This week, both traditional and crypto markets are facing a turbulent ride, as a wave of new U.S. tariffs and signs of economic slowdown trigger sharp declines across asset classes.
A Trade War Escalation and a Market Correction
The U.S. has officially implemented a new round of tariffs, dubbed the "reciprocal tariffs," which range from 10% to 104%, depending on the country. This aggressive move has rattled investors and triggered a market-wide sell-off.
The S&P 500 posted its worst two-day drop since the Covid crash of March 2020, reigniting fears of a broader recession. Chart
Oil prices are also sliding, with WTI crude falling below $60 a barrel for the first time in months, driven by both recession concerns and an unexpected ramp-up in oil production from OPEC.
Meanwhile, the U.S. dollar, which typically benefits during risk-off periods, continued its decline, dropping 1.4% this week and 8% since mid-January. It’s now hovering near October 2024 levels. Chart
Crypto Markets: Still Correlated
Despite hopes of a decoupling from traditional markets, the crypto sector has not been spared. Chart
Bitcoin (BTC) is down nearly 8% this week and has now underperformed the S&P 500 on a year-to-date basis, with an 18% loss YTD versus a 15% drop for the index. Chart
Ether (ETH) is facing steeper losses, plunging by almost 20% this week and breaking below a critical $1,800 support level.
Solana (SOL) and Ripple (XRP) both shed over 13%.
The initial belief in crypto’s independence from traditional finance was briefly revived when Bitcoin's drop lagged the S&P 500’s correction by two days — but that hope was short-lived. Chart
Ether Hits Multi-Year Lows
Ether is now trading below $1,387, a level not seen since March 2023, marking a 66% drop since December. The break of the $1,800 support triggered a wave of liquidations, including over $500 million in ETH futures and $600 million in BTC futures on April 6–7.
This massive liquidation cascade was also felt in DeFi. A Maker vault backed by 32,000 ETH was liquidated despite attempts by the borrower to shore up collateral. Vault details
Looking ahead, the next major DeFi liquidation levels for ETH lie between $1,267 and $1,063, according to DefiLlama. Map
Inflation Outlook and Consumer Impact
Tariffs are expected to fuel inflation further. According to CPI swaps, expectations for U.S. inflation are climbing, with market participants now pricing in 3.5% inflation going forward. Source
There’s already speculation of a $2,300 iPhone, or even $3,500 if manufacturing returns to the U.S. The macroeconomic data reinforces that concern:
The U.S. imported $525 billion worth of goods from China last year.
The trade deficit with China stood at $360 billion.
According to the South China Morning Post, some Chinese exporters are abandoning shipments to avoid the new 115% total import cost.
Factory orders are being paused, and supply chains are increasingly strained. China continues to lead in strategic sectors like battery production, and analysts note that it will be extremely difficult for the U.S. to quickly rebuild domestic manufacturing capacity.
Fed in the Spotlight
Markets are now betting on 3 to 5 rate cuts in 2025, versus the two initially projected by Jerome Powell. CME FedWatch Tool shows that the probability of four rate cuts this year has jumped to 37.5%. Chart
But the Fed faces a tough balancing act. Cutting too soon could reignite inflation, while waiting too long could worsen unemployment. As Allianz’s Chief Economist put it, “If we don’t put the inflation genie back in the bottle, it will undermine the Fed’s second objective, which is maximum employment.”
Morgan Stanley echoes this view, warning that tariff-induced inflation may prevent the Fed from acting at all.
The next major catalyst? The FOMC minutes release later today, which could set the tone for markets in the weeks ahead.
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