There were more wild swings across US equity markets yesterday, with the S&P 500 clocking an intra-day high-low trading range of 6.8%, following Monday’s 8.4% and Friday’s 6.5%. US stock index futures had already recorded a 3.6% swing within a few hours of this morning’s trade.

Source: TN Trader

This followed on from the imposition of fresh US tariffs at midnight, and as investors anticipated the likely responses from tariff-hit countries, in particular China and the EU.

These wild swings, within the sell-off in risk assets, come on the back of President Trump’s more aggressive-than-expected tariff announcement after last Wednesday’s market close. The sell-off in equities has certainly taken valuations down, particularly in the case of overhyped tech companies. But there are fears that amid the ongoing uncertainty, and the likelihood of severe reprisals, particularly from China, that there could be worse to come.

Certainly, it seems unlikely that the Trump administration is going to back down, just because some froth has been blown of overpriced stocks. And it’s clear that China is not about to negotiate, particularly after Trump’s response to China’s own ‘retaliatory’ levies on US imports, was to increase China’s tariff to 104%. But aside from the stock market, there are some very concerning moves in other markets.

Bond prices soared last week, and yields tumbled, in the immediate aftermath of Trump’s tariff announcement. This made sense from a ‘flight to safety’ point of view, as US Treasuries are viewed as the safest asset out there. But prices have subsequently collapsed. At the end of last week, the yield on the 10-year Treasury fell to a six-month low of 3.86%, from 4.37% just one week earlier. This morning it rose above 4.42%.

This was one of the sharpest yield moves in twenty years, prompting analysts to speculate why the huge bond sell-off? A benign explanation would be that investors have gone from expecting the Fed to cut interest rates (so yields fall) in response to falling economic growth, to increasing them as tariff-led inflation takes hold. But even then, such a swift change in emphasis seems highly unusual.

Instead, it could be something far more serious, including forced liquidations from overleveraged bond players (similar to the LTCM disaster in the 1990s), or an indication that recent market stresses have damaged the plumbing on which the financial markets are based. One thing made clear from Fed Chair Powell’s speech last Friday is that the US central bank is in no rush to cut interest rates in response to the market carnage.

The uncertainty affects the Fed too, and they’re not about to do anything rash and exacerbate the problem, whatever that problem may turn out to be. Minutes from the Fed’s last monetary policy meeting will be released later this evening. But who cares? It’s all about tariffs now. And investors are forced to react to moves from the Trump administration, and then await the response from its targets.