Since President Donald Trump's inauguration, his administration has threatened or implemented a series of tariffs aimed at reshaping US trade relationships and bolstering domestic industries. These measures have targeted a range of imports, including steel, aluminium, and various goods from Canada, Mexico, and China, with the intention of reducing trade deficits and addressing national security concerns. In the past two weeks, the administration has intensified its trade policies by imposing a 25% tariff on imported automobiles and certain automotive parts. Announced on 26th March 2025, these tariffs are set to take effect on 2nd April 2025 and are expected to significantly impact both foreign automakers and domestic companies that rely on global supply chains. Consumers may face increased vehicle prices, with estimates suggesting potential increases of up to $12,500 per imported vehicle. ​Concurrently, the Federal Reserve has maintained the federal funds rate at a target range of 4.25% to 4.50%. The decision reflects the central bank's cautious approach amid rising inflation and economic uncertainties exacerbated by ongoing trade tensions. Policymakers are holding onto their pace of two rate cuts as projected at the beginning of 2025. The Fed also highlighted that tariffs make their decisions more difficult, as it likely alters the inflation rate. ​

In his current presidency, President Trump's aggressive tariff strategy has significantly impacted financial markets, introducing heightened volatility and uncertainty. The new administration has already introduced unprecedented tariffs within its first two months. Figure 1 provides an overview of currently imposed and threatened tariffs. These tariffs imposed by the US on other countries has also led to significant retaliations from those countries, which exacerbates the issue even further. The fact that the Trump administration also threatens tariffs nearly on a daily basis further bolsters global uncertainty. These tariffs have also disrupted established trade relationships and supply chains, leading to increased costs for businesses and consumers alike. Investors are now grappling with the potential for slower economic growth, as higher import costs contribute to rising inflationary pressures. Market participants also showed some optimism on a Trump administration for the anticipated resolutions of ongoing wars, especially in Israel and the Ukraine. While most successful in Israel, the situation between Russia and Ukraine remains highly unstable. These developments have undermined investor confidence, compelling market participants to reassess risk exposures and seek refuge in more stable assets. Consequently, the financial markets are navigating a complex landscape, where protectionist policies challenge the principles of free trade that have long underpinned global economic growth.

​US equities have had an impressive run so far in 2024. Since July, however, markets have generally trended lower. With one exception in April, equities rose steadily until July. This resulted in peak performances of 50% for the Magnificent 7 and 25% for the Nasdaq. The Dow Jones Industrial Average gained just 5%. The stark differences in performance can be explained by what drove the stock market. With most macroeconomic indicators showing worrying signs, the labour market has so far offset most of the negative signals. However, the labour market is also becoming more worrying as unemployment rises. Interest rates were originally expected to be cut relatively early in the year, which also boosted equities. With no rate cuts this year and considerable uncertainty as to when the first cut will be made since the increases, equity markets have suffered. Now that the labour market looks weaker than before, the equity market is in a difficult position. These concerns led to a decline in July and early August, culminating in the unwinding of the USD-JPY carry trade, which caused huge losses. This, combined with recession fears, led to sharp declines around the world and a huge spike in volatility. Since then, equities have rallied, recovering much of their earlier losses. Figure 1 shows the performance of various US equity indices in 2024.

Inflation has been a core topic since 2021, when inflation started to soar around the world. In response to this, the majority of central banks have taken the step of significantly increasing interest rates in order to combat the steep rise in inflation. Between the second half of 2022 and the first half of 2023, these measures, in conjunction with a stabilising economy, contributed to a reduction in inflation. By the end of 2023, inflation had fallen below 4% in most countries, as illustrated in Figure 1. While there have been significant differences in the prior years, the subsequent development has been consistent, albeit with varying magnitudes. In 2024 to date, inflation has stabilised, with most economies showing inflation rates between 2% and 4%. Switzerland is an exception, with inflation closer to 1%. In contrast to earlier expectations, inflation has proven to be more persistent than anticipated, with rates remaining above the frequently targeted maximum of 2%. The most notable exception was the UK, which has been hit hardest by inflation for the same reasons as other economies, but they still had to deal with the consequences of Brexit. Great Britain started in 2024 with an inflation of 4% and has since come down to 2%, where it remains steadily, whereas most other economies’ inflation has remained mostly flat throughout 2024.
As mentioned previously, central banks significantly raised interest rates to combat soaring inflation. The increases commenced at the end of 2021 and continued well into the summer of 2023, and autumn of 2023 for some countries. Since, interest rates were kept at these high levels for most of 2024 with some relief in some economies more recently. In March 2024, Switzerland became the first country to cut interest rates, followed by another reduction in June 2024. It is noteworthy that Switzerland is the only country where inflation has remained below the 2% target maximum since the summer of 2023. In June 2024, the European Central Bank followed suit by reducing interest rates (main refinancing operations rate) to 4.25%. More recently, the central bank hinted at a slower pace of interest rate cuts than anticipated after the initial cut. In August 2024, the Bank of England became the last economy to cut interest rates by 25bps to 5% in response to the promising development in inflation. In the United States, interest rates have remained unchanged since July 2023, currently sitting at 5.25%. The Fed has been hesitant to lower interest rates amid concerns about the stickiness of their inflation, as inflation has remained relatively steady since June 2023. It is also worth noting that Japan's situation is completely different. The country is renowned for its distinctive approach to monetary policy, exemplified by its central bank. The country maintained its negative interest rate throughout the period of the pandemic and its aftermath. In March 2024, the Bank of Japan increased interest rates and followed with an additional hike in July 2024. The first hike was particularly noteworthy, as the country had not raised its interest rates in 17 years. The second hike was to address two issues. The central bank also announced a bond tampering programme to boost the economy and raised interest rates significantly to combat the weakening Japanese Yen.