Markets jitter as trade tensions rise

[UNITED STATES] Wall Street closed modestly higher on Monday despite a volatile trading day, with the S&P 500 and Nasdaq posting gains while the Dow ended barely in the green. This came amid renewed U.S.-China trade tensions, as President Trump accused Beijing of breaking a critical minerals tariff rollback deal, prompting threats of retaliation. Investors were also cautious ahead of upcoming U.S. jobs data and an anticipated European Central Bank rate cut.

The U.S. dollar weakened against major currencies, pressured by uncertainties over Trump’s trade stance, even as Treasury yields nudged up slightly. Meanwhile, risk-averse investors pushed gold prices to a three-week high, while OPEC+ maintained current oil output plans and Canadian wildfires raised concerns about oil supply. Crude prices surged nearly 3% on the day, and base metals like copper and aluminum also advanced.

European and Asian markets were less buoyant. European stocks slipped after Trump announced plans to double steel and aluminum tariffs, drawing sharp responses from the EU. In Asia, most regional indexes closed lower, with Japan’s Nikkei dropping over 1%. Polish stocks also declined after a nationalist candidate’s election win, reflecting ongoing geopolitical undercurrents.

Implications for Businesses, Consumers, and Policymakers

For businesses, the revived U.S.-China trade tensions add a new layer of unpredictability, particularly for sectors reliant on global supply chains like electronics, autos, and metals. Exporters in both the U.S. and Europe are bracing for retaliatory tariffs, which could dent profit margins and complicate long-term planning. Market volatility may also impact corporate investment decisions in the near term.

For consumers, tariffs on imported goods — especially steel and aluminum — could eventually translate to higher prices on a range of products, from cars to appliances. Coupled with elevated gold and oil prices, there’s a risk of rising inflationary pressure, potentially eroding purchasing power. Additionally, slower global growth from prolonged trade disputes could dampen job prospects or wage growth in certain industries.

For policymakers, these market moves are a sharp reminder of how geopolitical tensions and monetary policy interact. Central banks, including the European Central Bank and the Federal Reserve, face the delicate task of balancing inflation risks with growth concerns. Policymakers in Washington, Brussels, and Beijing will also need to navigate the political fallout of trade skirmishes without triggering broader economic disruption.

What We Think

Markets are signaling they are on edge but not yet panicked. Despite choppy trading, Wall Street ended higher, suggesting investors still expect central banks to provide a cushion — notably the anticipated ECB rate cut. However, underlying cracks are emerging. The slump in manufacturing data and heightened trade tensions are warning signs that cannot be ignored.

We believe the global economy is entering a phase where political unpredictability weighs just as heavily as economic fundamentals. Businesses and investors are recalibrating strategies to account for tariff swings, currency volatility, and shifting central bank policies. In this environment, resilience matters more than pure growth bets. Companies with diversified supply chains, strong balance sheets, and adaptability will likely outperform.

For consumers, the key story is whether inflationary pressures become sticky. Rising commodity prices could seep into everyday costs, making it vital for households to watch how monetary and fiscal policymakers respond. Ultimately, whether markets stay steady or stumble will hinge on how quickly trade tensions de-escalate — or escalate further.