When President Trump took office earlier this year, investor sentiment was buoyed by expectations of pro-growth, pro-trade policies—leading to a rally in equities and a strengthening US Dollar. However, those hopes have since been undermined by a wave of protectionist rhetoric and action.
In the lead-up to April, markets were rattled by tariff threats targeting Canada and Mexico. Although both countries ultimately reached last-minute agreements to avoid full-scale penalties, the episode signaled potential room for negotiation with other global partners—particularly the EU and China.
Unfortunately, hopes of broader diplomacy faded quickly. Beginning in April, the administration rolled out a sweeping series of tariffs, with rates starting at 10% and climbing significantly higher for countries with large trade deficits with the US. China, in particular, saw tariffs spike to an extraordinary 145%, prompting immediate and aggressive retaliation. Beijing responded with its own set of tariffs, pushing rates as high as 125%.
The VIX, often referred to as Wall Street’s “fear gauge,” surged to levels last seen in August 2024. Across the Atlantic, the Euro STOXX Volatility Index recorded its sharpest one-day rise since the 2008 financial crisis.
Investor unease spilled into credit markets as well. The US high-yield (junk bond) sector suffered its worst sell-off since 2020. Spreads on these riskier corporate bonds widened by a full percentage point to 4.45%—a move not seen since the COVID-19 pandemic.
Even top-tier investment strategies were not immune. Renaissance Technologies’ flagship fund, the Institutional Equities Fund, was reportedly down 8% for April, according to the Financial Times—underscoring the breadth of the current market dislocation.
The steep drawdown in equity prices triggered large-scale margin calls across Wall Street, reminiscent of early-pandemic market stress. April 5th was the worst day for long/short equity hedge funds since Morgan Stanley began tracking in 2016, with selling pressure on par with the 2023 regional banking crisis and the COVID-driven sell-off of 2020.
In the wake of these developments, investors rushed toward safe-haven assets. Gold (XAU/USD) soared to a record high above $3,200, while the US Dollar came under intense pressure. The USD Index fell sharply, hitting a multi-year low of 99.60 on April 11th, driven by recession fears and a major sell-off in Treasuries.
The EUR/USD pair surged in response, reaching 1.1473—its highest since early 2022—bolstered further by the EU’s pause on retaliatory tariffs to allow room for negotiation.
However, any continued Euro strength may be short-lived. The European Central Bank has already cut its key deposit rate six times since June 2024, and further easing could introduce fresh downward pressure on the currency.
The Australian and New Zealand dollars, both heavily tied to Chinese economic performance, have experienced heightened volatility. The AUD/USD pair dropped to 0.5900—the lowest since March 2020—before stabilizing after the US announced a temporary pause on tariffs. Given Australia’s deep commodity trade links with China, the AUD remains vulnerable to any deterioration in China’s growth outlook.
Despite a cooling in headline inflation—US CPI declined from 2.8% in February to 2.4% in March—Federal Reserve policymakers remain cautious. Minutes from the latest FOMC meeting reflect a “wait-and-see” stance, acknowledging persistent inflation risks amid strong growth and a tight labor market.
Tariffs, by their nature, are inflationary. Even if the Fed’s 2% target is within reach, aggressive protectionist policies could complicate the timing and scope of future rate cuts.
As the Global Head of Macro at ING recently stated, “The current situation is not only chaotic—it’s crazy.”
At Ridge Capital Solutions, we’re closely monitoring these rapidly evolving dynamics and remain committed to helping our clients navigate uncertainty with insight, discipline, and resilience.