopolitical tensions remain elevated. While the U.S. and Ukraine have reached a mineral deal, Russia is unlikely to back down without securing meaningful gains. If the U.S. follows through on supporting Ukraine, the conflict could intensify again. Meanwhile, the situation in Gaza continues, the Iran nuclear deal is in jeopardy, and the U.S. has decided to sanction any party purchasing oil or petroleum products from Iran. Additionally, tensions between India and Pakistan carry the potential for a black swan event if they escalate beyond control. 

At the start of the year, markets expected one or two rate cuts from the Fed for the remainder of 2025. The Fed’s dot plot still shows two cuts, but uncertainty is now very high. The most recent inflation data, which has only been minimally affected by tariffs so far, shows that inflation is slowing. Without the new tariffs, the Fed might already be discussing a rate cut at the May meeting. 

However, tariffs have stagflationary effects on the economy. They tend to slow growth while pushing inflation higher. Currently, households are increasing durable goods spending in anticipation of higher prices, and businesses are stockpiling inventory. This behavior may temporarily delay the pass-through of tariffs to consumer prices, but it will not last indefinitely. Growth, on the other hand, will likely feel the impact sooner. Once preemptive spending fades, economic activity should begin to slow. 

This potential delay in the inflation impact from tariffs could create a “fog of vision” for both the markets and the Fed. As a result, the Fed may need to balance both sides of its dual mandate more carefully. 

At the moment, markets are pricing in an economic slowdown, a negative first-quarter GDP print, and falling inflation. Combined with political pressure from Trump, markets now expect three or even four rate cuts for the rest of the year. If the Fed holds rates this week, only six meetings will remain for those cuts to occur. 

The first concrete sign of tariff effects, aside from worsening sentiment and slowing activity, emerged last week. First-quarter GDP turned negative, coming in 2.6% below the 25-year average. A major contributor to the weak figure was a significantly negative net export balance. 

However, some key components provide insight into potential second-quarter growth. Consumer spending was much stronger than expected, largely driven by heavy durable goods purchases. This preemptive spending, intended to avoid future price increases, is likely to have a negative impact on second-quarter consumption, as demand may have already been pulled forward. 

The price index also came in higher than expected, revealing early signs of the stagflationary effects of tariffs. Although these inflationary pressures may take time to fully emerge, they are beginning to surface. 

The risk of at least a technical recession has increased following this data. The Fed is expected to hold rates at the May meeting. However, if payroll and inflation data weaken between now and June, a rate cut at the next meeting becomes more likely. 

Consumer sentiment has fallen sharply, while businesses are still trying to remain optimistic about the global economy. However, maintaining that optimism will not be easy. PMIs around the world are starting to turn lower. Composite PMIs in both China and the Eurozone remain above 50, but just barely. 

Since mid-2024, the U.S. has held a significant advantage over the rest of the world in terms of economic performance, and that has been reflected across a range of economic data. While the U.S. still holds that advantage, the first signs of a shift are beginning to appear. We expect U.S. PMI figures to fall below 50 in the coming months, with China likely following the same path. 

The negative divergence now seems to be shifting toward the UK, which appears to be taking over the role previously held by the Eurozone. Meanwhile, the EU’s recent efforts to boost investment in defense and technology seem to be having a positive effect, and that impact is beginning to show in the euro’s performance. 

Central Bank Meeting Calendar 

Technical View

The U.S. 10-year government bond yield briefly fell below 4.10, but that move lasted only two days. Heightened risks surrounding the U.S. economy pushed investors toward bonds, causing yields to drop. However, even bonds no longer seem like a reliable safe haven in the current chaotic market environment. 

The 4.10 and 5.00 levels continue to act as key boundaries, as they have for some time. These levels may continue to hold, at least until market uncertainty begins to clear. 

Brent oil broke below the 70–72 support zone as expected and has retreated to the lower boundary of the trend channel. Under normal circumstances, the 60 level would be expected to act as major support and provide a buying opportunity for swing traders looking to capitalize on the sharp selloff. 

However, going bullish on Brent has become riskier following the latest OPEC decision. OPEC announced it will increase production by 411,000 barrels per day starting next month. The apparent goal of this move is to punish members that have been overproducing. So far, the strategy has not been particularly effective. Recent reports indicate that Kazakhstan has not yet held discussions with firms about curbing output. 

Lower oil prices will negatively impact U.S. shale producers, as well as Russia and Saudi Arabia. On the other hand, cheaper oil could help offset some of the inflationary effects of tariffs. 

If the 60 support level breaks decisively, the next major downside target could be as low as 45. 

Precious metals showed a rare divergence in April. Gold has been the top-performing asset in recent months. Both ETF and physical bar investments indicate ongoing high demand, especially from China and the U.S., the two countries likely to be most affected by tariffs. Since the start of April, gold has risen 3.7%, while silver has declined by 6%. This is an unusually large and rare divergence. 

Silver is heavily used in industry, with nearly half of its demand coming from the sector. Weakness in the tech industry, in particular, may be weighing on silver. However, the size of the divergence raises questions about the strength and sustainability of gold’s latest rally. Typically, during strong moves in the precious metals sector, silver leads or at least keeps pace with gold as the spearhead of the rally. 

Platinum and palladium also posted negative returns of around 3% to 4%, likely reflecting added pressure on the global auto industry. 

There are several key indicators suggesting that gold may be approaching, or has already reached, an ultimate top that could last for at least a decade. As a safe haven asset, gold benefits from rising U.S. debt and money supply, which offer protection against the loss of value in the dollar or any fiat currency. 

Two important ratios — U.S. M2 money supply to gold and U.S. debt to gold — are now testing long-term trend levels that date back to the major tops in 1980 and 2011. This is a significant fundamental signal for gold’s valuation. 

In addition, the net managed money position in the COT report has been reduced by more than 50% since the third week of January, even as gold prices have continued to rise. This indicates that smart money is selling into strength, locking in profits and reducing risk exposure. 

Gold broke through all resistance levels and hit 3,500 before giving back some of the gains. The 3,150–3,200 zone could be the key area to watch in May. If this zone holds as support, another attempt toward the 3,400 level may begin. 

However, if it breaks, the next downside targets to monitor are 3,095 and 3,000. 

Silver‘s trend is showing early signs of shifting from bullish to slightly bearish. The 34.50 resistance level will be key to watch in May. As long as it holds, upward momentum is likely to remain limited. 

Within the current trend, 31.55 can be used as a pivot point to monitor short-term direction. 

The Dollar Index failed to hold the 103.30 support level. After the breakdown, this level turned into resistance and pushed the index below 100. The dollar also dropped through the 99.60–100.80 zone. If it cannot regain this area, the downward pressure may continue until it reaches the white trendline that began at the 2011 low. 

The dollar now needs some form of positive news. Whether it comes from strong economic data or progress in trade negotiations does not matter. Until then, the outlook is likely to remain negative. 

Global stock markets went through a serious roller coaster in April, especially during the first half of the month. In the last ten days, however, the recovery has gained momentum. The MSCI World Index outperformed U.S. stock markets with a strong return of 5.43%. 

The S&P 500 managed to recover most of its losses from the first half of the month and ended April roughly flat. Nasdaq showed positive divergence as tech stocks became more attractive, supported by strong earnings from Microsoft and some encouraging news around Nvidia. 

DAX continued its strong performance in April as well. Looking ahead, the upcoming Romanian elections could introduce some downside risk depending on the outcome. 

Early warning signs from the VIX had been apparent for some time. Once the 30 level was broken, stocks experienced a mini crash while the VIX surged to 60. Although markets have calmed for now, the risks remain. 

This year’s average VIX is now 40 percent higher than in 2024, and its current value is still above that average. Despite the recent recovery, the market’s pain may not be over yet. 

S&P 500 entered a selloff phase as expected and tested the uptrend that began at the 2020 low. The recovery came in two steps. First, the 5,500 resistance level held for a while, then the index broke into the 5,725–5,825 zone, which is now being tested. 

This zone could act as significant resistance. It includes two horizontal resistance levels, a previous top, and the 233-day moving average. Unless this area is broken decisively, any upward moves are likely to remain selling opportunities. 

A close below 5,500 could trigger another selloff, although it may be less severe than the one in April. 

A weak dollar continued to be the dominant theme in the FX market throughout April. EURUSD rallied 4.70%, and the Swiss franc gained 6.32% against the dollar. On the weaker side, AUD and GBP still posted gains, rising 2.24% and 2.50% respectively. 

The movement in EURGBP may present trading opportunities, especially after the more than 2% gap that developed between EURUSD and GBPUSD. 

The 10-year real yield difference between Germany and the U.S. has long been a reliable indicator for EURUSD movements. While the balance between the two occasionally breaks, it almost always reverts over time. 

Currently, the relationship between EURUSD and the yield spread has entered a rare period of negative correlation. One key reason is that U.S. real rates are rising due to a divergence in inflation expectations within the bond market. If this divergence continues for too long, it could trigger a minor correction in EURUSD. 

EURUSD took a breather after reaching 1.15. The newly formed trend remains intact. If EURUSD falls below 1.12, there is a chance the pullback could deepen. However, as long as the trend holds, the primary direction remains upward. 

The retreat in USDJPY slowed following the dovish Bank of Japan meeting. The BOJ expects tariffs to have a negative impact on both growth and inflation. Because of this, the central bank is likely to hold its current stance for now and wait to assess incoming data. 

If the dollar recovers in May, the combination of a stronger dollar and a dovish BOJ could push USDJPY toward 150. However, for now, the main direction remains downward.