Markets Rally on Tariff Optimism—But Will a Surprise Recession Kill the Momentum?
Digital Asset Market: Bitcoin experienced a 3% rally alongside major cryptocurrencies like XRP and Solana amid optimism over potential easing of U.S. tariffs and future Federal Reserve rate cuts. This positive sentiment comes from President Trump's planned "reciprocal tariffs," which may be more selective, possibly excluding some countries. Previously, Bitcoin experienced a 17.6% drop due to tariff announcements, but current market enthusiasm has uplifted cryptocurrencies. The memecoin sector, led by Dogecoin's 7% surge, has benefited from this broader market rally. Economic uncertainty from tariff-induced inflation forecasts by the Federal Reserve has been countered by optimism, boosting risk assets like cryptocurrencies. The discussions around milder tariffs have revitalized major coins, while the CoinDesk 20 index saw a 2.7% rise. Although concerns about an economic bubble persist, AI tokens like NEAR protocol remain stable. Retail traders continue to pursue high-risk, high-reward opportunities, while the AI sector grows cautiously, mindful of overinvestment.
Macro Economics: Over the past month, concerns over a potential slowdown in the U.S. economy have intensified, fueled by various data points and expert predictions. Airlines and cruise lines have indicated a slowing in business, and consumer sentiment has become wary amid uncertainty surrounding President Trump's tariff policies. Despite Federal Reserve Chair Jerome Powell's reassurance that the economy is "healthy," projections for GDP growth in 2025 have been lowered to around 1.7% by the Fed and many Wall Street forecasters, marking a decline from previous estimates. Economists like those from JPMorgan, Morgan Stanley, and Goldman Sachs have similarly adjusted their expectations, yet none anticipate a full downturn.
The probability of a recession has risen modestly, with Goldman Sachs adjusting its recession likelihood to 20%, while a Deutsche Bank survey found a 43% chance of economic slowdown over the next year. Concerns are compounded by inflation remaining above the Fed’s 2% goal, raising fears of stagflation reminiscent of the 1980s. While consumer spending has shown signs of cooling, the labor market remains robust, with ongoing low unemployment and continuous job growth mitigating fears. Nonetheless, some experts, like Jeffrey Gundlach, suggest a recession probability exceeding 50%, driven by tariff uncertainties and potential policy missteps. Market analysts, such as Morgan Stanley and UCLA Anderson's Clement Bohr, underline the risk of tariffs triggering a recession, advising caution in policy decisions to prevent a more severe economic downturn.Equities: U.S. stocks rose slightly on Tuesday, building on the previous session's gains fueled by hopes that the scope of U.S. tariffs might be narrower. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite experienced modest increases. Despite a significant drop in the March consumer confidence index to 92.9, with future expectations hitting a 12-year low, investors focused on the potential easing of President Trump's planned tariffs. Markets had surged on Monday following reports that the Trump administration might narrow reciprocal tariffs expected on April 2, though tariffs on pharmaceuticals and autos are still anticipated. Additionally, concerns about a potential U.S. recession persist amid economic uncertainties and federal layoffs. Investors are closely monitoring upcoming economic reports, including GDP, personal consumption expenditures, and jobs data for more clarity.
The Fed and US Treasury: Americans' expectations for the economy have reached their lowest level in 12 years, driven by uncertainties around President Trump's policies and rising prices, impacting consumer sentiment negatively. The Conference Board's consumer confidence index dropped to 92.9 in March from 100.1 in February, marking the lowest in over four years. Particularly concerning is the expectations index, falling to 65.2, the lowest in 12 years and below the recession-indicating threshold of 80 for the second month. This decline reflects pessimism about future business conditions, employment prospects, and personal financial situations. Economic uncertainties, compounded by Trump's proposed tariffs and a volatile stock market, contributed to this downturn.
Federal Reserve Chair Jerome Powell noted the weak correlation between survey data and real economic activity, the decline in consumer confidence raises questions about spending behaviors and potential impacts on the Federal Reserve's next rate decision. As consumer sentiment weakens, Federal Reserve Governor Adriana Kugler expressed support for maintaining interest rates at 4.25% to 4.5% for some time, given the economic data's softness and slow inflation progress, while monitoring new developments for potential rate adjustments. Despite the downturn in sentiment, some economists argue that recession fears may be overstated, though signs of weakness are being closely monitored.Geopolitical: Russia has accused Ukraine of continuing attacks on its energy facilities, violating a recent 30-day ceasefire agreement mediated by President Trump. Russian Foreign Ministry spokeswoman Maria Zakharova claimed that Ukraine's actions show a lack of interest in peace. Despite Russian and Ukrainian leaders agreeing to halt assaults on energy infrastructure, Russia's Defense Ministry reported multiple drone strikes targeting facilities like the Kropotkinskaya oil pumping station and other sites linked to energy infrastructure. The ministry criticized Ukrainian President Zelensky for unreliability in negotiations, as Russian and Ukrainian forces traded accusations of breaching the ceasefire.
Additionally, Sergey Lavrov, Russia's Foreign Minister, blamed Western countries for supporting Ukraine with arms. Meanwhile, Russia launched missile attacks on Ukrainian cities, including a severe strike on Sumy that injured 74 people. Amid these tensions, talks are ongoing between Ukrainian and US delegations in Saudi Arabia, facilitated by the Trump administration, with hopes for a positive announcement soon. Although Russia's talks with the US in Saudi Arabia are challenging, they continue with international community involvement. In other developments, Israeli military actions targeted Syrian bases, and Houthi forces claimed attacks on US and Israeli targets.
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View from our desk
Cryptocurrencies continue to move in lockstep with broader financial markets, with recent optimism around a potential pullback in tariffs pushing Bitcoin above $88K. This sharp move signals that much of the prior selling pressure has likely been exhausted and that many sidelined sellers have already exited. This is a constructive setup for the next rally, with room for valuations to expand meaningfully from here.
Our view is that the recent downward pressure on crypto has largely run its course. With Bitcoin reclaiming key levels, there’s growing evidence that the lows for this cycle may be behind us—barring a sharp deterioration in macro conditions. While risks remain, the shift in market sentiment is encouraging, especially given the broader recovery in risk assets.
The market remains divided on the likelihood of a recession later this year, with some arguing that the U.S. is already in a recession when measured in real terms. Much of the outlook may hinge on the direction of trade policy. Former President Trump’s apparent willingness to roll back tariffs suggests a recognition of economic pressures, and if sustained, this policy shift could support risk assets, including crypto.
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