Strong market fluctuations

Although I was on holiday for a few days last week, I did keep an eye on the markets – they never take a break. This has recently been truer than ever; the dominant financial market topics being neither economic data nor central bank meetings, but US trade and customs policy.

It would be going too far to list all the twists and turns regarding tariffs and counter-tariffs. What can be said, however, is that the announcement of ‘reciprocal tariffs’ by the US on its trading partners since 2 April has caused severe market turbulence. The stock markets suffered a severe setback, and the prices of commodities such as oil and industrial metals saw significant losses due to concern about a sharp downturn in the US and global economies.

Trump tariffs fuel inflation fears

When the tariffs came into force yesterday morning, there was a brief sell-off in the markets for long-dated government bonds, particularly in the US and UK. This was due to the presumably inflationary effects of the possible tariffs, which could make further key interest rate cuts more difficult for a longer period and thus have the consequence that the refinancing of government debt and thus the situation of government budgets could deteriorate.

Tariff pause eases the tension

Yesterday evening saw a turnaround when Donald Trump approved a 90-day suspension of reciprocal tariffs for all trading partners except China via his social media channel, and reciprocal tariffs would also be reduced to 10 per cent with immediate effect. However, this does not apply to China, which has been subject to a 125 per cent tariff since this morning. Finance Minister Scott Bessent later added that sector-based tariffs, such as the 25 per cent tariffs on motor vehicles and steel and aluminium, would also be 10 per cent during this period.

A – relatively – small and undifferentiated tariff of ten per cent on everything from everywhere had been seen as the scenario that would do the least damage to the economy in the run-up to the tariff announcement. In the wake of Trum’s announcement, stock indices shot up (the S&P500 in the US recorded its third-highest daily gain since 1930) and oil prices also rose by around 8 per cent, while bond yields fell.

Gold remains in demand

As far as gold prices are concerned, it is worth mentioning that yesterday, gold was initially in demand as a ‘safe haven’, then fell back briefly after the announcement of the tariff break, only to rise even higher than before. Gold thus both benefited from investors’ risk aversion and risk appetite. In the days prior, gold had come under pressure as some large investors covered their losses in other markets or margin calls in the futures markets by selling some of their gold positions. This phenomenon occurs quite frequently, for example amid sharp, sudden price setbacks in the stock markets.

Gold continues to trade above 3,000 US$ per ounce

On Wednesday morning two weeks ago, the gold price stood at 3,024 US$ per ounce. On 3 April, shortly after Donald Trump announced tariffs higher than expected by market experts, the precious metal jumped to a record high of 3,167.75. For the reason just mentioned, profit-taking and position squaring ensued to offset losses in other markets. Gold slid to a low of 2,957 on Monday of this week but recovered by around 3.5 per cent to 3,132.50 last night and kicked off European trading this morning (Thursday) at 3,122 US$ per ounce.

Xetra-Gold above 90 € per gram

The Xetra-Gold price also tapped into uncharted territory, rising from 90.15 € per gram the Wednesday before last to 93.60 on 1 April. On Monday of this week, it plummeted to 87.70 but recovered to 91.50 € per gram, the level at which Xetra-Gold is likely to start European trading today.

US consumer price data is scheduled for release today, but market observers will remain largely focused on US trade policy.

I wish all readers a few more rays of sunshine and, if applicable, a pleasant Easter holiday season – I’ll be holding the fort here.