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Summary of Global Macro Thoughts (14 April 2025)

Core Content

This document, authored by Ajay Rajadhyaksha and Max Kitson from Barclays, provides an analysis of recent market movements and trade policy developments in the United States, highlighting the volatility and uncertainty affecting financial markets. It is intended for institutional investors and includes important disclosures and analyst certifications.

Key Market Developments

• Bond Market Volatility: The U.S. long bond dropped significantly, from 4.41% to 5% in just two and a half trading sessions, indicating a 10% loss for a 16-year duration bond. This is a sign of heightened market stress.
• Equity Market Reaction: The equity market initially rallied after the suspension of tariffs on China, but remained 13% below its peak. Long-term Treasuries continued to sell off, showing a divergence from equities.
• USD Weakness: The U.S. dollar weakened sharply despite equity gains and expectations of faster Fed rate cuts, suggesting a lack of confidence in the U.S. economy and policy environment.
• Trade Policy Uncertainty: U.S. trade policy with China and other countries has been highly volatile, leading to uncertainty that is impacting consumer sentiment and financial markets.

Main Points

• Trade Policy Fluctuations: U.S. tariffs on China have increased rapidly, reaching 150%, but were later partially reversed with the exemption of electronics. This policy flip-flop has caused market instability.
• Consumer Sentiment Deterioration: U.S. consumer sentiment, as measured by the UMich survey, has dropped sharply from over 75 to 47.2, reflecting growing concerns about economic conditions and trade policy.
• Market Volatility: The bond market has shown extreme volatility, with prices fluctuating significantly. This has raised concerns about market stability and potential systemic risks.
• Fed's Role: The Fed has stated it is ready to intervene if necessary, but is expected to be reactive rather than proactive in addressing market instability.
• Economic Outlook: There are signs of a potential slowdown in U.S. growth due to ongoing trade tensions and policy uncertainty. Financial markets remain closely tied to U.S. trade policy developments.

Key Information

• Policy Impact: Rapid changes in U.S. trade policy have created uncertainty, affecting both consumers and markets.
• Market Reactions: Equity markets have shown a mixed response to trade policy changes, while bond markets have been more volatile.
• Inflation Expectations: Inflation expectations, particularly for 5-10 year periods, have remained above 4%, contributing to market anxiety.
• Analyst Views: The analysts suggest that the bond market needs to stabilize before risk assets can recover, and that the USD should strengthen in a normal market environment.
• Investment Recommendations: The report is neutral on both risk assets and duration, indicating a cautious approach due to ongoing uncertainties.

Analyst Certification

• Ajay Rajadhyaksha and Max Kitson certify that the views expressed in this report accurately reflect their personal views and that no part of their compensation was directly or indirectly related to the specific recommendations in this report.

Important Disclosures

• The report is produced by Barclays Research and is not subject to the same independence and disclosure standards as debt research reports for retail investors.
• Barclays may have conflicts of interest due to its trading activities in the securities discussed.
• The report includes data and information from third-party sources, including Bloomberg, and is not guaranteed to be accurate or complete.
• The views in this report are subject to change and are not investment advice tailored to individual circumstances.

Legal and Distribution Information

• The report is distributed by various legal entities, including Barclays Bank PLC, Barclays Capital Inc., and others, depending on the jurisdiction.
• It is intended for institutional investors only and is not suitable for retail investors.
• Distribution to retail investors is prohibited, and the document may not be used for personal investment decisions.
• Third-party distributors, such as Barrenjoey Markets Pty Limited, are not agents of Barclays and are identified separately.

Conclusion

The report underscores the significant impact of U.S. trade policy on financial markets, with a focus on the recent fluctuations in the bond and equity markets. It highlights the need for market stability and the importance of monitoring trade policy developments, as they continue to influence investor sentiment and economic growth prospects.