Cooling CPI Fails to Counter Tariff Shock: U.S. Stocks, Bonds, and Dollar Hit Hard

Market Overview

Following the release of U.S. CPI data, short-term yields declined sharply, with the 2-year Treasury yield plunging over 10 basis points intraday. However, lingering tariff concerns triggered a sell-off in long-duration bonds, pushing the 10-year yield higher for the fourth consecutive session. In equities, a brief rebound in U.S. stocks quickly faded— the Nasdaq plummeted more than 4%, the S&P 500 lost over 3%, and Tesla led the decline among the “Magnificent Seven” with a drop of over 7%. The semiconductor index crashed 8%, while Chinese ADRs also retreated by more than 1%.

In commodities, tariff-driven demand uncertainty prompted the U.S. Department of Energy to slash its oil price forecasts, sending WTI crude nearly 6% lower—approaching a four-year low. Meanwhile, rising risk aversion fueled a rally in safe-haven assets, with spot gold soaring 3% intraday to a new record high, and gold futures up nearly 4%.

Hot Topics to Watch

● U.S. Inflation Cools More Than Expected

Core inflation in March showed a sharper-than-expected slowdown, particularly in services. Core services CPI rose just 0.08% month-over-month, marking a significant deceleration. While Trump‘s decision to postpone “reciprocal tariffs” offered markets a brief breather, analysts caution that broad-based tariffs are already impacting domestic prices. Tonight’s CPI reading may merely reflect the calm before the storm. With inflation uncertainties driven by the trade war, the Fed remains cautious and is seeking greater clarity on how tariffs will affect inflation and the broader economy.

● Citi Cuts Japan's GDP Forecast

Citibank revised its 2025 GDP forecast for Japan downward, citing the growing impact of rising U.S. trade tariffs. The bank now expects the Bank of Japan to hold off on any further rate hikes until March 2026, versus its earlier forecast of June 2025. The terminal rate is still projected to peak at 1.5%. Citi attributes the downgrade to increasing economic turbulence following President Trump's aggressive trade moves. While the 24% tariff on Japanese imports has been delayed for 90 days, the 10% universal tariff, the 25% auto tariff, and steep duties on Chinese goods are setting the stage for more economic headwinds in the months ahead.

Key Events to Watch (GMT+2)

• 20:30 – U.S. March PPI (YoY / MoM)

• 22:00 – U.S. April Preliminary Inflation Expectations; U.S. April Preliminary University of Canada Consumer Sentiment Index; 2025 FOMC voter & St. Louis Fed President Musalem speaks on the U.S. economy and monetary policy

• 23:00 – Permanent FOMC voter & New York Fed President Williams speaks on the economic outlook and monetary policy