The week in markets: Markets stabilise but caution remains

This article is approved for Financial Broker Use Only

Published: 16 Apr 2025

 

 

 

Following recent market turmoil, which saw the VIX (volatility) index reach one of its highest points this century, there was a stabilisation in risk assets this week.

Analysis by: Amber Gleeson, Investment Specialist, Aviva Investors

Market Update

  • As of Thursday morning, equity markets broadly delivered positive returns for the week, with the UK’s FTSE 100 up by nearly four per cent, and emerging market and Japanese equities also posting a positive return. Global equities are roughly flat so far this week.i
  • The week started well, with news of possible US reciprocal tariff exemptions for phones and electronic goods coming from China. However, the market recovery was soon overshadowed by fears of returning inflation, hawkish Federal Reserve (Fed) sentiment and the continued risk of US, and potentially global, recession.
  • The US dollar, which typically benefits from a “flight to safety” during volatile markets, remains under pressure following a significant fall since the tariff announcement.ii
  • Fed chair Jerome Powell highlighted not only that Trump’s tariffs had been “significantly larger than anticipated”, but also that the correlated economic effects are likely to be stagflationary (slowing growth while increasing inflation).iii
  • While President Trump continues to pressure the Fed to cut rates, his administration’s policies have placed the central bank in a “wait and see” mode, following a series of cuts in the second half of last year.iv

 

Outlook

  • Despite the pause to tariffs, risk assets remain under significant pressure as investor sentiment remains cautious.
  • Powell’s comments have magnified uncertainty in the markets, and broad risk-off sentiment continues.
  • We are likely to see ongoing instability in investment markets pending the arrival of more economic data and – of course – news on President Trump’s tariffs.

Our positioning in multi-asset portfolios

  • In portfolios where we have active discretion, we have maintained more defensive, aiming to provide protection for investors in this volatile and uncertain environment.
  • We remain underweight equities, specifically in the US and Europe. Meanwhile, we have structured our active fixed income positions to be less impacted by rising long-end US bond yields, by having more exposure at the five-year point of the Treasury curve.
  • We continue to monitor the situation on an ongoing basis to ensure the portfolios remain positioned appropriately. While cautious, we are still looking to add value in the prevailing environment where we have active discretion.
  • As longer-term investors, it is important to remain calm in these volatile and uncertain times. We continue to be confident that financial markets can provide the growth required by investors to meet their long-term goals.

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References
i. Bloomberg, as of April 17, 2025.
ii. Steven Kamin, “Dark days for the less-mighty dollar”, Financial Times, April 14, 2025.
iii. Claire Jones, “Donald Trump’s tariffs put Federal Reserve’s jobs and inflation goals at risk, says Jay Powell”, Financial Times, April 16, 2025.
iv. Claire Jones, “Donald Trump’s tariffs put Federal Reserve’s jobs and inflation goals at risk, says Jay Powell”, Financial Times, April 16, 2025.

 

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