Global Markets Grapple with Trade Uncertainties and Economic Slowdown

Equities exhibited mixed performance on Wednesday, and crude oil prices declined as initial optimism regarding a possible de-escalation of global trade conflicts was tempered by a deteriorating economic outlook. Corporate anxieties intensified due to the impact of tariffs.

Yields on U.S. Treasury securities remained near recent lows as investors increased expectations for further monetary easing by the Federal Reserve to bolster the U.S. economy.

Despite indications of progress in trade negotiations, concrete details are still lacking. The persistence of tariff-related concerns has coincided with worsening economic data in the United States, as tariffs affect businesses and consumers.

Economic Outlook Concerns

According to David Kohl, chief economist at Julius Baer, the probability of a prolonged period of economic stagnation in the coming months, potentially meeting the criteria for a recession, has risen to 50%. He attributed this rising probability to unpredictable and restrictive economic policies, including tariffs, disruptions to public spending, and unsustainable fiscal measures.

Recent data revealed that the U.S. trade deficit in goods expanded to a record high in March, as companies stockpiled inventory in anticipation of tariffs. This suggests that trade exerted a significant drag on economic expansion during the first quarter. Additionally, U.S. consumer sentiment declined to a nearly five-year low in April.

The fragile state of the global economy, particularly in the United States, caused Wall Street futures to struggle to maintain overnight gains. Nasdaq futures decreased by 0.6% in Asia, while S&P 500 futures declined by 0.4%. EUROSTOXX 50 futures fluctuated between minor losses and gains, while MSCI’s index of Asia-Pacific shares outside Japan edged up by 0.1%. The Nikkei posted a gain of 0.15%.

Corporate Responses to Economic Pressures

The impact of trade tensions reverberated across the corporate landscape. Delivery company UPS announced plans to eliminate 20,000 positions to reduce expenses, while General Motors withdrew its financial outlook and postponed its investor conference, joining other companies that have abandoned or revised their long-term forecasts.

Fabiana Fedeli, M&G’s chief investment officer of equities, multi-asset, and sustainability, noted that companies are expressing concerns about low visibility and hesitations to enter into long-term contracts or make long-term plans, which can be a concerning trend.

Crude Oil and Precious Metals

Crude oil prices continued their decline from the previous session due to concerns about global growth and its potential impact on demand. Brent crude futures were down 0.28% to $64.07 a barrel, while U.S. crude lost 0.35% to $60.21 per barrel. Spot gold remained steady at $3,316.11 an ounce.

Upcoming Economic Data

In addition to U.S. growth figures, the core PCE price index, the Fed’s preferred measure of inflation, is due for release later on Wednesday, ahead of jobs data at the end of the week. Expectations are for payrolls to increase by 130,000 and for inflation to ease.

Markets are currently pricing in 97 basis points worth of rate cuts from the Fed by December. This has exerted downward pressure on U.S. yields, with the two-year Treasury yield at a three-week low of 3.6400%. The benchmark 10-year yield last stood at 4.1580%, also its lowest since early April.

Currency Markets

In foreign exchange markets, the dollar stabilized on Wednesday, as a selloff in the U.S. currency paused. The dollar last bought 142.29 yen, while the euro remained below its recent high of $1.1383. The Aussie extended early gains to trade 0.3% higher at $0.6401 following a slightly higher-than-expected increase in consumer prices for the first quarter.

Data from China indicated that manufacturing activity contracted in April, reversing two months of growth and sustaining calls for additional stimulus from Beijing. The Chinese CSI300 blue-chip index was up 0.12%, while Hong Kong’s Hang Seng Index slid 0.08%. The onshore yuan eased slightly to 7.2736 per dollar.

Economists at Societe Generale noted that they have revised down their 2025 and 2026 China GDP growth forecasts to 4%, assuming additional stimulus of 2.5% of GDP, and now anticipate more sustained deflationary pressures over this year and the next, in light of tariffs.