US Markets Drop After Tariff Hike and China’s Retaliation
US equity markets ended Thursday with significant losses as investor sentiment weakened amid escalating trade tensions between the United States and China. The Nasdaq Composite declined by 4.3%, closing at 16,387.3, the S&P 500 dropped 3.5% to 5,268.1, and the Dow Jones Industrial Average fell 2.5% to 39,593.7, erasing much of the previous day’s gains.
Losses were led by technology, energy, and consumer discretionary sectors, while consumer staples held up slightly better towards the close. The drop followed President Donald Trump’s announcement of an increase in tariffs on Chinese imports to 145%, alongside a 90-day pause on new duties for most other trading partners. In response, Beijing imposed restrictions on the number of American films allowed in China, pushing US entertainment stocks lower.
Inflation Cools but Market Sentiment Stays Cautious
Investors largely looked past some encouraging economic data, including a 0.1% decline in consumer prices for March—the first monthly drop since May 2020—driven mainly by falling energy costs. Core CPI eased to 2.8%, better than the expected 3.0%, suggesting that inflation pressures are continuing to moderate.
Despite concerns about rising import costs, long-term inflation expectations remain steady, with bond markets pricing in an average inflation rate of 2.27% over the next ten years. Weekly jobless claims rose slightly to 223,000, a figure still consistent with a strong labor market. With wage growth outpacing inflation and unemployment remaining low, consumer spending is expected to remain a key economic driver.
Asian Markets Slide as Trade Worries Deepen
On Friday, Asian equity markets traded lower across the board. Japan’s Nikkei 225 dropped by as much as 5%, leading regional declines amid intensified US-China trade tensions, which overshadowed the temporary relief offered by the pause in tariffs for other countries. Chinese equities outperformed slightly, supported by state-backed buying and rising expectations of additional stimulus. Markets in South Korea, Singapore, and Australia also closed lower.
European Markets Rally, US Futures Point Lower
US equity futures pointed to a lower open, capping off a turbulent week dominated by trade-related volatility. Friday’s session is expected to be influenced by the release of US consumer sentiment data and earnings reports from major financial firms including JPMorgan Chase, Morgan Stanley, Wells Fargo, and BlackRock.
In Europe, stocks surged on Thursday. The STOXX 50 climbed 4.4%, and the STOXX 600 gained 4%, buoyed by tariff suspensions between the US and EU. Gains were driven by banking, technology, and industrial sectors as investors welcomed the easing of some trade tensions and prospects of reduced inflationary pressure.
Treasury Yields, Currency Moves, and Commodities React
The yield on the 10-year US Treasury note approached 4.5% on Friday and is poised for its largest weekly gain in three years, as foreign investors offloaded US debt amid heightened trade policy concerns. The move reflects growing fears of economic disruption due to the latest tariff escalation.
The US dollar weakened, with investors shifting to traditional safe-haven assets such as the Swiss franc, yen, euro, and gold. The euro climbed as much as 1.7%, reaching $1.13855—its highest level since February 2022—as markets interpreted the 90-day pause for non-China partners as a potential indicator of broader trade instability.
Oil prices fell in Asian trading, nearing four-year lows. Concerns over global demand due to escalating trade frictions sent Brent and WTI crude on track for a second straight weekly decline of approximately 3.7%. The US Energy Information Administration cut its demand and price forecasts through 2026, citing rising economic uncertainty linked to trade developments.
Equities on the Move: Company News and Stock Reactions
- Prada confirmed a $1.38 billion deal to acquire Versace from Capri Holdings, aiming to tap into a broader customer base and leverage Versace’s iconic branding. The move reflects the increasing influence of Lorenzo Bertelli, Prada’s likely future CEO.
- TSMC reported a 42% rise in Q1 revenue, narrowly beating expectations. Demand for AI chips continues to fuel growth, despite production setbacks from a January earthquake. Shares rose following the temporary tariff relief, though broader trade risks linger.
- Tesla launched a new version of its Cybertruck priced at $69,990. The long-range model is currently the most affordable of the three versions available in the US, according to Tesla’s website.
- US Defence Secretary Pete Hegseth announced the cancellation of $5.1 billion in IT contracts with Accenture, Deloitte, and others. The Pentagon plans to bring these services in-house, expecting nearly $4 billion in savings.
- Oklo Inc. was selected to provide microreactor power systems to the US Department of Defence under the Advanced Nuclear Power for Installations (ANPI) program. This allows Oklo to compete for awards to deploy its nuclear technology at military bases.
- A Harley-Davidson board member resigned over concerns about the company’s direction and culture, amid leadership turnover and remote work tensions. Shares dropped 9% following the announcement.
- Country Garden reached a restructuring deal with creditors representing 30% of its $10.3 billion offshore bond debt. The developer aims to reduce $14.1 billion in offshore liabilities by 78%. Chair Yang Huiyan will convert a $1.15 billion shareholder loan and inject additional capital. Broader creditor approval is needed by 23 May to avoid liquidation, ahead of a 26 May Hong Kong court hearing.
Analyst Actions and Market Outlook
- Nvidia was named the top semiconductor pick by Lynx Equity Strategy, citing robust tariff mitigation planning. The firm set a $140 price target, anticipating gains despite data center spending concerns and increased competition.
- Morgan Stanley cut its forecast for the US cruise sector amid a three-year low in demand. Carnival’s target was reduced to $21, Royal Caribbean’s to $220. Carnival was upgraded to “Equal-weight”, but Royal Caribbean remains preferred due to stronger margins and lower debt levels.
- HSBC upgraded Palo Alto Networks from “Reduce” to “Hold”, highlighting resilient cybersecurity demand and improved valuation. However, Fortinet remains their top pick, with a more favourable growth outlook. HSBC sees a 9.8% downside for Palo Alto at current prices.
- AppLovin was upgraded to “Overweight” by Morgan Stanley, with a price target lifted to $350. The firm cited strong performance in in-app advertising and ecommerce, despite slightly lowered EBITDA projections for 2025 and 2026.
- Macquarie upgraded Atlassian to “Outperform” with a $270 target, citing AI-driven innovation, cross-departmental adoption, and its Teamwork Collection initiative.
- Raymond James boosted Deckers Outdoor Corporation to “Strong Buy”, with a $150 price target. The firm anticipates a strong Q4, backed by growth in brands like HOKA and UGG, despite some tariff exposure.
Key Data and Events to Watch
Today’s US economic calendar includes:
- Producer Price Index (PPI)
- University of Michigan Consumer Sentiment Index
- A scheduled speech by Federal Reserve Bank of New York President John Williams, which may offer insights into future Fed policy.
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