Stocks Are Down More Than 3% in Response to Liberation Day; Fear of Recession Becomes Global

Also, 10-year T-note, gold, crude oil and Australian dollar futures

1. Nasdaq 100 E-mini futures (/NQ): -3.4% 
2. 10-year T-note futures (/ZN): +0.8% 
3. Gold futures (/GC): -0.89% 
4. Crude oil futures (/CL): -8.08% 
5. Australian dollar futures (/6A): -3.75% 

The week where decades have happened started today with news that China would be imposing retaliatory tariffs (to the tune of 34%) against the U.S. in response to Liberation Day. U.S. equity markets fell out of bed again, with stocks down more than 3% across the board. Fear of recession have moved beyond America’s borders and have spread globally: look no further than the crash in oil prices in recent sessions. 

Traders received no help from the March U.S. nonfarm payrolls report either. The report itself was strong—the headline figure produced a gain of 228,000 jobs added last month, well above the 140,000 consensus forecast. Likewise, the rise in the unemployment rate (U3) from 4.1% to 4.2% occurs alongside a labor force participation rate increasing to 62.5% from 62.4%.  

The good news about the labor market creates an uneasy reality: When Federal Reserve Chair Jerome Powell speaks later today, he has no rhyme or reason to hint that the Fed is prepared to provide offsetting monetary support to the economy as soon as the May meeting. While Fed funds and three-month SOFR futures are each discounting a June cut, the spate of data this week affords little room for immediate action. 

It’s a one-two punch to equity markets this week. The White House tariff announcement sent equity markets sharply lower, and now China’s response has delivered another blow to sentiment. China will impose a 34% reciprocal tariff on U.S. imports. Nasdaq futures (/NQM5) fell 3.4% in early trading. Meanwhile, volatility is on the rise, with the VIX trading seven points higher. Staples are somewhat insulated, as fear of an economic slowdown hit other sectors. Dollar General (DG) was on track to hit its highest levels since August. GameStop (GME) rose 5% after some insider buying activity.  

Bonds continued to climb today as traders ran into safe-haven assets amid the market turbulence. 10-year T-note futures (/ZNM5) were up 0.8% shortly after the New York opening bell. The underlying 10-year yield is now below 4% and trading at the lowest level since October. Falling yields reflect the concerns about growth, as the U.S. trade restrictions are expected to throttle trade. Until market volatility cools, it’s likely Treasuries will continue to climb.  

Traders don’t see gold as a refuge from the market turmoil, with prices (/GCM5) down 1.75%. The June contract is now trading at its 21-day exponential moving average (EMA). The reciprocal tariffs announced by China sparked additional selling in the market. A drop below the EMA would put the psychological 3,000 level on the line. A break lower would signal a notable deterioration in gold's technical posture. 

Crude oil prices dropped a stunning 8% after China announced retaliatory tariffs on the United States. The two major global economies are now fully embedded in a trade war, which will more likely than not drive global growth lower. OPEC+ recently announced plans to push more oil into the market starting in May, but those plans may be walked back after the sharp move lower. OPEC leaders will have to ask themselves if they believe the market can absorb additional barrels, and the price around $60 per barrel may further disincentivize the move.  

The risk-sensitive Australian dollar (/6AM5) plunged 4% lower overnight. The U.S. and China entering a full-blown trade war sparked a risk-off move in markets, and because China is Australia’s largest trade partner, the lower growth expectations are putting the hurt on its currency. The dollar was further bolstered by this morning’s jobs number, but the primary driver remains the tariffs and concern about growth.  

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. #@fxwestwater
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