Trump Pause Rally Emerges Amid Trade War Carnage
april 10, 2025
MARKET SNAPSHOT
Markets rebounded dramatically yesterday after weeks of trade war-induced turbulence, with the S&P 500 surging 9.5% following President Trump's announcement of a 90-day pause on most tariffs. This came just as investors were bracing for the worst, with U.S. Treasury yields having soared to seven-week highs and stocks experiencing their worst four-day loss since the 1950s.
Despite yesterday's relief rally, significant challenges remain. The RBI has reduced GDP growth projections for India to 6.5%, down from 6.7%, citing trade uncertainties. The upcoming earnings season is predicted to be disappointing, with Morgan Stanley projecting Q4 earnings to reach a 19-quarter low. Meanwhile, IT companies face potential downward earnings revisions as Trump's tariff policies continue to threaten global trade dynamics.
Trump Pivots: 90-Day Tariff Pause Triggers Epic Market Rally
The global financial markets experienced their most tumultuous week in years, culminating in a dramatic reversal yesterday after President Trump announced a 90-day pause on tariffs for most nations. This decision triggered one of the strongest single-day rallies since World War II, with the S&P 500, Dow Jones, and Nasdaq climbing 9.5%, 7.9%, and 12.2% respectively.
The market euphoria came with a significant asterisk, however. While Trump paused most tariffs, he simultaneously increased duties on Chinese imports to a staggering 125%, keeping Beijing squarely in his crosshairs. This selective approach represents a strategic pivot, shifting from a broad global trade war to a more concentrated confrontation with China.
Prior to this announcement, panic had gripped markets. The selling intensity had wiped out approximately $6 trillion in market value, with U.S. stocks experiencing their worst four-day loss since the 1950s. The U.S. bond market had become equally unsettled, with yields on 10-year Treasuries surging by approximately 60 basis points within days, sparking memories of the 2020 COVID-era "dash for cash" crisis.
The market's dramatic rebound reflects both relief and lingering anxiety. Analysts note that while the immediate threat of a broader trade conflict has diminished, significant uncertainty remains about the long-term economic impact of the continued Chinese tariffs. JPMorgan and Goldman Sachs have increased the probability of a U.S. recession to 60% and 45% respectively, suggesting the economic fallout may still be substantial despite yesterday's rally.
"BE COOL! Everything is going to work out well," Trump posted on Truth Social, encouraging investors to buy into the market dip. Whether this optimism proves warranted will depend largely on how trade negotiations unfold in the coming months, particularly with the 90-day clock now ticking.
RBI Cuts Rates, Shifts to "Accommodative" Stance as Trade War Threatens Growth
The Reserve Bank of India (RBI) cut its benchmark repo rate by 25 basis points to 6% yesterday, marking its second consecutive rate reduction. More significantly, the central bank shifted its monetary policy stance from "neutral" to "accommodative," signaling a readiness for further cuts if economic conditions deteriorate.
Governor Sanjay Malhotra's actions reflect growing concern about global trade tensions, which prompted the RBI to lower India's GDP growth forecast for FY26 from 6.7% to 6.5%. During the post-announcement press conference, Malhotra emphasized that the RBI is "more concerned about tariff impact on growth than inflation," acknowledging that despite India's relative resilience compared to export-dependent economies, global headwinds pose substantial risks.
The rate cut had mixed effects across the financial sector. Banking stocks fell by up to 4%, with PSU banks like Bank of India and Union Bank of India seeing the steepest declines. The gold loan NBFC sector was particularly hard hit, with Muthoot Finance and IIFL Finance shares plummeting up to 9% after the RBI announced plans to issue comprehensive regulations on gold-backed loans.
Market analysts expect the RBI to cut rates by an additional 50 basis points over the next three MPC meetings, underscoring the central bank's dovish outlook. With retail inflation currently at a seven-month low of 3.6% and the RBI's inflation projection for FY26 lowered to 4%, there appears to be ample room for further monetary easing.
The central bank also granted permission to enhance transaction limits for Person-to-Merchant (P2M) payments through UPI, though the ₹1 lakh cap for Person-to-Person (P2P) payments will remain unchanged. This reflects the RBI's commitment to fostering both economic growth and digital payment innovation amid challenging global conditions.
Wall Street's Q1 Bloodbath: Banks Set to Report Amid Trade War Chaos
As major U.S. banks prepare to release their first-quarter earnings, analysts are bracing for disappointing results that could further rattle already nervous markets. JPMorgan Chase and Morgan Stanley will kick off the reporting season, with their CEO commentary likely to provide crucial insights into how financial institutions are navigating the turbulent economic landscape shaped by Trump's tariff policies.
Morgan Stanley's analysts paint a particularly grim picture, projecting that India Inc.'s Q4 earnings will hit a 19-quarter low with a potential single-digit decline in profits due to weaker revenue growth and margin contraction. This would mark the first time in two years that margins have contracted, signaling a possible end to the post-pandemic recovery phase.
Jamie Dimon, CEO of JPMorgan Chase, struck a cautious tone in his recent 60-page shareholder letter, warning of significant economic risks stemming from trade tensions, inflationary pressures, and the ballooning U.S. fiscal deficit. While expressing confidence in the long-term resilience of the American economy, Dimon cautioned that the unprecedented levels of quantitative easing and tightening could lead to increased market volatility.
The anticipated earnings weakness extends beyond banks. Nine out of ten sectors are expected to report annual declines in revenue, with the energy sector projected as the biggest drag. Communication services, industrials, and healthcare are the few bright spots in an otherwise bleak earnings landscape.
Despite these challenges, analysts still forecast three-year compound annual growth rates for Sensex and Nifty 50 revenue and profit at 8% and 10% respectively for the April-June quarter, suggesting expectations that the current headwinds may be temporary. This perspective, however, hinges heavily on how quickly and effectively the trade disputes can be resolved.
IT Sector Under Pressure: Tariffs and Growth Concerns Prompt Downgrades
India's information technology sector faces mounting challenges as global trade tensions intensify, prompting several major brokerages to downgrade their outlook for IT stocks. Jefferies has notably reduced its earnings per share estimates for IT companies by 2-14%, reflecting concerns that Trump's tariff policies will adversely affect demand throughout FY26.
The brokerage has downgraded Tata Consultancy Services (TCS) from "buy" to "hold," slashing its target price from ₹4,530 to ₹3,300. Despite the overall cautious stance, Jefferies maintains "buy" ratings on Infosys, Coforge, and Sagility India, though with lowered target prices. These selective recommendations highlight the firm's view that companies with superior growth visibility and less susceptibility to price de-rating risks may outperform their peers.
UBS offers a slightly more optimistic perspective, noting that IT stocks are trading near pre-COVID levels or their 10-year averages, potentially offering value. However, the firm forecasts revenue growth of only -1% to 2%, significantly below the consensus expectations of 4-6%.
The sector's challenges extend beyond immediate tariff impacts. Ashi Anand, Founder & CEO of IME Capital, points to underlying structural issues, noting that discretionary spending in IT services remains weak with no significant uptick expected for at least one to two quarters. The absence of expected increases in discretionary spending is primarily attributed to ongoing economic uncertainties in the United States.
Sector performance reflects these concerns, with the Nifty IT index falling by approximately 2.4% in yesterday's trading. Looking ahead, the IT services outlook appears muted, with potential further earnings downgrades likely if global trade tensions persist and economic uncertainty continues to dampen client spending.
Metal and Pharma Stocks Reel as Trump Targets China with 104% Tariff
Metal and pharmaceutical stocks have experienced significant declines as markets digest the implications of President Trump's targeted 104% tariff on Chinese imports. While the broader market found relief in yesterday's 90-day pause for most nations, these sectors continue to face substantial challenges due to their exposure to global trade dynamics.
Metal stocks have been particularly hard hit, with many falling up to 18% in the past week. Vedanta suffered the most severe decline at 18%, followed by National Aluminium Company (Nalco), Hindalco Industries, and Tata Steel, which dropped by 16%, 15%, and 14% respectively. Analysts warn that the tariffs may lead to increased competition within the Indian steel sector as China could redirect its steel exports to India, potentially suppressing prices and prompting the government to consider protective measures.
The pharmaceutical sector faces similar challenges after Trump announced plans for a "major" tariff on pharmaceutical imports. This news sent stocks like Gland Pharma, Zydus Lifesciences, and Aurobindo Pharma down by 5.48%, 3.24%, and 3.18% respectively. The sector had briefly outperformed the market on April 3 when Trump's initial tariff announcement didn't specifically include pharmaceuticals, leading to a 5% surge in the pharma index. However, the subsequent clarification regarding pharmaceutical tariffs quickly erased these gains.
These sectoral challenges highlight the complex and far-reaching implications of Trump's trade policies. While the 90-day pause provides temporary relief for most nations, the targeted pressure on China creates ripple effects across global supply chains, potentially disrupting established trade patterns and forcing companies to reconsider their operational strategies. Investors in these sectors should prepare for continued volatility as markets adjust to the new trade landscape.
Brent Crude Plummets Below $60 as Tariff Fears Spark Global Demand Concerns
Oil prices have collapsed to their lowest levels since February 2021, with Brent crude dropping below $60 per barrel amid escalating concerns about global demand. The price erosion has been dramatic, with Brent futures falling to $61.43 per barrel and West Texas Intermediate (WTI) dropping to $58.08, marking a fifth consecutive day of declines.
This oil price slump occurs against the backdrop of President Trump's aggressive tariff policies, which have raised fears of a global economic slowdown or even recession. Analysts estimate that China's oil demand growth could be reduced by 50,000 to 100,000 barrels per day due to tariff complications, a significant concern given China's status as the world's largest oil importer.
The differential between current and six-month Brent futures has narrowed dramatically to just 98 cents, down from $3.53 before Trump's tariff announcements, suggesting a fundamental shift in market outlook. This flattening of the forward curve indicates that traders expect the current oversupply conditions to persist, eroding the premium typically associated with future deliveries.
Adding to the bearish sentiment, OPEC+ recently decided to increase oil output by 411,000 barrels per day in May, exacerbating concerns about potential oversupply. Goldman Sachs has adjusted its forecasts accordingly, projecting Brent prices to drop to $62 by December 2025 and further to $55 by December 2026.
The collapse in oil prices represents a rare silver lining in the current economic landscape, particularly for oil-importing nations like India. Lower energy costs could help offset inflationary pressures stemming from tariffs and provide some relief for consumers and businesses grappling with broader economic uncertainties.
Ather to Ola: Indian EV Makers Navigate Challenging Landscape
India's electric vehicle (EV) sector is facing significant turbulence as market dynamics shift and regulatory scrutiny intensifies. Ather Energy, a key player in the electric scooter market, is reportedly considering reducing its planned initial public offering (IPO) size by at least $50 million, scaling down from an initial target of $400 million. This decision comes in response to ongoing global market volatility, which has prompted existing investors to contemplate offering fewer shares during the sale and reassessing the IPO's valuation.
Meanwhile, Ola Electric continues to face regulatory challenges, having engaged Ernst & Young (EY) for the second time in less than six months to address compliance issues. The company is currently under scrutiny from two central government ministries regarding discrepancies in sales figures reported for February and concerns about the legality of trade certificates held by its retail locations. Many stores in Maharashtra were found to be sharing a single trade certificate, highlighting significant compliance gaps.
Ola Electric has shifted its operational strategy to a direct-to-store retail model, aiming to streamline inventory management and enhance delivery speed to customers by dispatching scooters, spare parts, and accessories directly from factories to retail outlets. This initiative is complemented by a new service called HyperDelivery, enabling same-day registration and delivery of electric scooters.
The EV sector's challenges reflect broader growing pains in India's transition to electric mobility. Despite these difficulties, the long-term outlook remains positive as government policies continue to support the shift toward sustainable transportation solutions. Investors and consumers alike will be watching closely to see how these companies adapt to the evolving regulatory landscape and market conditions.
Indian Banks Respond to RBI Rate Cut with Lending Rate Reductions
Following the Reserve Bank of India's decision to cut the repo rate by 25 basis points to 6%, several major Indian banks have swiftly announced reductions in their lending rates. This coordinated response demonstrates the banking sector's commitment to transmitting the benefits of monetary easing to borrowers, potentially stimulating economic activity amid challenging global conditions.
UCO Bank has reduced its Repo-Based Lending Rate (RBLR) by 25 basis points to 8.8%, while Karur Vysya Bank has cut its repo rate from 9.60% to 9.30%, representing a 30 basis point decline. Punjab National Bank (PNB) has adjusted its repo-linked lending rate to 8.85%, down from 9.10%. Indian Bank has implemented the most substantial reduction, decreasing its Repo Linked Benchmark Lending Rate (RBLR) from 9.05% to 8.70% - a 35 basis point cut.
Market reactions to these announcements have been mixed. UCO Bank closed at Rs 28.69, down 0.69%, while Karur Vysya Bank ended at Rs 203.92, reflecting a 3.24% decline. PNB shares closed down 1.24% at ₹95.72, underperforming the benchmark Sensex which fell by 0.51%.
The immediate transmission of the RBI's rate cut stands in contrast to previous monetary easing cycles, where banks often delayed passing on the benefits to borrowers. This prompt response may reflect the banking sector's improved health and liquidity position, as well as the effectiveness of the repo-linked lending rate mechanism introduced by the RBI to enhance monetary policy transmission.
Looking ahead, financial experts anticipate that deposit rates may also see reductions, though the timing will depend on liquidity conditions and credit growth patterns. As Dinesh Kumar Khara, former Chairman of SBI, noted, "Deposit rate cuts are likely, but their timing hinges on liquidity and credit growth." The RBI's shift to an accommodative stance suggests that further rate cuts may be on the horizon, potentially leading to additional adjustments in banks' lending and deposit rates in the coming months.
India's Export Resilience: Reaches $820 Billion Despite Global Challenges
In a testament to its economic resilience, India's exports have reached an impressive $820 billion in fiscal year 2024-25, marking a 6% increase compared to the previous year despite significant global trade headwinds. This growth comes amid substantial challenges, including the ongoing Red Sea crisis, the Russia-Ukraine conflict, and economic slowdowns in developed nations.
The achievement is particularly noteworthy given the current global trade tensions, with the United States recently imposing a 26% tariff on Indian imports as part of broader reciprocal tariffs targeting multiple countries. In response, Commerce and Industry Minister Piyush Goyal has reassured exporters that the government is committed to fostering a supportive environment amidst these evolving trade dynamics.
Sectors such as carpets and handicrafts have been particularly vocal about the potential impact of the new tariffs, formally requesting a three-month pause on tariffs for shipments currently in customs to smooth out the transition to post-tariff pricing. Rather than direct subsidies, the government is exploring support structures like the Interest Equalisation Scheme, which is likely to be reintroduced by April 2025 to provide financial relief to exporters.
The government's approach appears to be multifaceted, with analysts suggesting that India could mitigate the adverse effects of U.S. tariffs by increasing imports from the United States, particularly in sectors like oil, gas, and defense equipment. Currently, only 2% of India's defense imports come from the U.S., with 59% sourced from Russia, presenting a potential opportunity to enhance strategic ties while reducing reliance on Russian military supplies.
Looking ahead, discussions around a potential U.S.-India bilateral trade agreement may provide a more structured framework for trade relations, offering exporters greater certainty in an increasingly volatile global trade environment.
MARKET OUTLOOK
The dramatic "Trump Pause" rally offers welcome relief, but don't mistake it for resolution of the underlying tensions. With the 90-day clock now ticking and China still facing punitive 125% tariffs, we're merely entering a new phase of negotiation rather than ending the trade conflict.
For Indian markets, the immediate concerns have shifted from global chaos to domestic economic indicators. The RBI's rate cut and downward revision of growth forecasts reflect a central bank preparing for challenging times ahead. Bank lending rates are adjusting downward, but whether this will meaningfully boost economic activity remains uncertain given the broader headwinds.
The upcoming earnings season will likely confirm what Morgan Stanley is already projecting – one of the weakest quarters in years. With discretionary spending constrained and continued uncertainty about global trade dynamics, certain sectors like IT, metals, and pharmaceuticals remain particularly vulnerable.
Oil's collapse below $60 provides a rare silver lining, potentially easing inflation concerns and offering some relief for import-dependent India. This may give the RBI additional flexibility to continue its easing cycle if economic conditions deteriorate further.
Smart investors should remain selective, focusing on companies with strong domestic focus and limited exposure to sectors directly impacted by tariffs. While the pause offers breathing room, remember that the fundamental issue – Trump's determination to rebalance global trade through aggressive measures – hasn't changed. We're simply in the eye of the storm, with more turbulence almost certainly ahead.