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Why tariffs may trigger rally instead of crash?

The current panic in the markets may be overblown. If tomorrow's tariffs prove to be less damaging than expected, we could witness a short but sharp rebound, particularly in the S&P 500. However, any long position at this stage would be countertrend and require strict risk management.

As the first quarter draws to a close, the stock market remains under intense pressure. Investors are holding their breath ahead of tomorrow's announcement on reciprocal tariffs, a decision that could set the tone for the start of the second quarter. In such a climate of fear, opportunities for a rebound often emerge. The question is where to find support and when to act.

Current situation: no safe haven for indices
The S&P 500 is currently trading near 5,590 points, while the Nasdaq 100 is hovering around 19,260. Both indices have come under pressure in recent weeks not only due to geopolitical and tariff-related concerns but also because of structural weakening in demand for US equities.

The S&P 500 entered technical correction territory and declined 10% from its mid-February peak. The Nasdaq is showing similar signs of weakness.

CFTC data confirms the trend: net long positions in both indices have been shrinking for several weeks. The market is under pressure not only from tariff concerns but also from fears of a longer-term capital shift toward European assets.

For the S&P 500, the nearest support lies at 5,535, the local low from last week and the lower boundary of the current channel. Below that is 5,480, which corresponds to the 38.2% Fibonacci retracement of the rally since October.

Resistance levels are located at 5,650 and 5,705.

Bullish scenario: if the S&P 500 manages to hold above 5,535 after the tariff announcement and forms a bullish daily candle, this could be the first signal of a rebound toward the 5,650–5,705 range.

Bearish scenario: a drop below 5,480 would pave the way for a move down to the 5,400–5,350 zone, where medium-term support levels from late last year are located.

For the Nasdaq 100, the nearest support stands at 19,120, a trendline extending from early October. The next key level is 18,800, which combines Fibonacci support with an area of interest for institutional investors.

Resistance could be found at 19,500 and 19,800.

Entry points: for short-term traders looking to play a bounce, the market's reaction to 19,120 will be critical. If the level holds and a reversal pattern forms, this could present an opportunity for a short-term long position targeting 19,500.

A break below 18,800 would open the door to a full-fledged bearish trend, with targets in the 18,000–18,200 range.

Fundamental perspective: risk or opportunity?
The central question of the week is tomorrow's tariff announcement. It is known that the United States will introduce aggressive measures, but the scope and scale of the tariffs remain unclear. If it turns out that the new tariffs are less severe than feared and if some companies, such as TSMC, receive exemptions, this could become the catalyst for a market reversal as early as Wednesday or Thursday.

This is especially relevant given the current state of capitulation. Defensive sectors are also under pressure, gold is retreating after recent gains, and investor positioning remains heavily reduced.

That said, the long-term trend continues to pose challenges for the market. The potential for sustained capital outflows to Europe, growing protectionist rhetoric, and a lack of international allies could continue to weigh on US indices into the second quarter.

The trade war has hit Europe: stock indexes are in the red

Shares of European banks and retail companies came under pressure after Donald Trump announced the introduction of new tariffs on imports. Trump announced a 10% tariff on all foreign imports to the United States, and tariffs will be even higher for some trading partners. This decision is aimed at combating alleged unfair trade practices.

The European Union was among the countries that are subject to the «retaliatory» tariffs of the United States. The White House considers them unscrupulous players in international trade, and has imposed 20% tariffs on the EU. Against the background of this news, the index of eurozone creditors fell by 2.8%, and analysts warned of a possible recession if the policy of duties continues. They also believe that the ECB may accelerate interest rate cuts to stimulate the economy.

The broader European stock indexes were in the red zone: the German DAX lost 2.3%, the French CAC 40 declined by 2.2%, and the British FTSE 100 sank by 1.5%.

Shares of banks in Italy and Spain, including Banco Santander, Banca Monte dei Paschi di Siena and Unicredit, lost more than 2%. Luxury goods manufacturers such as Pandora, Richemont, LVMH and Kering are also under pressure as the EU and Switzerland face new US tariffs.

Ripple plans to acquire Hidden Road for $1.25 billion

Ripple has announced the acquisition of multi-asset prime broker Hidden Road for $1.25 billion. This will be one of the largest acquisitions in the history of the cryptocurrency company.

This is the second time this year that a cryptocurrency firm has been involved in a deal worth over a billion dollars. This event is taking place against the backdrop of the growing popularity of digital assets such as bitcoin, which is associated with the efforts of US President Donald Trump, who has promised to become a "cryptocurrency president."

Ripple CEO Brad Garlinghouse noted that the American market is actually open for the first time, thanks to overcoming regulatory pressure from the former SEC, and it is ready to meet the needs of traditional financial institutions. Prime brokers such as Hidden Road play a key role in day-to-day operations, including clearing, securities lending, and margin transactions. These services are in demand by large hedge funds and institutional investors.

Today, Hidden Road processes $3 trillion annually in various markets and serves more than 300 institutional clients. The acquisition of Ripple will allow Hidden Road to significantly expand its operations using the company's balance sheet and become the largest non-bank prime broker in the world.

After the completion of the transaction, which is expected in the coming months, Ripple will become the only cryptocurrency company that owns and operates a global multi-asset prime broker.

In addition, this acquisition will increase the importance of Ripple USD (RLUSD), as Hidden Road uses stablecoin as collateral for its prime brokerage services. Ripple launched RLUSD, pegged to the US dollar, last year with the aim of disrupting the market dominated by Tether and USD Coin.

Commodity dependency: the United States and China in a trade war

The United States depends on China for supplies in 198 product categories, while China is similarly dependent on only 68 items. American imports from China exceed a third for many goods, which has increased the tension in the trade war after the introduction of «reciprocal» duties. For China, the rates reached 54%, and then rose to 145%, while for American products in China they increased to 125%, practically paralyzing trade.

For the United States, the main dependence on Chinese supplies is noted in phones ($50.9 billion), batteries ($17.9 billion), toys ($13.5 billion) and video game consoles ($7 billion). In some categories – umbrellas, thermoses, baby strollers, fireworks – the dependence exceeds 90%. China provides more than two thirds of the imports of chalk, manganese and rare earths to the United States.

China, in turn, is most dependent on American imports for petroleum products ($14 billion), turbojet engines and gas turbines ($6.6 billion), aviation equipment ($5.3 billion), as well as cotton fiber ($1.85 billion) and sorghum ($1.7 billion). For a number of categories, such as antibiotics, lighters, fodder roots, and meat products, the U.S. share of supplies reaches 60-93%.

China refuted the US statements about the negotiations on duties

China and the United States did not negotiate on duties, Chinese Foreign Ministry spokesman Guo Jiakun said at a briefing on Thursday. He denied the statements of the American side, stressing that no consultations on tariffs had been held, and rumors about a possible agreement were not true.

Earlier, White House spokeswoman Carolyn Levitt said that the United States had received 18 trade proposals after the imposition of duties and was planning talks with 34 countries this week. She noted that discussions with China are continuing, assessing them as promising for a deal.

Guo Jiakun called these statements false and recalled that the United States had started the trade war. He stated Beijing's unchanged position: if necessary, China is ready to fight to the end, but in case of negotiations, the country is open to dialogue. At the same time, he stressed that discussions are possible only on the basis of equality, mutual respect and mutual benefit.

The European Commissioner recognized Europe's dependence on Russian gas

Europe is still dependent on Russian gas, acknowledged European Commissioner for Energy Dan Jorgensen. In his opinion, such a situation is unacceptable, both from a political and moral point of view, as well as from a security perspective. A roadmap aimed at phasing out the use of Russian gas will be presented soon.

At the same time, the European Commissioner stressed that Europe's dependence on the supply of liquefied natural gas from the United States also exists. At the same time, he expressed confidence in the existence of opportunities to increase the volume of gas imported from the United States.

Earlier, in May 2022, the European Union launched the REPowerEU program, the ultimate goal of which is to end dependence on Russian gas by 2027.

On Monday, the price of LNG remains at $3,139.

The dollar is strengthening amid expectations of US economic data

The US dollar is noticeably strengthening against the euro, the pound sterling and the yen on Wednesday amid expectations of important economic data. Investors are waiting for the publication of reports on the dynamics of US and eurozone GDP for the first quarter, as well as March figures on Americans' incomes and expenses, including a key inflation indicator monitored by the Fed.

The DXY index, which reflects the dollar's exchange rate against six major world currencies, is adding 0.04%, while the WSJ Dollar Index is increasing by 0.02%. The euro/dollar pair is trading at $1.1375, down from $1.1387. The pound weakened to $1.3389 against $1.3409 the day before. Against the yen, the dollar rose to 142.64 yen from the previous 142.35 yen.

The Bank of Japan has started a two-day meeting at which it is likely to maintain its current monetary policy to assess the effects of the US tariffs. At the same time, in March, the country's industrial production decreased by 1.1% after rising by 2.3% in February, and retail sales fell by 1.2%, which was a record decline in six months.

Switzerland may return to negative rates

The Swiss National Bank (SNB) has declared its readiness to take decisive measures to prevent inflation from falling below the target level necessary to ensure price stability. The head of the bank, Martin Schlegel, during a speech in Zurich, noted that currency interventions and lowering interest rates to negative values are considered among possible steps.

Although the use of negative interest rates is not popular, Schlegel stressed that the SNB is ready to resort to this tool again if necessary to maintain the stability of the economy. According to him, the bank strives to avoid such decisions, but its willingness to act remains unchanged.

This position underscores the SNB's commitment to its primary goal of maintaining price stability. The willingness to engage in currency interventions and further rate cuts demonstrates the bank's determination to take any necessary measures to protect the economy from the threats posed by falling inflation.

Sweden invites the EU to join the largest free trade area

At a meeting of EU foreign ministers on May 15, Sweden plans to invite the association to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) agreement, which unites more than a dozen Pacific Rim countries.

Swedish Foreign Trade Minister Benjamin Dusa noted that this would create the largest free trade area in the world, strengthening the economic positions of the parties in the face of challenges such as US tariffs.

CPTPP was founded in 2018 after the United States withdrew from the Trans-Pacific Partnership in 2017. It includes Australia, Brunei, Canada, Chile, Japan, Mexico, Malaysia, New Zealand, Peru, Singapore and Vietnam. At the end of 2024, the United Kingdom joined the agreement, and China expressed its intention to join.

Sweden considers this partnership to be strategically important, as it opens up new markets for exporters, which is critical for financing social services. However, not all EU countries will support this initiative. France, which has traditionally taken a protectionist position, especially in the agricultural sector, may be among the opponents. Earlier, Paris actively resisted the conclusion of an EU trade agreement with the Mercosur bloc.