Flash update - 'liberation day' - April 2025

06 Apr 2025 5 minutes

Aviva Investors Multi-Asset Team

In measures President Trump billed as a way to 'liberate' the US economy and "make America wealthy again", he announced a swathe of tariffs on nearly every country with which the US has a trade relationship.

What are the key headlines?

  • A universal baseline tariff of 10% will apply to imported goods into the US from all countries, effective April 5th.
  • In addition, the administration imposed so-called “reciprocal” tariffs to nearly 60 countries (those with over a 10% trade deficit with the US), for example 34% in China and 20% in the EU. This will be effective April 9th.
  • As a result, the aggregate effective tariff rate - the average tariff paid across all imports - in the US will rise to nearly 25%, a level not seen for over a century.
  • Countries are expected to try to negotiate with the US to bring down tariff rates, with the likelihood of success tied to the size of concessions they are willing to grant the US, as well as the administration’s personal preferences.

How have markets reacted?

  • Across the board, equity markets have fallen off the back of the news, with the S&P500, FTSE100 and Stoxx 600 down by 4.8%, 1.6%, 2.6% respectively.
  • Sovereign bonds rallied with US, European and UK 10-year government bond yields down by c. 5-10bps.
  • The dollar index also weakened by 1.7%, which was its biggest daily decline since 2022. This index reflects the value of the US dollar compared to a basket of major currencies.
  • The oil price fell nearly 9% as markets contended with the double impact of tariff’s potential impact on economic growth as well as a surprise increase in planned oil supply from OPEC+.
  • Despite some relief that the 'event risk' is out of the way, the debate around the magnitude of the impacts on inflation and growth will likely keep volatility elevated, as market concerns around stagflation remain at the front of everyone's mind.

How are we positioned in our multi-asset portfolios?

  • In line with our House View, we maintain an overall underweight position in equities.
    • Given the uncertainty leading up to 'Liberation Day' and the potential stagflationary impact of tariffs, we hold an underweight position in US equities.
    • We hold an underweight position in European equities on the view that European stocks were overvalued following over optimism for a ceasefire in Ukraine, as well as the broader tariff outlook.
  • We are overweight in sovereign bonds, particularly US Treasuries and UK Gilts:
    • We increased our position in US Treasuries leading up to April 2nd, favouring their safe haven credentials as well as our view that US economic growth would slow more quickly than the market anticipated..
    • We maintained our overweight position in UK Gilts due to the UK's fiscal discipline and weak growth outlook, which may lead to more aggressive rate cuts than are currently expected by markets.
  • Currencies: We held an overweight position in the Euro versus an underweight position in the US dollar, anticipating challenges to US economic growth (and hence interest rates) as compared to Europe where fiscal expansionism may lead to longer term interest rates being higher than previously expected.
  • This positioning has had a positive impact on the portfolios given the reaction of financial markets in recent days.

Key risks

Investment risk & currency risk

The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency and exchange rates. Investors may not get back the original amount invested.

Emerging market risk

Investments can be made in emerging markets. These markets may be volatile and carry higher risk than developed markets.

Derivatives risk

Investments can be made in derivatives, which can be complex and highly volatile. Derivatives may not perform as expected, meaning significant losses may be incurred.

Important information

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