The US has sent out its tariff letters, but the market isn’t reacting much. The S&P 500 has remained steady since the beginning of the week, with 10-year US bond yields staying between 4.3% and 4.4%. Meanwhile, the USD index has risen for four days in a row. This week, only 23 countries received notifications about new tariffs, in contrast to the broad announcement on April 2. The current tariffs are similar to those previously discussed, which helps avoid the market turmoil seen three months ago.

Market Reaction to Tariff Announcements

The calmness in the market might come from the belief that high tariffs won’t be enforced. Past instances where tariffs were rolled back have shaped this view. If tariffs are implemented by August 1 without any changes, we could see increased volatility that might weaken the USD. However, if tariffs are rolled out gradually due to worsening economic conditions, the dollar may depreciate more slowly. This information has risks and uncertainties and shouldn’t be taken as investment advice. It’s important to do thorough research before making any investment decisions, as all investments come with risks, including the potential loss of your entire investment. Since the recent tariff announcements from US authorities, markets have remained quite stable. Neither stock indices nor government bonds have reacted strongly so far. The S&P 500 is flat, US 10-year Treasury yields are holding between 4.3% and 4.4%, and the dollar has risen for four straight sessions. This stability, especially in rates, indicates that many believe the economy won’t face immediate shocks from these changes. Instead of a major policy shift, only a small group of about two dozen states has received new tariff information, leaving others in limbo. This staggered approach has softened market reactions compared to early April, when a broader announcement prompted a significant drop in equities and a rush to safer investments. The limited scope of this week’s announcements has provided some breathing room.

Impact of Staggered Tariff Announcements

Markets seem to expect that the likelihood of follow-through on these policies is low. This perspective is partly influenced by past instances when announced tariffs were weakened or scrapped, leading to reduced investor anxiety. The longer policymakers take to finalize or implement tariffs, the more uncertain pricing becomes. If this unclear situation persists, the dollar may remain strong for a while longer. However, changes could happen quickly. If tariffs are enacted by August 1 without any easing or delays, we might see sharp market movements. A sudden weakness in the dollar could occur if investors start anticipating renewed trade tensions. Conversely, if tariffs are introduced gradually depending on trade performance, then adjustments to the dollar’s value may happen more smoothly. In that case, we could see more price volatility in interest rates, even if it’s delayed, and traders might begin positioning themselves ahead of clearer information. Watching for timing signals is crucial. Currently, credit markets show some patience, and the calm suggests investors still have time to reassess their positions. But the longer we go without new updates, the riskier it becomes to delay preparation. If policy expectations diverge sharply from actual actions, the eventual market reactions could be significant. So, depending on how you view these odds, focusing on currency strategies or interest rate options might provide more flexibility than direct investments in equities. As always, it’s important to continually review your strategy. Staying flat while implied volatility is low might seem appealing, but if policies change unexpectedly, the cost of reacting late could be high. Create your live VT Markets account and start trading now.

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