The S&P 500 Index ($SPX) (SPY) has increased by +0.29%, while the Dow Jones Industrial Average ($DOWI) (DIA) is up by +0.70%. The Nasdaq 100 Index ($IUXX) (QQQ) has gained +0.39%. Also, June E-mini S&P futures (ESM25) are up +0.26%, and June E-mini Nasdaq futures (NQM25) rose by +0.38%.

Stock indexes have retreated from earlier significant gains, showing a cautious upward movement as midday approaches. This comes after steep losses in recent days, which saw the S&P 500 drop nearly 15% from last Wednesday’s close. Optimism surrounding a potential tariff agreement with Japan emerged after a discussion between President Trump and Prime Minister Ishiba on Monday, igniting hopes that a trade deal might reduce the impending 24% import levy set to take effect on Wednesday.

Today’s gains were further supported by President Trump’s remarks about positive talks with South Korea regarding a potential trade deal. Treasury Secretary Bessent mentioned that “very large countries with large trade deficits” will likely seek to establish trade agreements with the US soon.

Ongoing Tariff Tensions

Despite these positive developments, tariff-related anxieties persist. President Trump dismissed an EU proposal aiming to eliminate tariffs on all bilateral trade in industrial goods with the US, indicating that the 20% tariff on EU imports will be activated on Wednesday. Additionally, a spokesperson for China warned that the country would respond aggressively to Trump’s announcement of potential 50% tariffs on all Chinese goods, stating, “The US threat to escalate tariffs on China is a mistake on top of a mistake…if the US insists on its own way, China will fight to the end.”

Chicago Fed President Goolsbee noted that some business leaders voiced concerns that tariffs could revert the economy to the turbulence seen in 2021 and 2022 when inflation surged.

Market Reaction to Tariff Announcement

On Monday, global equity markets faced significant declines amid fears that escalating trade disputes could trigger a recession. Market turmoil escalated last Wednesday after Trump announced reciprocal tariffs that exceeded expectations. Sentiment worsened further on Friday when China retaliated by imposing a 34% tariff on all US imports set to begin on April 10. During this tense environment, Trump reiterated his stance, stating, “We’re not looking at a tariff pause.” He emphasized that if China does not eliminate its 34% tariff on US goods by Tuesday, the US will implement additional tariffs of 50% effective April 9.

On the previous Wednesday, Trump indicated plans for a minimum 10% tariff on nearly all countries, with higher rates for around 60 nations. These tariffs were enforced on Saturday, with the elevated rates scheduled for April 9. While specific sectors, including steel and automobiles, are exempt from the new tariffs, Canada and Mexico are also excluded but will face previously announced 25% tariffs. Tariffs on China have risen to a total of 67%, while the EU now faces a total tariff of 39% and Japan 46%.

Economic Outlook and Upcoming Reports

Concerns regarding the impact of US tariffs on economic growth and corporate earnings have weighed heavily on stocks over the past month. On March 4, Trump set 25% tariffs on Canadian and Mexican goods and increased tariffs on Chinese imports to 20%. Just last Wednesday, he announced the implementation of a 25% tariff on US auto imports starting Thursday, emphasizing that these tariffs would be “permanent” without exceptions.

Market predictions show a 28% chance for a -25 bp rate cut after the FOMC meeting scheduled for May 6-7, slightly lower than the previous week’s 30% estimate.

This week’s market focus will remain on US trade policies and potential retaliatory measures from other nations. The FOMC meeting minutes from March 18-19 will be released on Wednesday. Furthermore, the March CPI is anticipated to decrease to +2.6% year-over-year, down from 2.8% in February, while the CPI excluding food and energy is expected to dip to +3.0%. On Friday, the March final-demand PPI is projected to climb to +3.3%, and Michigan’s consumer sentiment index is forecasted to drop to 54.0 from March’s 57.0.

The first quarter earnings season will kick off Friday, led by reports from major US banks. Bloomberg Intelligence indicates a consensus for year-over-year earnings growth of +6.7% for the S&P 500, a decline from earlier predictions of +11.1% in early November. Full-year 2025 corporate profits for the S&P 500 are estimated to rise by +9.4%, down from a previously anticipated +12.5% in January.

International Market Movements

Today, international stock markets have seen positive movement. The Euro Stoxx 50 is up by +3.55%, the Shanghai Composite Index in China closed with a gain of +1.58%, while Japan’s Nikkei Stock 225 surged by +6.03%.

Interest Rates Overview

For the June 10-year T-notes (ZNM25), a drop of -13 ticks has been observed. The yield for the 10-year T-note has risen by +2.5 bps to 4.208%. As global equity markets recover, safe-haven demand for government debt has diminished, leading to a moderate decline in June T-notes. Comments from Chicago Fed President Goolsbee have added pressure on T-notes amid fears of a repeat inflation surge due to tariffs. Additionally, upcoming Treasury auctions, starting with today’s $58 billion auction of 3-year T-notes, are pressuring supply.

European bond yields also climbed today, with the 10-year German bund yield up by +5.7 bps to 2.670% and the 10-year UK gilt yield increased by +2.8 bps to 4.643%.

ECB Governing Council member Simkus stated, “I still think the ECB should cut rates this month, and then, with a lot more information in June, we can reassess whether to wait and see or cut again.” Current swaps markets reflect a 90% chance of a -25 bp rate cut by the ECB at the April 17 policy meeting.