Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist 

A wave of trade optimism washed over markets on Thursday as a deal between the United States and Britain, cooling global tensions and a generally less belligerent stance from Washington spurred sharp gains in equities and other risk assets like bitcoin. 

In my column today I dig into why the tariff chaos of last month meant macro hedge funds in April suffered one of their worst maulings in years, and why the near-term outlook remains challenging. More on that below, but first, a roundup of the main market moves. 

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If this week has felt like markets have been treading water, waiting for investors to take a bullish or bearish view on the next phase of the global trade war, a clear direction seems to be emerging now. And the bulls are in the driving seat.

In the last 24 hours there has been confirmation of high-level US-China talks taking place this weekend, a US-UK trade deal, a US-Ukraine minerals deal, and positive soundings from U.S. President Donald Trump that further agreements are close. 

The S&P 500 and Nasdaq are back above their closing levels on April 2, Trump's tariff 'Liberation Day' that sparked a market meltdown, wiped trillions of dollars off the value of U.S. stocks, and forced him to back down days later.

On Thursday Brazil's stock market rocketed to a record high, bitcoin leaped back above $100,000 and is up 35% from its post-Liberation Day lows, and bond yields shot higher.

Whether this optimism is justified remains to be seen. As Federal Reserve Chair Jerome Powell said repeatedly on Wednesday, there is no clarity at all on what the economic impact of tariffs will eventually be. All we know is uncertainty has rarely been higher, and inflation and unemployment risks are rising. 

The U.S. central bank left policy unchanged as expected, resisting calls from Trump to lower interest rates, with Powell insisting the Fed needs more "hard" economic data before deciding its next step. 

But other major central banks are more worried about the risks to growth and are cutting rates. They include the European Central Bank, the People's Bank of China and, despite a surprise three-way vote split on Thursday, the Bank of England. Little wonder the dollar is trading at its highest in a month.

The PBOC snapped a run of seven consecutive days fixing the yuan at a stronger level against the dollar, fixing the currency at 7.2073/dollar on Thursday. The yuan also weakened on the onshore and offshore spot markets, and goes into Friday slipping further back from Monday's highs of the year.

While many investors survived the market volatility unleashed by U.S. President Donald Trump's "Liberation Day" with only a few scratches, macro hedge funds suffered one of their worst maulings in years. 

HFR's benchmark composite fund index fell by only 0.5% in April and the equity index actually rose, according to data released on Wednesday, but macro strategists were caught flat-footed by the steep declines in the dollar, oil, and short-dated Treasury yields and whiplashed by a brief, but historic, selloff in long bonds. 

Consequently, Macro hedge fund strategies lost 2.7% in the month, according to HFR, equaling the losses in March 2023 amid the turmoil caused by the U.S. regional banking crisis. The last time macro strategies had a worse month was February 2018 due to the "Volmaggedon"-fueled market turmoil.

Macro funds suffered, in part, because April marked a sharp shift in correlations between several asset classes – including abrupt reversals in some markets and accelerated moves in others – as well as a surge in margin calls and huge shifts in capital flows as many investors reduced their U.S. allocations.