The Impact of Tariff Changes on Risk Markets
In a surprising twist, the latest tariff adjustments announced by President Trump have not had the desired effect on risk markets. As the U.S. trading day progressed on Thursday, initial optimism faded rapidly. After a steep decline at the market’s opening, stock indices showed a brief rebound, and Bitcoin (BTC) surged past $91,000 following comments from Commerce Secretary Howard Lutnick. He indicated that Mexico would be exempt from the new 25% tariff on goods and services covered under an existing trade agreement. This sentiment was later echoed by Trump himself through social media.
However, this fleeting positivity quickly dissipated. By midday, the Nasdaq composite index had plummeted to a session low, registering a decline of 2.3%. Concurrently, Bitcoin retreated to around $88,500, reflecting a nearly 1% decrease over the past 24 hours.
A New Economic Concern: Stagflation
Amidst the constant stream of headlines from Washington, a critical rise in interest rates across developed economies is capturing attention. This shift is particularly pronounced in Europe, where governments are committing to significant increases in defense spending, possibly in response to diminishing U.S. military support. Notably, Germany experienced one of its most significant bond market declines this week, with the yield on 10-year Bunds spiking over 40 basis points to reach 2.83%.
In Japan, the landscape is shifting as well. Long-standing low yields on Japanese Government Bonds (JGBs) have begun to rise, with the 10-year JGB yield climbing 6 basis points to 1.51%—more than double the rate from six months prior.
The U.S. bond market is not immune to these trends. After a prolonged period of declining yields since Trump took office, the 10-year Treasury yield has surged over 20 basis points in just 48 hours, now standing at 4.30%.
Quinn Thompson of Lekker Capital expressed concern regarding these developments, noting, “The recent move in global bond yields has put me on high alert.” He highlighted the troubling combination of rising yields amid slowing economic growth. “We are witnessing the exact definition of stagflation which historically has not treated risk assets well,” he added.
Key Economic Data Ahead: The U.S. Jobs Report
As interest rates continue their upward trajectory, all eyes are now on the upcoming U.S. Nonfarm Payrolls Report, set for release on Friday morning. This report is expected to provide critical insights into the state of the labor market, with economists forecasting an increase of 160,000 jobs, up from January’s 143,000.
The unemployment rate is predicted to hold steady at 4%. A robust jobs report—especially given the trend of employment figures exceeding expectations in recent months—could further fuel interest rates, potentially pushing risk markets, including cryptocurrencies, into a deeper downturn.
In conclusion, as market dynamics shift from tariff concerns to rising interest rates, investors must remain vigilant and informed about the potential implications for both traditional and digital assets.
