Introduction
On May 29, 2025, global markets were shaken by renewed uncertainty over the enforcement of a new wave of tariffs targeting strategic sectors, particularly between the United States, China, and the European Union. Amid escalating rhetoric and conflicting signals from policymakers, risk assets across the globe sold off sharply. The possibility that tariff implementation could be either expanded or delayed—without clear criteria—triggered a surge in volatility as investors reassessed their risk exposure.
With global supply chains already under strain from past geopolitical disruptions, market participants are now bracing for a potential rerun of the 2018-2019 trade war, which dampened business investment and slowed global growth. The unease was evident across asset classes, from equities and bonds to currencies and commodities. Thursday’s market performance underscored the fragility of investor confidence in a landscape fraught with both macroeconomic and policy-driven uncertainties.
This article breaks down the major market reactions, policy signals, and broader implications of this unfolding situation, offering a comprehensive snapshot of how tariff-related ambiguity is rippling through the global financial ecosystem.
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Equities: Broad-Based Selloff as Tariff Risks Resurface
Global equity markets were markedly lower on Thursday, led by steep declines in industrials, technology, and consumer discretionary sectors—key areas potentially affected by tariff escalation.
- U.S. Markets: The S&P 500 closed down 1.8%, snapping a three-day winning streak. The Dow Jones Industrial Average fell 2.1%, dragged by heavy losses in Boeing (-4.6%), Caterpillar (-3.9%), and 3M (-3.7%). The Nasdaq Composite dropped 1.6%, with chipmakers like Nvidia (-2.8%) and AMD (-2.3%) leading the decline.
- Europe: The STOXX Europe 600 Index lost 1.5%, with the German DAX plunging 1.9% amid fresh concerns over auto tariffs. Shares of BMW and Volkswagen fell 3.2% and 2.9%, respectively, after the U.S. Trade Representative’s office hinted at reviewing EU vehicle exports for compliance.
- Asia: China’s CSI 300 dropped 1.4%, while Hong Kong’s Hang Seng Index sank 2.2%, with technology stocks hit hardest. Alibaba fell 3.5% and Tencent lost 2.8% amid fears of retaliatory tariffs on U.S. software imports.
Market participants cited the lack of clarity from Washington and Brussels as a major driver of risk-off sentiment. While some officials signaled a desire to delay enforcement pending further talks, others emphasized the need to demonstrate “strategic resolve.”
Commodities: Oil and Industrial Metals Slide
Tariff uncertainty weighed heavily on commodities, especially those tied to industrial production and global trade.
- Crude Oil: West Texas Intermediate (WTI) futures declined 2.4% to $77.80 per barrel, while Brent crude fell 2.1% to $81.65. Traders cited fears that a tariff war could dampen demand for oil just as inventories begin to normalize post-winter.
- Copper: Often viewed as a barometer for global economic health, copper dropped 3.1% to $9,130 per metric ton. The decline reflects heightened concern that manufacturing activity will decelerate if tariffs raise input costs and reduce export orders.
- Gold: As risk assets tumbled, gold gained 1.5% to $2,345 per ounce, extending a three-day rally. Investors sought safety amid geopolitical and economic uncertainty, pushing the precious metal toward its all-time high.
Other industrial metals like aluminum (-2.7%) and nickel (-2.3%) also retreated, as markets recalibrated their expectations for demand growth in light of potential trade frictions.
Currencies: Dollar Gains on Safe-Haven Flows, Yuan Under Pressure
Currency markets reflected a flight to safety, with the U.S. dollar and Japanese yen both benefiting from defensive positioning.
- Dollar Index (DXY): The DXY rose 0.6% to 105.4, its highest level in nearly four weeks. The move was driven by both haven demand and a stronger-than-expected U.S. GDP revision for Q1, which came in at 2.0% versus the prior estimate of 1.7%.
- Chinese Yuan: The offshore yuan weakened to 7.32 per dollar, nearing a seven-month low. The People’s Bank of China (PBoC) responded with a firmer-than-expected fix, but traders remained wary of capital outflows amid the trade uncertainty.
- Euro: The euro fell 0.5% to 1.075, dragged lower by Germany’s soft retail sales data (-1.1% MoM) and the broader risk-off mood. Market participants also fretted over the bloc’s exposure to export disruptions if the EU becomes entangled in the U.S.-China tariff dispute.
Emerging market currencies broadly declined as well, particularly those with high trade exposure. The South Korean won fell 1.1%, and the Mexican peso slipped 0.9%.
Cryptocurrencies: Mixed Reaction Amid Broader Risk-Off Tone
Digital assets displayed a mixed performance, with large-cap cryptocurrencies faring better than riskier altcoins.
- Bitcoin (BTC): After falling earlier in the week, Bitcoin stabilized, rising 0.7% to $67,800. Traders cited continued institutional accumulation, particularly via ETFs, as a buffer against macro-driven volatility.
- Ethereum (ETH): Ethereum slipped 0.4% to $3,710 amid lower risk appetite, although expectations around an eventual Ethereum ETF approval lent some support.
- Altcoins: The broader altcoin market underperformed, with Solana (-2.8%), Avalanche (-3.2%), and Cardano (-1.9%) all in the red. Market participants noted that these tokens tend to be more sensitive to shifts in liquidity sentiment.
While crypto is often viewed as uncorrelated, recent months have shown increased sensitivity to global financial trends, particularly when tied to interest rates and regulatory developments.
Bonds: Treasury Yields Decline on Flight to Safety
The bond market offered a clear signal of investor concern. Yields across the curve fell as capital fled equities and commodities in favor of safe assets.
- U.S. Treasuries: The 10-year Treasury yield fell 9 basis points to 4.18%, while the 2-year yield dropped 6 basis points to 4.62%. The yield curve remained inverted, but the move suggested growing recessionary fears driven by a potential policy mistake.
- German Bunds: The yield on 10-year Bunds dropped 5 basis points to 2.42%, with similar moves seen in French and Dutch debt. Demand for safe Eurozone assets rose as equities slid and the economic outlook darkened.
- Corporate Bonds: Credit spreads widened, particularly in high-yield debt. The iShares iBoxx High Yield Corporate Bond ETF (HYG) fell 1.1%, as investors demanded greater compensation for perceived economic risk.
Fixed income strategists emphasized that a prolonged tariff standoff could dent consumer confidence, curtail corporate investment, and complicate central bank efforts to achieve soft landings.
Economic Indicators: Mixed Signals Complicate the Picture
The day’s economic data provided a mixed view of the macro backdrop, amplifying the challenge for investors navigating policy-driven risks.
- U.S. GDP (Q1 revision): The economy grew at a revised annualized pace of 2.0%, above the prior 1.7%, buoyed by stronger inventory accumulation and net exports. Consumer spending slowed to 1.8%, however, down from 2.2% in the initial estimate.
- Initial Jobless Claims: Weekly jobless claims ticked up to 224,000, slightly above consensus estimates of 218,000. Though not alarming, it was the third consecutive weekly increase.
- Pending Home Sales: The index fell 1.9% MoM in April, a steeper drop than expected, as high mortgage rates and supply shortages continued to weigh on housing activity.
Taken together, the data suggests a still-resilient but increasingly fragile U.S. economy—one that could be further undermined by sustained tariff uncertainty.
Policy Landscape: Conflicting Messages Sow Confusion
Investors are grappling not just with the economic consequences of tariffs, but also with the policy ambiguity surrounding their implementation.
- U.S. Trade Officials: While some White House advisors hinted at postponing certain enforcement provisions to allow room for negotiations, others within the USTR emphasized that the current timeline remained in place unless “clear concessions” are made.
- EU Response: Brussels said it would “evaluate all options” in response to potential U.S. action on auto and green tech exports. European Commission President Ursula von der Leyen warned of “proportionate countermeasures.”
- China’s Position: Beijing accused Washington of “economic coercion” and indicated it would respond with targeted measures if new tariffs were implemented. State media emphasized national resilience and hinted at potential restrictions on rare earth exports.
The lack of policy coherence—both within and between governments—has left markets guessing. Analysts warn that unless clearer guidelines are offered soon, volatility is likely to persist, if not worsen.
Conclusion
Thursday’s selloff across global markets underscores the outsized influence that policy uncertainty—especially around tariffs—can wield over investor sentiment and financial stability. In a world already contending with high interest rates, slowing growth, and geopolitical flashpoints, the reintroduction of tariff tensions presents a fresh threat to global economic coordination.
The cross-asset reaction was unambiguous: risk assets were dumped, safe havens bid up, and economic indicators were reassessed with an eye toward defensive positioning. While some policymakers signal moderation, the lack of clarity regarding timing, scope, and enforcement of the proposed tariffs has left markets rudderless.
Looking ahead, investors will be closely watching for:
- Official clarifications from U.S. trade authorities and international counterparts.
- Economic impact modeling, especially around manufacturing and export-dependent sectors.
- Central bank responses, particularly whether the Federal Reserve or ECB acknowledge trade risks in their June meetings.
For now, the most critical question remains: Will this new round of tariff talk evolve into a policy reality, or is it simply brinkmanship ahead of crucial geopolitical negotiations? Either way, the uncertainty is already shaping capital flows, risk premiums, and global growth expectations.
