Global markets are bracing for a volatile week as investors prepare for key economic data, Federal Reserve commentary, and a critical announcement on US tariffs.
On Wednesday, the Trump administration is expected to unveil new "reciprocal" tariffs, which could sharply increase the overall US tariff rate from the current estimated 10-12% range, marking the highest level since World War II.
According to Deutsche Bank, depending on the severity of the tariffs, the impact on US GDP growth could range from a modest negative 0.25 percentage points to a more severe negative 1.2 percentage points. Inflation is also expected to rise, with core PCE inflation potentially increasing by up to 1.2 percentage points.
Kathleen Brooks, research director at XTB, noted that markets have already shown signs of distress ahead of the announcement. The uncertainty has driven investors toward safe-haven assets, pushing gold prices above $3,122 per ounce.
"The first quarter of 2025 has been a rollercoaster," Brooks said. "While European stocks had a strong start to the year, US equities have suffered, with the Nasdaq now in correction territory."
Employment report
Federal Reserve Chair Jerome Powell is set to speak on Friday, shortly after the release of the March employment report, adding another layer of uncertainty to the week. Deutsche Bank expects nonfarm payrolls to increase by 150,000 jobs, slightly below recent averages. However, the impact of federal government layoffs remains uncertain, which could introduce volatility in the data.
The unemployment rate is projected to tick up to 4.2%, though it could remain at 4.1%, making Powell’s interpretation of the labor market a key focus for investors. Powell is expected to reiterate that the Fed remains in a difficult position, balancing inflation risks from tariffs with concerns about economic growth.
Brooks suggests that while tariffs are a major market theme, investor sentiment may already be shifting toward the upcoming earnings season. "We need to see if it will be a ‘sell the rumor, buy the fact’ moment for US stocks," she said. "The details of the reciprocal tariffs—who will be affected and at what rates—will determine whether the focus moves to corporate earnings and forward guidance."
Sector risks
The recent market sell-off has been led by consumer-exposed stocks, highlighting investor concerns about how tariffs may impact American households. Over the past month, shares of Delta Air Lines have fallen 27%, United Airlines 25%, Ralph Lauren 20%, and Lululemon 19%.
"The decline in consumer stocks is worth noting," Brooks said. "It suggests that investors see US consumers bearing the brunt of the pain from tariffs, which could be counterproductive for President Trump."
Despite these risks, analysts remain optimistic about the S&P 500, with FactSet data showing a 21% expected gain over the next year. The technology, consumer discretionary, and communication services sectors are forecasted to lead the rebound, while financials and energy are expected to lag.
Looking ahead
With markets on edge, the week ahead will be pivotal in shaping the trajectory of global equities. If tariffs are more aggressive than expected, stocks could face further downside, while a more measured approach may allow markets to stabilize and shift focus to corporate earnings.
"March has been a turning point," Brooks said. "Now all eyes are on April and whether it will bring an opportunity for recovery."