A Flaming Trade Conflict Saps Investor Confidence, Causing Stocks to Fall

Global equity markets opened the new month on a cautious note, weighed down by growing trade tensions and heightened geopolitical risks that have shaken investor sentiment.

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Futures tied to the S&P 500 dropped by 0.5%, while both European and Asian stock markets also experienced losses. The US dollar declined by 0.4%, marking its fifth straight month of losses. Meanwhile, US Treasury yields climbed across the board, with the yield on the 10-year note rising four basis points to reach 4.44%.

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Investor nerves were rattled further by the latest developments in President Donald Trump’s trade policies. A new layer of uncertainty was added after the US and China accused each other of violating a trade deal, followed by Trump’s pledge to double tariffs on all steel and aluminum imports. These moves have led to concerns that tensions may linger, and markets could remain unsettled unless concrete, long-term agreements are reached.

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These developments have slowed the rebound in US stocks, as traders now see little clarity ahead. Adding to the uncertainty, Ukraine launched a series of strikes inside Russian territory just days before peace talks were scheduled to take place in Istanbul.

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“Just when it seemed like the noise around tariffs was fading, the latest moves prove that investors shouldn’t assume anything is certain until deals are finalized,” said Daniel Murray, CEO of EFG Asset Management in Zurich.

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Although volatility has risen in reaction to these events, market strategists believe the current wave of market jitters is unlikely to match the severe turbulence experienced after Trump’s tariff declaration on April 2. Many traders are now interpreting the latest announcements as strategic maneuvers rather than signals of prolonged economic conflict.

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Max Kettner, chief multi-asset strategist at HSBC Holdings Plc, told Bloomberg TV that the market’s reaction to tariff headlines is becoming less intense. “The sensitivity of investors to this kind of news has probably declined,” he said. “This is mainly a negotiating tactic. I don’t think it needs to translate into a consistent drag on earnings or long-term earnings forecasts.”

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The US dollar continued to slide, hovering near its lowest level since 2023, with a total decline of 7.6% this year. Analysts at Morgan Stanley predict that this trend will deepen due to slowing economic growth and the possibility of Federal Reserve interest rate cuts. They expect the dollar to fall to levels not seen since the COVID-19 pandemic era.

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According to Morgan Stanley’s strategists, both bond and currency markets have entered new phases. “We believe rates and currency markets have started significant new trends that will likely last — pushing the dollar further down and making yield curves steeper — following two years of erratic swings within wide ranges,” they wrote.

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Investors are now turning their attention to Friday’s nonfarm payrolls report, which is expected to offer more insight into how Trump’s trade policies are affecting the broader US economy. It will also influence expectations around future Federal Reserve interest rate decisions.

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“This is an environment where markets are beginning to look past the tariff headlines,” said Laura Cooper, global investment strategist at Nuveen, in an interview with Bloomberg TV. “Our focus is more on the potential economic damage that might show up in upcoming US data.”

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Elsewhere in the markets, Brent crude oil edged closer to $65 per barrel, supported by smaller-than-expected production increases from OPEC+ and simmering geopolitical tensions. The limited rise in output eased fears of a supply glut and helped stabilize prices.

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Meanwhile, demand for safe-haven assets has been on the rise, pushing gold toward its biggest gain in over a week. As investors seek shelter from the ongoing global uncertainties, gold continues to draw interest as a store of value.

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In summary, the start of the new month has brought fresh market stress, largely due to trade policy shifts and geopolitical flashpoints. Investors are proceeding with caution as they monitor economic indicators and international developments.

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While markets appear to be adjusting to the idea that tariff threats may be used more as bargaining tools than policy certainties, concerns remain over the broader economic impact. All eyes will be on upcoming data releases and diplomatic developments to gauge the next direction for global markets.

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