President Trump has remained defiant amid the escalating tariff war, doubling down on his position while blasting China’s retaliation. Beijing’s 34% tariff response drew sharp criticism from Trump, who claimed China is “playing it wrong.”

Despite the chaos unfolding in global markets, Trump has shown no sign of reversing course — fuelling fears that the standoff will worsen before any resolution is reached. The market is now bracing for a full-scale, drawn-out trade war with no off-ramp in sight.

The market collapse has shifted attention away from last Friday’s surprisingly strong Non-Farm Payrolls report, which now feels like a distant memory. Instead, all eyes are on the Fed and the rising probability of rate cuts to cushion the economic blow.

JP Morgan now sees a 60% chance of a US recession this year. Rate cut bets have surged: the probability of a rate cut at the May 7 FOMC meeting has jumped to 49.1%, up from 33.1% just a week ago. Traders are also increasingly pricing in a cut at the June meeting as well, as the Fed faces growing pressure to act.

Government bond markets have rallied sharply, with investors seeking safety amid the storm. German Bunds and Bobls both rallied 0.5%, while the yield on the US 10-Year Treasury broke below 3.90% this morning to hit its lowest level since October last year.

The bond move reflects a cautious shift toward safety, although the response has so far been relatively measured compared to the velocity of the equity drawdown.

The Japanese yen continues to benefit from its safe-haven appeal, attracting buyers amid the turbulence. Sterling weakened broadly on Sunday evening, with GBP/CHF falling to 1.0916 — a steep drop from 1.1485 seen just last week.

Sterling/yen also came under pressure, sliding to 186.10 before rebounding to 187.77.

Cable (GBP/USD) was marginally firmer overnight, finding technical support near the 1.2850 area.

Gold, which typically shines during moments of panic, briefly dropped below $3,000 during the Asian Pacific session. It fell back to $2,970 before finding support. The sell-off in this traditional ‘safe-haven’ has surprised many.

But in an overall ‘risk-off’ panic such as this, investors are forced to sell everything they can to raise funds, particularly if the purchases were made using leverage. That gold has been a victim of this move has much to do with its recent surge to record highs.

Oil prices were hit hard overnight, with Light Crude tumbling to a four-year low of $58.80. The move lower reflects both the sharp risk-off sentiment and lingering concerns about oversupply — worsened by Friday’s steep inventory build. Light Crude has fallen 18% since ‘Liberation Day’ last Wednesday.

Volatility soared again on Monday, with the VIX — Wall Street’s so-called “fear gauge” — touching a high of 40 before pulling back slightly. The elevated reading signals continued anxiety across markets as traders weigh the fallout from tariffs and the growing likelihood of a global slowdown.

Despite the focus on macro risks, several high-impact events remain on deck this week:

• US Q1 earnings season ramps up, with major companies reporting results amid one of the most volatile periods in recent memory.
• FOMC speculation is set to build as traders look for any Fed signals in response to market stress.
• Bond market movements could serve as a leading indicator for future sentiment shifts as recession risk takes centre stage.

The rapid erosion of market confidence has left global investors stunned. With two days of double-digit losses in key indices and volatility surging, the question now becomes: is this a short-lived correction or the beginning of something more systemic?

Trump’s tariff escalation and China’s retaliation have triggered a global selloff that is no longer confined to rhetoric. Risk assets are under siege, and without a clear diplomatic off-ramp, the market’s next move could lead to further volatility.