Trump's tariff flip-flopping is a dizzying time for investors and economies

Challenge is choosing the best options to help deal with new era of tariffs

Options traders work on the floor of the New York Stock Exchange at the end of a volatile week. AP

Global stock markets have lost trillions of dollars in value, hammered in a tumultuous week of intense pressure on US Treasuries and the dollar amid the disruption driven by the sweeping tariffs imposed by US President Donald Trump worldwide.

Investors cashed out risky equity holdings and shunned US assets, including government bonds, as both Washington and Beijing increased the tariff rhetoric – which on Friday escalated after Beijing announced it will raise levies on US goods to 125 per cent, effective on Saturday.

The relief rally on Wednesday, after Mr Trump made an about-face on some of his tariffs by announcing a 90-day pause, did not last beyond a day.

The “sell everything US related” narrative is “alive and kicking” in markets, Matthew Ryan, head of market strategy at global financial services firm Ebury, said. In past periods of market stress or panic, US assets have done well, given that they are viewed as “just about the safest investments around”.

However, “this has turned on its head since last week, with market participants appearing to completely lose confidence in America’s standing as the pillar of exceptionalism”, he said.

Trading Day: Donald Trump’s tariff pause ignites major market surge

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“It's incredibly tough to gauge whether or not the dollar is at or near a bottom, as we simply don’t know what Trump’s next move on tariffs will be.”

The US dollar index, which measures the greenback against a basket of currencies, was down on Friday, dropping about 1 per cent to a six-month low on investor concerns that the trade war was diminishing its value.

The tumult in the stocks market has resulted in equities losing more than $10 trillion in value, according to Bloomberg estimates, with $6 trillion alone wiped off Wall Street on Thursday and Friday last week. The former is more than the combined gross domestic products of Germany and Japan, the world's third and fourth largest economies, respectively, based on figures from Worldometers.

“That’s the cost of deglobalisation – and investors are not comfortable about it. Recession odds are rising, inflation expectations, too. Sentiment is fragile and will remain so until a clear resolution of the tariff puzzle,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, told The National.

Markets digesting China's fightback

Despite rising recession fears, US stocks mounted a rally on Friday.

The Dow Jones Industrial Average closed 619 points – or 1.56 per cent – higher while the S&P 500 and Nasdaq Composite rose 1.81 and 2.06 per cent, respectively.

The moves came after Mr Trump said he is “optimistic” China and the US would negotiate a deal on tariffs. His comments followed a decision from Beijing to raise tariffs on US goods from 84 per cent to 125 per cent beginning on Saturday.

But even before the latest escalation from Beijing, the “gloves are off” between the world's two biggest economies, as they are “no longer shadowboxing – they are now locked in a full-scale trade war”, said Nigel Green, chief executive of Dubai-based financial services firm deVere Group.

“The escalation is sharp and unmistakable … for investors, this likely marks the start of a period of profound volatility, profound opportunity and profound risk. When the world’s two largest economies go head-to-head, there are no easy winners – only shifting damage,” he added.

In Asian stock markets, which closed before Beijing made its tariff announcement, Hong Kong's Hang Seng index settled 1.13 per cent higher, while the Shanghai Composite in mainland China added 0.45 per cent, on hopes of a stimulus package from Beijing to off-set the impact of increased levies from the US. India's Sensex gained 1.76 per cent.

Japan's Nikkei 225 gave up nearly 3 per cent at the close, a couple of day after soaring more than 9 per cent, as concerns over the US-China trade war seeped in again. South Korea's Kospi and Australia's ASX 200 retreated 0.5 per cent and 0.82 per cent, respectively.

In Europe, London's FTSE was up 0.63 per cent, swinging between gains and losses. Frankfurt's DAX and the CAC 40 in Paris were down 0.92 per cent and 0.3 per cent, respectively.

In the UAE, the Abu Dhabi Securities Exchange settled about 0.1 per cent higher, while the Dubai Financial Market closed down 0.16 per cent. Saudi Arabia's Tadawul is closed on Fridays, along with bourses in Doha and Kuwait.

Bond market chaos

Despite the wild week for the major US indexes, it was the bond market that caught Mr Trump's attention.

The yield on the 10-year Treasury rose more than 50 basis points this week, after ending last week around 4 per cent. It rose to 4.49 per cent on Friday.

They were on tack for their largest weekly increase in more than four decades.

“People were getting a little queasy,” Mr Trump said of the bond market after issuing his tariff reversal.

The yield on the 30-year bond rose 4.972 per cent after touching 5.023 per cent on Wednesday.

Global investors typically turn to government debt during times of market volatility, although the recent sell-off has raised questions on whether the 10-year Treasury is a safe haven.

Jay Menozzi, chief investment officer and senior portfolio manager at Easterly Orange, said foreign ownership of Treasuries is another factor involved.

“It's a consequence of us running a trade deficit and a capital surplus that just literally says that foreign countries have to own US assets, capital assets, and they tend to own long-dated Treasuries,” he said.

“You might think safe haven, but I also think that fundamentally the net result of all this could be less demand for long-dated treasuries. Even though that hasn't happened yet, you've always got speculative investors that … see that coming, and so they want to jump in front of it.”

Speaking on CNBC's Squawk Box on Friday, Minneapolis Fed president Neel Kashkari said investors could be turning away from the US, noting that the dollar has also weakened.

“Normally when you see big tariff increases, I would have expected the dollar to go up. The fact that the dollar is going down at the same time, I think, lends some more credibility to the story of investor preferences shifting,” he said.

Mr Kashkari added he has not yet seen a major dislocation in markets, and that the Fed should intervene in markets only in a true emergency.

Gold tops $3,200

In commodities, oil prices were oscillating and were last up, although they marked a second weekly decline on tariff concerns.

Brent, the benchmark for two thirds of the world's oil, settled at $64.76 a barrel, up 2.26 per cent. West Texas Intermediate, the gauge that tracks US crude, finished at $61.50 a barrel, up 2.38 per cent.

Gold, meanwhile, hit a record on Friday as it topped $3,200, reflecting investors flocking to the commodity widely viewed as a safe-haven asset.

The precious metal, which has been on a steady rising streak in recent months, was at nearly $3,230 an ounce on Friday. Gold had pipped the $3,000 mark for the first time in March.

The precious metal has now risen by nearly 20 per cent since the January inauguration of Mr Trump and about 23 per cent year-to-date. It passed the $2,000 and $2,500 levels in May 2023 and August 2024, respectively.

Tariff fears and a strong euro are driving gold, according to the World Gold Council.

“Fiscal and monetary support may be receding, and the timing isn’t great for risk assets given current turmoil. Fundamentals remain solid for gold,” the London-based body said.

Cryptocurrencies take the cue

Cryptocurrencies, meanwhile, took a similar path with markets, rising after the tariffs pause.

Bitcoin, the world's first and biggest cryptocurrency, slipped to the $74,600 level on Wednesday, before Mr Trump made his announcement.

It has since surged by more than 10 per cent and was above $82,590 on Friday. Ethereum, the second largest, has also risen by a similar percentage.

The crypto market, noted for its volatility, has held up relatively well after last week's tariffs announcement, even if it has experienced steep declines during periods of uncertainty, said Simon Peters, a market analyst at trading platform eToro.

“Seasoned crypto investors see this as an opportunity to increase their holdings … if the dust begins to settle around US tariffs and financial conditions start to loosen … we could be setting the stage for a renewed rally and potentially new all-time highs,” he said.