The S&P 500 Index ($SPX) (SPY) is down -0.02% today, while the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.47%, and the Nasdaq 100 Index ($IUXX) (QQQ) has increased by +0.09%. June E-mini S&P futures (ESM25) are showing a gain of +0.26%, with June E-mini Nasdaq futures (NQM25) rising by +0.38%.

Stock indexes are stabilizing at midday after a turbulent period marked by substantial losses, with the S&P 500 plunging nearly 15% from last Wednesday’s close. Investor optimism was partly fueled by discussions between President Trump and Japanese Prime Minister Ishiba about potential tariff negotiations, aimed at preventing a 24% import levy scheduled to take effect Wednesday.

Additional gains came alongside President Trump’s comments regarding positive trade prospects with South Korea. Treasury Secretary Bessent echoed this sentiment, indicating that large nations facing trade deficits may quickly come to the negotiating table with the US.

Continued Tariff Concerns Amid Mixed Trade Signals

Despite these positive signals, concerns remain regarding tariffs after President Trump dismissed a proposal from the European Union (EU) to eliminate tariffs on industrial goods traded with the US. Consequently, the initial 20% tariff on all EU imports is set to take effect Wednesday. Simultaneously, China has vowed to retaliate against Trump’s latest tariff measures, which include a potential 50% levy on all Chinese goods unless China removes its 34% tariff on US products by the same deadline. China’s Ministry of Commerce referred to the US’s escalation as a critical misstep, warning of strong retaliation.

The potential repercussions of tariff-related policies have caused trepidation among business leaders, according to Chicago Fed President Goolsbee, who noted that some executives fear a repeat of the economic conditions seen in 2021 and 2022, which were characterized by rampant inflation.

Global Market Impact and Tariff Developments

Equity markets around the world faced significant downward pressure amid fears of a trade war, which could lead to broader economic recession. The downturn intensified last Wednesday after President Trump announced reciprocal tariffs that exceeded market expectations, raising alarms about the potential impact on both the US and global economies. The situation worsened last Friday when China responded to US tariffs by instituting a 34% tariff on all American imports set to start April 10.

Trump reiterated his stance on tariffs, asserting that there would be no pause and warning that if China did not remove its 34% tariff by Tuesday, a new 50% tariff on Chinese goods would be implemented, effective April 9. Furthermore, last Wednesday, Trump announced that a minimum 10% tariff would be applied to imports from virtually all countries, with steeper rates for about 60 nations. By Saturday, new tariffs were enforced on imports from most countries, with specific industries like steel and automobiles exempt from the higher rates.

Noteworthy is China’s new reciprocal tariff rate of 34%, which increases total tariffs on its imports to 67%. The EU faces a 20% reciprocal tariff, amounting to a total of 39%. Japan’s imports will incur a 24% reciprocal tariff, resulting in an overall rate of 46%.

Stock valuations have remained pressured over the past month as fears develop that US tariffs could hinder economic growth and negatively affect corporate earnings. The initiation of a 25% tariff on Canadian and Mexican imports in early March and a doubling of tariffs on Chinese goods have compounded these concerns. The automotive sector is especially affected as a 25% tariff on auto imports went into effect Thursday, initially targeting vehicles from outside the US, and expanding to auto parts by May 3.

Market Reactions and Upcoming Economic Indicators

As the market weighs the potential for a -25 basis point rate cut after the May 6-7 FOMC meeting, expectations have dipped to about 28%, down from 30% last week. This week, market focus will center on US trade policies and the responses from other nations regarding tariffs.

Important economic indicators are anticipated soon, including the minutes from the March 18-19 FOMC meeting, the March CPI, and the March final-demand PPI, which collectively provide insight into inflationary trends and consumer sentiment. The University of Michigan’s April US consumer sentiment index is expected to decline to 54.0 from 57.0 in March.

Q1 earnings season will commence on Friday with major US banks releasing their results. Analysts project a year-over-year growth of +6.7% for S&P 500 earnings in Q1, a reduction from previous anticipations of +11.1%. Full-year corporate profit growth estimates for 2025 now stand at +9.4%, down from 12.5% anticipated in early January.

International Market Overview

Overseas stock markets today are showing positive trends, with the Euro Stoxx 50 rising by +3.55%. China’s Shanghai Composite Index closed up +1.58%, while Japan’s Nikkei Stock 225 enjoyed a significant increase of +6.03%.

Interest Rates Update

June 10-year Treasury notes (ZNM25) are down -13 ticks, with the 10-year T-note yield increasing by +2.5 to 4.208%. As global equity markets recover, there is a report of reduced demand for safe-haven government debt. Goolsbee’s remarks regarding inflation concerns also affected T-note prices. Additionally, upcoming Treasury auctions, including a $58 billion auction of 3-year T-notes, are contributing to pressure on T-notes.

European bond yields are on the rise, with the 10-year German bund yield increasing by +5.7 basis points to 2.670% and the 10-year UK gilt yield up +2.8 basis points to 4.643%.

ECB Governing Council member Simkus remarked that the ECB should consider a rate cut this month, pending more data in June for potential adjustments based on tariff implications. Currently, there is a 90% probability of a -25 basis point rate cut during the ECB’s upcoming meeting on April 17.