Downward revision of global economic outlook likely

The long-awaited decision regarding reciprocal tariffs has been announced by the US government, with Donald Trump dubbing it “Libertarian Day.”

Tariffs have now been applied to all of the United States trading partners, calculated based on each nation’s trade balance, and are broader in scope than previously anticipated.

It appears that the trade war has officially commenced, leading to turmoil within global financial markets that exceeds earlier projections.

Investors are becoming increasingly aware of the potential risks these developments pose to worldwide financial systems, which could hinder economic growth, stifle economic activity, and disrupt supply chains.

While it is still too early to fully gauge the actual impact and associated costs, risk assets are already facing intense pressure, and equity markets are beginning to feel the strain. Oil prices have dropped sharply, although this may benefit oil-importing economies.

Similarly, gold prices have experienced a sharp decline.

There is a looming concern that the burden of these tariffs will eventually fall on consumers, potentially triggering inflation and raising the likelihood of stagnation.

A downward revision of the global economic outlook is anticipated, as the current situation is unsustainable.

If this pace continues, the US economy could contract and slip into a negative growth rate.

China has already responded with retaliatory measures, announcing a 34% tariff on all US goods effective April 10. The reciprocal tariff on European Union goods will be set at 20%, which could reduce Eurozone GDP by a little over 0.2%. Other nations are expected to follow suit in imposing similar tariffs.

Current forecasts for inflation suggest that US Personal consumption expenditures (PCE) inflation could rise to between 4% and 5%, potentially dampening consumer spending.

This situation could pose a significant challenge for Federal Reserve policymakers regarding interest rate reductions. The Monetary Policy Committee (MPC) is set to meet in June.

On Friday, President Trump tweeted that it would be an ideal opportunity for Fed Chairman Jerome Powell to lower interest rates. However, Chairman Powell responded to queries about rate cuts by stating that there is no rush and that it is “too soon” to establish a clear policy direction.

The pressing question remains whether the trade conflict will persist. The immediate effect on financial markets has seen government bonds emerge as the real beneficiaries, with yields on 10-year US Treasuries closing at around 4%.

Meanwhile, the Swiss Franc, Japanese Yen, Pound Sterling, and Euro have all gained strength, as Europe and Japan are viewed as the next two largest capital markets following the US.

However, the Australian and New Zealand currencies have suffered significant losses.

The US Dollar, often considered a safe haven during global economic crises, has been adversely impacted by the reciprocal tariffs, as there is a flight of capital from US assets due to tariff concerns.

GOLD PRICES TAKE A NOSE DIVE

GOLD @ $ 3037- Following its peak of $ 3168, the recent decline in gold prices came after a significant drop in the stock market.

As capital market assets decreased significantly, concerns over liquidity emerged. Margin calls likely compelled investors to sell off their holdings, which increased the downward pressure on gold and created an opportunity for correction. This week, market participants will closely monitor stock movements to gauge the overall trend.

Some estimates indicate that the US stock market has lost nearly $ 11 trillion in just seven weeks.

However, the fundamental remains unchanged. Central bank’s purchases of gold for their reserves present a significant challenge. Countries like Russia and Iran will continue acquiring gold from various avenues due to limited options.

Additionally, China is likely to keep purchasing gold, especially as it has substantial cash reserves and is scaling back its investments in U.S. treasuries.

However, we might witness a softer gold market until things stabilize. Nevertheless, for serious buyers, this presents a prime opportunity to purchase gold at a discount of 2% to 3%. They can take advantage of this situation at any time. Furthermore, when the US Dollar weakens, gold becomes more appealing.

Meanwhile, $ 2980 is the level to watch. A break of $ 2,945 could lead to a decline towards $ 2,920.

While on the upside, a clear breakout of $ 3,095 would signal a resumption of its upward trajectory.

WEEKLY OUTLOOK - April 7-11

#EURO @ 1.0960- Euro’s gain will primarily rely on surpassing the 1.1065 mark to reach the important 1.1120 levels. If it fails to move past this point, it is likely to drift down towards the 1.0850-80 range.

#GBP @ 1.2898- Pound Sterling must surpass 1.3075 in order to challenge 1.3160. Conversely, it needs to stay above 1.2755 to keep its upward momentum intact.

#JPY @ 146.90- We might see some ups and downs in the $/Yen. If it stays above 145.02, US Dollar could bounce back to around 148.30 or 149.60.

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