18 April 2025 - Special Market Update - Tariffs versus the Financial Markets

This is a B2B Cambodia Special Market Update on 18 April 2025 analyzing Tariffs versus the Financial Markets.

Watch the video in English above.

• The word tariff is dominating the news causing anxiety and deep concern with the United States’ trading partners and disrupting the world’s economies and financial markets.  The chaos is not only due to the size and scale of the tariffs and the inconsistence of their application, but there on and off again and pauses.  As a reminder here is a brief history of key dates of the Tariffs that are impacting most of the world.  

April 2 

• On April 2nd a 10 percent tariff is applied to all nations importing goods to the United States, unless a tariff had already been announced on a product or industry. But that baseline 10 percent is supplemented in certain cases by additional reciprocal tariffs that vary by nation. That means dozens of countries face tariffs far higher than they expected.  Tariff’s on. 

April 9 

• The White House implements punishing tariffs on some of America’s biggest trading partners. Chinese goods are subject to an 104 percent tariff, European goods faced a 20 percent import tax, Japanese goods were taxed 24 percent, Vietnam products 46 percent, and Cambodia at 49%.
• Later in the day, in an abrupt reversal, the  White House said they would back down on his reciprocal tariffs for the next 90 days, bringing tariff levels to a universal 10 percent.  Tariff’s off, but only on Pause. 
• There were many reasons attributed to the Tariff Pause;
  • Willingness for countries to negotiate trade deals.  Apparently, the 90-day pause on tariffs for most countries was intended to provide a window for trade negotiations.
  • Increasing voices in the business and financial world sounding the recession alarm
  • Concern that escalating tariffs could deter consumer spending
  • The International Monetary Fund and the European Central Bank warning that the trade tensions could slow global economic growth.  The ECB even reduced its main interest rate, citing "exceptional uncertainty" stemming from the tariffs
  • By pausing further tariff hikes, the White House aimed to stabilize the economy and maintain political support amid growing concerns over the trade strategy's effectiveness .
  • Several days in which the President said the falling stock market didn't bother him, the market's continued slide, emerging problems in the bond market and the falling value of the dollar became impossible to ignore. 
• In fact many believe it was the bond market that convinced the White House to pause tariffs, as yields rose, liquidity dried up, concern accelerated that foreign governments were selling U..S. Bonds, and the safe haven status was dissipating. 
• So what are the key financial market metrics to watch in this tariff chaos, potential global economic slowdown, and trade tensions.

The U.S.10-year bond yield.

• The 10-year bond yield acts like a warning siren, when it drops it warned that the  trade war might crash the economy. As the administration's reciprocal tariffs went into effect, bond prices slid and the yield on 2-year Treasury notes rose by as much as 0.3 percentage points, marking the biggest intraday move since 2009. The 10-year yield saw its biggest three-day jump since 2001 That pushed bond prices lower and boosted yields. 
• So what does this mean in simple terms:
  • It is believed there is $130 trillion US dollars of debt in the world. The world runs on debt and these bond markets are widely considered to be the most powerful political force in the world. When bond prices drop, interest rate increase, meaning the cost of borrowing for a  country starts to spike.  In particular to the U.S., the U.S. government has to pay higher rates on its debt.  For the consumers, pricing a higher cost of borrowing slows down the economy, as people can’t afford to borrow.
  • When yields went up, fear grew that this could ripple outward and cause a financial crisis. 
  • Concern that foreigners, particularly governments, might start selling their U.S. Treasuries
  • There was an absence of liquidity causing deep concerns that the U.S. would have trouble refinancing it debt and the U.S. bond market was losing its safe haven status.
  • The bond market drop was seen as an unprecedented attack on America's global financial dominance

The S & P 500.

• The S&P 500 Index features 500 leading U.S. publicly traded companies with a primary emphasis on market capitalization and is  considered one of the best gauges of large U.S. stocks and even the entire equities market because of its depth and diversity.  The S&P 500 is a key indicator to watch during periods of tariff chaos because it reflects the overall health of the U.S. stock market  and can signal the market's reaction to trade policies, economic uncertainty, and investor sentiment. If investors are selling  it suggests they don’t see how tariffs will do anything but potentially throw the US into a recession and now are rushing to yank their money out of the market.  On inauguration day the S&P 500 Index closed at 5996, it closed at 5,262 on April 17, down 12%, and headed lower.  
• A falling stock market indicates concern for corporate profits and the U.S. economy.  The stock market and economic performance are aligned. If the stock market declines its reduces wealth, deters consumer spending, diminishes corporate market value, leads businesses to invest less or delay investments,  and impacts retirees savings accounts, extending possible retirement age. 

Finally, the U.S. Dollar Index. 

• The U.S. Dollar Index is an index, or measure, of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies.  With the announcement of tariffs the dollar effective exchange rate sharply depreciated rather than appreciating. G10 currencies appreciated implying that that foreign advanced economies reduced exposure to US dollar-denominated assets, selling dollars in favour of other major currencies to rebalance their portfolios, as trade flows cannot adjust instantaneously.  
• The  U.S. dollar’s dominance has rested on two pillars: America’s deep capital markets and its global security alliances. Today, both are under strain. Shifting U.S. foreign policy, rising geopolitical uncertainty, and an overextended stock market are making investors and policymakers reconsider their exposure to the greenback. The depreciation of the US Dollar is raising concerns that The U.S. dollar’s dominance is slipping amid a highly concentrated stock market and shifting global alliances.
• So keep an eye on the 10 year U.S. Bond yield, the S & P 500 index, and U.S. Dollar Index which will influence tariff policy in the end and whether we are headed for a global recession of worse.