Markets chart unknown waters

The reciprocal tariff announcement had a very negative impact on all financial markets, given the recessionary impact tariffs will have on US and global growth. The equity markets, the dollar and long-term interest rates fell sharply. Despite the prospect of higher inflation in the United States, the market is pricing in further Fed rate cuts (100bp). However, many questions remain unanswered. How will the rest of the world react? Europe plans to announce retaliatory measures shortly and China has already responded with a 34% increase in its tariffs on American imports, which could fuel escalation and risk aversion. China may also weaken its currency to remain competitive. In the short term, it is the euro that will, by default, benefit from the weakness of the dollar.