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The reciprocal tariff proposal announced by the White House last week far exceeded market expectations, imposing tariffs of 10% to 49% on trade deficit countries. This triggered market concerns that such policies would amplify inflationary pressures and drag down economic growth, potentially even raising the risk of a recession akin to the 1930s. However, Federal Reserve Chair Jerome Powell stated that it was still premature to cut rates. Amid rising panic, the S&P 500 plunged 9.08% for the week to 5,074.09.
In the bond market, fears of a significant economic downturn and continued pressure from the Trump administration on the Fed to cut rates drove the U.S. 10-year Treasury yield down by 25 bps to around 4%. The U.S. Dollar Index also fell to approximately 102.9.
Key Economic Data Last Week
US ISM PMI: The March ISM Manufacturing PMI fell to 49.0, marking the first contraction this year. New orders, production, and employment subindices all weakened, and the new orders minus customer inventories metric turned negative, signaling that tariff uncertainty is weighing on both demand and investment.
In contrast, firms frontloaded purchases to hedge against potential tariffs, pushing both inventories and supplier delivery times into expansion territory. The prices paid index surged for a sixth straight month to 69.4, the highest since June 2022, with some respondents reporting rising costs had eroded both orders and profit margins. The Services PMI also slipped from 53.5 to 50.8, with the employment sub-index plunging to 46.2, reflecting increasing caution in hiring.
US Employment Situation: Nonfarm payrolls in March increased by 228,000 (prior: 117,000), driven primarily by strong gains in services employment, particularly in retail (+23,000), leisure & hospitality (+43,000), and healthcare (+77,000).
From the household survey, the unemployment rate edged up to 4.2% (prior: 4.1%), while the labor force participation rate ticked up to 62.5% (prior: 62.4%), indicating an overall resilient labor market. Nonetheless, the 3-month average of nonfarm payrolls has slowed to 152,000, signaling a continued trend of cooling momentum.
Key Economic Data This Week
US Mar CPI: As temporary disruptions from January fade and a low Q1 base effect provides support, the Atlanta Fed forecasts the March CPI year-over-year rate will decline further to 2.48% (prior: 2.82%), with core CPI falling to 2.99% (prior: 3.11%). However, the recent implementation of steel and aluminum tariffs could contribute to a pickup in the March PPI.
FOMC Meeting Minutes: In its March meeting, the Fed held rates steady at 4.25%–4.50% as expected, while slowing the pace of balance sheet reduction to $40 billion per month. The Summary of Economic Projections reflected downward revisions to growth and upward revisions to inflation. The upcoming minutes will be closely scrutinized for the Fed’s assessment of tariff risks, inflation outlook, and views on the slowdown in quantitative tightening.
China Mar CPI: Due to the timing shift of the Lunar New Year holiday, China’s February CPI returned to negative territory for the first time in a year. With that short-term base effect now behind us, markets expect China’s March CPI to rebound modestly to +0.1% year-over-year (prior: -0.7%).
