AMC Weekly

Welcome to the new issue of the Bocconi Student Asset Management Club newsletter!

Global Economy

U.S.

On Monday, JPMorgan’s CEO, Jamie Dimon, stated that President Trump’s most recent tariffs “will likely increase inflation and is causing many consumers to consider a greater probability of a recession”. He also emphasized the potential for this trade war to cause irreversible damage, creating more reasons for an immediate solution.

To provide more context, President Trump aggressively imposed sweeping tariffs as part of his Liberating Day trade strategy in early April 2025. These tariffs aim to reduce the U.S. trade deficit and boost domestic production but in the short term, they have rapidly destabilized global financial markets and rattled U.S. domestic economic factors due to a lack of traditional consultation.

Major U.S. indexes have experienced multi-day declines, with record-breaking levels of losses. The treasury yield spiked dramatically as investors started to question the reliability of the American debt market. In fact, over 75 countries, ranging from Canada and Mexico to the European Union and emerging markets warned that this trade war would inevitably unravel established trading relationships and trigger retaliation.

Against this backdrop, global uncertainty and investor panic forced a policy re-evaluation. On April 9th, President Trump announced a 90-day pause on further tariff hikes for nearly all U.S. trading partners. After announcing the pause on his social media platforms, he explained that “people were getting a little bit yippy” in reference to the nervous reaction in the financial markets.

While tariffs on most countries were paused at the 10% baseline, China remained excluded from the reprieve and instead received an increase, meaning that Chinese products are now taxed at an effective of 125%.

Following the announcements, U.S. stock indices (DJIA, S&P 500, and NASDAQ Composite) quickly rebounded from several days of losses, recording one-day gains between 7% and 12%. Industries that had been suffering from increasing tariff uncertainty witnessed temporary relief, allowing companies and investors to realign their forecasts accordingly.

The University of Michigan’s consumer sentiment index has fallen sharply to 50.8, marking the second-lowest reading in its history, highlighting increasing concerns among consumers about inflation, job losses, and overall slowdown of the economy.

EMEA

Germany’s industrial production fell by 1.3% in February, giving back some of January’s 2% gain. The drop was mainly due to weaker output in construction, energy, and food manufacturing.

In Italy, output also shrank - down 0.9% in February and 0.7% over the December to February period. Meanwhile, ISTAT said the Italian economy grew just 0.7% in 2024, underperforming the 1.0% official forecast. The Treasury has since lowered its 2025 growth estimate to 0.6%, down from 1.2% last autumn. On top of that, a general 20% U.S. tariff could hit Italy’s sizable trade surplus with America.

The UK, by contrast, showed signs of a rebound. GDP rose 0.5% in February after flatlining in January, with all major sectors contributing. But any momentum could be challenged by fresh U.S. trade tariffs, which now loom over the recovery.

Canada

Bank of Canada outlook surveys indicates a significant increase in recession concerns among Canadian businesses and consumers. Approximately 32% of firms now anticipate a recession within the next year, doubling from previous quarters. Consumer concerns have also spiked with 66.5% expressing apprehension.

While the Bank of Canada continues to adjust monetary policy to protect the economy, markets are predicting a likely eighth rate cut to 2.5%. Spending is also sinking, with many consumers worrying about job security and financial stability since 33,000 jobs were last in March due to American imposed tariffs on crucial Canadian exports such as cars, steel, and aluminum.

Inflation expectations continue rising as companies plan on passing these higher costs to consumers. Canada’s retaliatory tariffs, affecting over $40 billion in U.S. goods have furtherly raised domestic prices on domestic products.

On April 9 Prime Minister Carney announced plans to negotiate a new economic and security relationship with the United States following President Trump's decision to pause tariffs from multiple nations, excluding Canada. These are set to begin immediately after Canada’s federal election on Aprile 28 in which Carney’s Liberal Party is forecasted to maintain parliamentary control.

APAC

Trump’s decision to set tariffs of 125% against China has severely impacted the rest of APAC. So far, China has responded by severely limiting agricultural exports to the United States.

The Chinese government and the state media have condemned these tariffs as economic warfare since the Shanghai Composite Index has fallen by 6.4 percentage points. Key Chinese economic institutions are therefore considering a domestic stimulus package.

Although ASEAN countries were initially assumed to be spared from the worst tariff effects, shipping and overall manufacturing costs are increasing exponentially in this region. This heavy toll is also leading to the reallocation of Western investment.

Looking more specifically, Japan has downgraded its domestic forecast from 1.4% to 0.9%, reflecting an overall state of uncertainty and disbelief in a rapid solution of the impending trade war. Australia has imposed severe limitations on its iron ore exports to China due to geopolitical tensions. India aims to strengthen diplomatic ties with the United States without being overly reliant, an outlook probably strengthened by India’s inclusion in the 90-day tariff pause.

Governments, financial, and economic institutions across APAC are drafting contingency plans to cope with inflation and even recessions. While the main target of Trump’s tariffs is the Chinese economy, it is no surprise that other countries in APAC also have to deal with the shifting diplomatic situation.

Equity Highlights

U.S.

The week began with sudden steep losses after President Trump announced a 125% tariff on Chinese imports which sparked fear of an intensified trade war. Markets crumbled with the Dow, S&P 500, and Nasdaq all posting significant declines.

Midweek, sentiment briefly reversed. On April 9th, Trump announced a 90-day pause on tariffs for most countries (excluding China), triggering a historic rally. The S&P 500 surged 9.5%, the Nasdaq jumped 12.2%, and the Dow gained nearly 3,000 points, marking one of its biggest single-day gains ever.

However, the rally faded as U.S.-China tensions resurfaced. Markets dropped again on Thursday, with tech and trade-sensitive sectors hit hardest. By Friday, however, stronger earnings and signs of diplomatic softening helped the S&P 500 close its best week since 2023.

Europe

European markets tracked these swings closely. The STOXX 600 and FTSE 100 dropped early in the week, then rebounded following the U.S. tariff pause. While volatility remained high, European indexes ended the week mostly higher, echoing the relief seen across global markets.

In short, the week highlighted markets’ sensitivity to policy uncertainty, with investor sentiment swinging rapidly between fear and optimism.

APAC

In Japan, the Nikkei 225 index opened on Monday at 33,154.97 points and closed on Friday at 33,585.58, ending the week with a +1.29%. On Monday, fears of a global trade war triggered a sell-off, hitting Japanese banks hard and resulting in a 6% reduction. However, stocks rebounded after the United States announced a temporary reduction in tariffs to 10% for 90 days, although the 25% tariff on Japanese cars remained unchanged. In fact, from Tuesday's opening to Friday's close, the index increased by 7.86%.

In China, stock markets closed with gains: the CSI 300 increased by 2.04% and the Shanghai Composite by 1.41%. In Hong Kong, the Hang Seng index rose by 0.89%. However, hopes for new economic stimuli led to four consecutive days of gains until Friday. On Friday, China increased tariffs on U.S. imports to 125%, describing the latest U.S. tariff hike to 145% as "without practical economic significance."

In India, the BSE Sensex ended the week up 5.19% from Monday's opening. The Metals sector (Tata Steel: +4.87%) and Energy sector (Power Grid Corporation: +3.72%) led the gains. However, India is not immune to the effects of the trade war, the United States has imposed tariffs of 26% on some Indian exports, raising concerns about Indian products’ competitiveness in the global market. Therefore, India aims to leverage the U.S. tariff pause to explore new trade agreements in IT and agricultural sectors.

Fixed Income Focus

U.S. Treasuries

This week, the benchmark ten-year yield rose 47 basis points to 4.48%, while the two-year yield rose 28 basis points to 3.96%. Speculation arose that China and Japan may be offloading U.S. debt, intensifying the rise in yields. Trump’s 90-day tariff pause and reduced duties initially aimed to ease tensions, but China struck back with increased tariffs on U.S. goods. Rising bond yields have also challenged the Trump administration's economic strategy, which relies on low borrowing costs. The sharp and unexpected move has raised doubts about the reputation of treasuries as a safe haven, and reflects growing uncertainty in global markets and governments.

Relative to last week, treasury yields, specifically mid-term to long-term, increased significantly, with upward movements observed across almost all maturities.

Investors are now assigning a higher probability to a much-anticipated rate cut during Fed’s May 7th meeting. Jerome Powell, however, further pushed back on speculation, stating that monetary policy discussions are premature given persistent inflation and a still-strong labor market.

Europe

The European fixed income market has experienced notable shifts this week, influenced by geopolitical tensions and central bank policies.

Key Developments:

Safe-Haven Demand: German bunds have seen increased demand as investors seek stability amid global market volatility.
ECB's Stance: ECB President Christine Lagarde emphasized the bank's vigilance regarding exchange rate movements, acknowledging the euro's strength and its potential deflationary impact.
Yield Movements: German 10-year bond yields have edged closer to 3%, influenced by Germany's increased borrowing for defense and infrastructure projects.
Credit Spreads: The iTRAXX Crossover index, tracking European high-yield credit risk, narrowed to 376 basis points from 427, indicating a temporary easing in credit concerns.

The current environment suggests a cautious approach for investors, focusing on high-quality assets and monitoring central bank communications for future policy shifts.

Wrap Up for the AM Division

Global markets were disrupted by President Trump’s aggressive tariff strategy, triggering inflation concerns, historic market moves, and increasing recession fears in the U.S., Canada, Europe, and APAC. A 90-day tariff pause offered temporary relief, fueling a record-breaking equity rally during the middle of the week, but volatility persisted with escalating U.S.-China tensions and retaliatory trade statements. In fixed income, U.S. Treasury yields jumped as investors worried about foreign countries dumping U.S. debt. Meanwhile, German bunds got a boost from safe-haven buying, and credit spreads tightened as people played it safe. Over in APAC and Europe, some sectors faced setbacks, and governments are rushing to come up with backup plans as trade tensions grow and inflation persists.