Original title: April 2 Trading Manual: Three Possible Scenarios
Original author: Zhao Ying, Wall Street News
With the US tariff policy about to be unveiled on April 2, market uncertainty will reach a new peak, and investors need to fasten their seat belts and prepare for turbulence!
According to CCTV News on Saturday, it was learned on March 28 local time that US President Trump plans to announce new tariffs in the next few days. He expressed a certain openness to reaching tariff agreements with other countries, but he hinted that any agreement will be reached after the tariff measures take effect on April 2.
Asked if that would happen before the April 2 announcement of the tariffs, he said: No, most likely later. Trump also reiterated plans to announce tariffs on pharmaceuticals, but he declined to specify the specific rates of those tariffs.
In its latest report, Citigroup summarized three main scenarios and gave corresponding market impacts. The first is that only reciprocal tariffs are announced. In this scenario, the market reaction is relatively limited. The second is reciprocal tariffs plus value-added tax (VAT). The US dollar index may immediately rise by 50-100 basis points, and global stock markets may also fall. The third is that in addition to reciprocal tariffs and VAT, industry tariffs are also included. In this scenario, the market reaction may be more intense.
After the SP 500 suffered its worst start to the first quarter since 2020, analysts warned that the potential for subsequent declines is greater than increases. Some analysts pointed out that future tariffs and retaliatory actions are key, and the market reaction on April 2 will largely depend on the timing of tariffs, especially industry tariffs, and how quickly other countries respond to reciprocal tariffs.
Three major tariff scenarios
Citigroups report pointed out that with the announcement of tariff measures on April 2 imminent, three main scenarios were summarized based on the survey results and their impact on the market were analyzed:
Scenario 1: Only reciprocal tariffs announced: If the Trump administration only announces reciprocal tariffs based on the simple average tariff gap of the most favored nation (MFN) on April 2, this will be a relatively mild result. According to a survey by Nomura Securities, about 25.5% of respondents believe that this situation is likely to occur, and countries such as India, Thailand and Indonesia may be most affected. In this case, the market reaction may be relatively limited, and the US dollar index may not fluctuate significantly.
Scenario 2, Reciprocal Tariffs plus Value Added Tax (VAT): If the tariff policy includes VAT, it will be a more aggressive move that could trigger risk aversion and a stronger dollar. In this scenario, Germanys MFN tariff gap (including 19% VAT) is 20.4%, Frances is 21.1%, and Spains is 21.8%. Asia is also at risk, with Japan at 10.5%, India at 29.5%, and Thailand at 13.0%. This scenario could cause the US dollar index (DXY) to rise by 50-100 basis points immediately after the announcement, but at the same time, the US dollar may weaken against the yen and global stock markets may also fall. Asian interest rates may fall, with India and Thailand potentially falling by 5-7 basis points.
Scenario 3, more radical tariff policy: In addition to reciprocal tariffs and value-added tax, it may also include industry-specific tariffs. For example, Trump previously announced a 25% tariff on imported finished cars (potentially affecting Mexico, South Korea, Japan, Canada, and Germany), and also hinted that tariffs may be imposed on semiconductor chips and medicines (South Korea and Singapore are the most affected). In addition, the 25% tariff on Mexico and Canada may not be extended, or tariffs may be imposed on countries importing Venezuelan oil. In this scenario, the market reaction may be the most dramatic, the US dollar index may further strengthen, and the US dollar against the yen may fall sharply.
Markets brace for turbulence!
The roller coaster ride of the U.S. stock market has just begun. The SP 500 is heading for its worst first quarter performance since 2020, and the upcoming tariff policies may further exacerbate market turmoil.
The tariff policy announcement on April 2 will reveal which countries and industries the Trump administration will target. The market is expected to experience sharp fluctuations, with U.S. stocks expected to fluctuate sharply based on factors such as the severity and duration of the tariffs, the target countries and industries, and the retaliatory measures of trading partners.
Mark Malek, chief investment officer at Siebert Financial, said:
Im a committed bull, but Im telling you that between now and next week, especially before the earnings season begins, the potential for stocks to fall is greater than the potential for stocks to rise.
Michael Arone, chief investment strategist at State Street Global Advisors, said:
Uncertainty continues to plague the markets, bringing volatility, and there is likely to be more volatility on April 2 and beyond the deadline.
Angelo Kourkafas, senior investment strategist at Edward Jones, said:
The April 2 announcement may not be a one-off event, it is an important milestone, but ultimately it does not completely eliminate all uncertainty.
Matthew Aks, senior strategist at Evercore ISI, warned:
The market reaction on April 2 will depend greatly on the timing of future tariffs, particularly sectoral tariffs, and how quickly other countries respond with reciprocal tariffs. If other countries retaliate, this creates the risk of an escalation cycle that could undermine any sense of relief, he said.
According to CCTV News, when Trump was interviewed by reporters on Air Force One on his way to Florida, he was asked whether he was willing to discuss with the United Kingdom and other countries to reach an agreement to reduce tariffs on the United States. He said, If we can get something from this deal, its possible - but you know, we have been taken advantage of for 40 years or even longer. This kind of thing will not happen again. But yes, of course I am willing to accept it.
