Originally published at: This week in charts: a wild week for markets – InvestEngine Insights
It’s been a wild week for markets.
In the US, President Trump’s tariff plans – 25% on imports from Canada and Mexico and increased duties on Chinese goods – came into effect on Tuesday, raising the average US tariff rate to the highest level since WWII:
The market has not viewed these tariffs as being favourable for the US’ economic outlook. Expectations for interest rate cuts, which serve as a measure of how much intervention might be needed to stimulate growth, have shifted dramatically. Earlier in the year, the market anticipated only a small 0.25% cut for the remainder of 2025, but in recent days that value has plummeted to 0.75% of cuts:
While the tariffs came into effect on Tuesday, it was later announced there would be a delay in the imposition of tariffs on carmakers, then a further set of revisions were made to exempt goods covered under the North America free trade pact (such as televisions, air conditioners, avocados, and beef).
These seemingly knee-jerk amendments have created significant uncertainty in markets, evidenced by the reaction of the S&P 500. In dollar terms, the S&P has given up all of its post-inauguration gains, having sold off over 7% from its highs, and is now down 3% since Trump took office:
Sterling also saw significant moves against the dollar this week. Dollar weakness caused by the tariff uncertainty meant sterling strengthened against the dollar by almost 3%, bringing the exchange rate to $1.2941 up from $1.2618. This is detrimental for sterling investors, as a strengthening sterling reduces returns for unhedged USD exposure.
European bond turmoil
This week also saw Germany’s announcement of a massive €500 billion infrastructure and defense spending program, enabled by loosening its strict borrowing rules. The magnitude of this proposed spending took the market by surprise, and resulted in the largest weekly European government bond selloff in the last 25 years:
The major anticipated beneficiaries for this spending package were European defense stocks, whose gains this week have helped further widen the gap between the European and US equity markets. Europe is now outperforming the US by over 15% so far this year in sterling terms:
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