Brief stock market tremor and loss of confidence
With his tariff policy and comments about the Chairman of the US Federal Reserve, US President Donald Trump triggers a stock market quake, a jump in US government bond yields, a gold rally and a loss of confidence in the US dollar. And then rows back.
The stock markets fluctuated wildly in April. Volatility, which was already high in the previous month, increased again sharply in the first week of April when US President Donald Trump announced the expected tariffs against the entire world. This included tariffs of at least 10% on imports from virtually all countries as well as 20% on imports from the EU, 24% on Japanese imports and an additional 34% on top of the existing 20% on Chinese imports. These tariffs far exceeded expectations, and volatility on the stock markets reached levels previously only seen during the financial crisis and at the height of the coronavirus pandemic.
Following the announcement of the tariffs, investors expected countermeasures from other countries, rising inflation and, last but not least, a sharp increase in the likelihood of the US economy slipping into recession. Jerome Powell, Chairman of the US Federal Reserve (Fed), warned that the tariffs were significantly higher than expected and that the Fed had a duty to limit inflation in the long term. Trump, who would have liked to have seen a reduction in US key interest rates, expressed his dissatisfaction with Powell via his social media channel and called for his dismissal, which was seen as an attack on the Fed's independence. This in turn damaged confidence in the stability of the US dollar. The greenback weakened significantly against the euro: Whereas one euro cost USD 1.08 at the end of March, it was USD 1.13 at the end of April.
Stock markets around the world fell significantly within a few days, in most cases by double digits. On the bond markets, yields on longer-dated US government bonds rose sharply within a few days: 10-year US bonds yielded 4.49% on April 11, 28 basis points higher than at the end of March, and 30-year bonds briefly reached a yield of over 5%. Financing the US budget deficit would become considerably more expensive under these circumstances. At the same time, gold was once again in demand as a safe haven. At around 3,500 US dollars, a troy ounce of gold cost more than ever before. Over the month, gold rose by 5.29% from 3,123.57 to 3,288.71 US dollars.
Under these circumstances, the White House rowed back: President Trump postponed the introduction of the tariffs announced at the beginning of the month by 90 days and entered into negotiations with trading partners, including China. He also announced that he had no intention of firing the Fed chairman. The situation on the stock markets calmed down and there was a relief rally. By the end of the month, the stock markets had recovered again and ended the month mostly down moderately, with some - such as the German DAX index - also up slightly. The European stock markets received additional support from the ECB's cut in key interest rates. The main refinancing rate fell to 2.40% (from 2.65%) and the deposit facility dropped to 2.25% (from 2.50%).
Yields on US government bonds, which had risen sharply in the meantime, also fell again from the middle of the month, with 10-year US bonds yielding 4.16%, 4 basis points lower than at the end of March. In comparison, yields on 10-year German government bonds fell significantly by around 27 basis points from 2.74% to 2.46% over the month, as German bonds were also sought after as a safe haven.
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