TARIFFS, TECH, AND TUMULT: MARKETS ADJUST TO THE NEW NORMAL
Markets have quickly become accustomed to the noise and volatility under Trump 2.0, but last week saw the biggest gyrations yet as a deepening rift between America and its allies over tariffs and Ukraine underscored that there is a new world order for markets to navigate. High-flying technology stocks, including the “Magnificent Seven”, were most exposed and the Nasdaq Composite Index fell 4.9%, pushing it into negative territory for the current year to date.
Tech stocks have been under a cloud since the emergence of China’s DeepSeek, an artificial intelligence (AI) powered chatbot, in January called into question whether US companies will continue to dominate the sector. Nvidia, the manufacturer of the advanced chips required to build AI infrastructure, has been one of the biggest winners, propelling it become the most valuable company in the world earlier in the year with a market capitalisation of $3.6 trillion.
Against this backdrop, the release of Nvidia’s quarterly results on Wednesday evening took on more importance and were the most eagerly anticipated of the corporate earnings reporting season. Despite revealing better than expected sales of $39.3 billion for the year on the back of “extraordinary” demand for its new Blackwell chips, markets were left underwhelmed, concerned that its explosive growth is slowing. The company also warned that gross profit margins would be a bit tighter, and its shares fell more than 8% during Thursday’s trading session, bringing its market value down to $2.8 trillion.
The volatility in tech has been uncomfortable for investors but it pales in comparison to the rout in global cryptocurrency markets in recent weeks. The trigger for last weeks double digit falls included the heist of $1.5 billion in crypto tokens from exchange firm Bybit and the ongoing fallout from the collapse of Libra, a memecoin promoted by Argentine president Javier Milei which rose in value to $4.4 billion before tumbling by 95%.
There was some brief respite over the weekend when President Trump signed an executive order to support digital assets and directed a working group to move forward with creating a Crypto Strategic Reserve. Bitcoin immediately jumped to $95,000 on the announcement but has subsequently fallen back to $85,000, more than $22,000 below its all-time high of just six weeks ago.
Europe’s response to the jaw dropping argument in the Oval Office between the US President, JD Vance and Volodymyr Zelensky also grabbed much attention over the weekend. ?At the summit of European leaders in London, the UK and France led pledges to boost military spending and provide more assistance to Ukraine’s armed forces which sent defence stocks soaring on Monday. Shares in Rheinmetall, Germany’s largest defence company, jumped 16% to extend its year-to-date gains to 86%, whilst the UK’s BAE Systems and France’s Thales rose 15% and 16% respectively.
The positive start to the new week, however, was short lived as on Monday evening Donald Trump announced his most sweeping trade measures, including 25% tariffs on imports from Canada and Mexico, and an additional 10% tariff on Chinese imports, all effective from Tuesday. The President cited the three countries failure to clamp down on trafficking of fentanyl and demanded that Canada and Mexico do more to secure their borders with the US.
China swiftly announced its own counter measures, including 10-15% tariffs on some US agricultural goods and added a number of US companies in the aviation, defence and technology sectors to its “unreliable entity list”. Canada also announced it will impose tit-for-tat 25% tariffs on $107 billion of US goods.
In commodities markets, Brent Crude fell to $71 a barrel, its lowest level in six months, on concerns that a global trade war will weigh on demand at a time when the OPEC+ cartel is preparing to boost output by 138,000 barrels per day, its first increase since 2022.
The economic calendar for the week ahead is headlined by the meeting of the European Central Bank at which it is fully expected to announce another 0.25% cut to its deposit rate to 2.5% on Thursday. Policymakers will have been encouraged by the moderation of inflation to 2.4% in February, suggesting it is on course to slow to the ECB’s 2% target later this year.