Anndy Lian
From dollars to digital coins: Tariffs shake the financial world
Solid earnings from megacap technology firms have failed to buoy broader market confidence, while movements in currencies, stock indices, Treasury yields, commodities, and even cryptocurrencies like Bitcoin reflect a pervasive sense of caution.
I will walk you through what’s driving this retreat, weaving in my perspective on its implications for investors and the global economy.
Trump’s tariffs: The spark of uncertainty
At the forefront of this market unease is President Trump’s tariff policy update. The White House has confirmed that a minimum global tariff of 10 per cent will persist, with countries enjoying trade surpluses with the United States facing steeper duties of 15 per cent or more. Specific nations have been hit harder: Canada now faces a 35 per cent levy, and Switzerland a hefty 39 per cent.
What amplifies the market’s anxiety is the lack of clarity on when these new rates will take effect. This ambiguity leaves businesses and investors grappling with unanswered questions about how these tariffs will reshape global trade flows, corporate profitability, and economic growth.
This tariff strategy reflects Trump’s ongoing commitment to addressing perceived trade imbalances, but it risks igniting a broader trade conflict. Tariffs of this magnitude could disrupt supply chains, particularly for countries like Canada, a key US trading partner, and Switzerland, known for its precision exports. The absence of a timeline only deepens the uncertainty, forcing companies to delay investment decisions and prompting markets to price in potential downside risks.
I see this as a double-edged sword: while it may bolster certain domestic industries, it could also inflate costs for consumers and businesses reliant on imported goods, potentially stoking inflation at a time when central banks are already on edge.
The immediate market response underscores this concern. US stock markets closed lower, with the S&P 500 slipping 0.4 per cent, the NASDAQ holding flat, and the Dow Jones dropping 0.7 per cent. These declines suggest that investors are prioritising the macroeconomic fallout of tariffs over other positive signals, a theme that recurs across asset classes.
Tech earnings: A bright spot overshadowed
Amid this tariff-induced turbulence, megacap tech firms have delivered robust earnings reports. Companies like Apple, Microsoft, and Amazon have showcased strong quarterly results, buoyed by resilient demand for technology products and services. Under normal circumstances, such performances might spark a rally in equity markets. They have failed to lift broader sentiment, a telling sign of the market’s preoccupation with larger forces.
In my view, this disconnect highlights a critical shift in investor psychology. While these tech giants demonstrate operational strength, their success cannot offset the uncertainty surrounding trade policies. Investors appear more focused on how tariffs might erode profit margins for multinational corporations, many of which rely on global supply chains.
For instance, higher duties on imported components could squeeze profitability, even for firms reporting solid earnings today. This suggests to me that the market is in a risk-off mode, where macroeconomic narratives trump individual company fundamentals.
Currency markets: Diverging reactions
Currency markets offer a mixed picture, reflecting the varied impacts of Trump’s policies. The US Dollar Index climbed 0.2 per cent, signaling a modest strengthening of the dollar. This uptick likely stems from its safe-haven status amid uncertainty, as well as expectations that tariffs might bolster US economic activity in the short term by favouring domestic production.
However, other currencies tell a different story. The Swiss franc edged lower, likely pressured by the 39 per cent tariff on Swiss exports, which could dent its export-driven economy. Meanwhile, the Canadian dollar held steady despite a 35 per cent levy, perhaps buoyed by its linkage to commodity prices, particularly oil.
The dollar’s modest gain suggests cautious optimism about US resilience, but the stability of the Canadian dollar surprises me given the tariff burden. It may indicate that traders see Canada’s energy exports as a buffer, though I suspect prolonged trade tensions could eventually weigh on the loonie. The franc’s decline, conversely, aligns with expectations, as Switzerland’s smaller, trade-dependent economy has less room to absorb such shocks.
Treasury yields and commodities: Inflation fears and demand worries
In the bond market, US Treasury yields rose, with the 10-year yield increasing 0.4 basis points to 4.374 per cent and the two-year yield climbing 1.7 basis points to 3.957 per cent. This upward movement stands out against the risk-off backdrop, where yields typically fall as investors seek safety in bonds.
To me, this suggests that markets are anticipating higher inflation, possibly driven by tariffs raising the cost of imported goods. It could also reflect concerns about the fiscal implications of trade policies, as reduced trade volumes might not offset the revenue gains Trump envisions.
Commodities present a contrasting narrative. Gold rose 0.5 per cent to US$3,290 per ounce, reinforcing its role as a safe-haven asset during uncertain times. I view this as a classic flight to safety, with investors hedging against both geopolitical risks and potential economic slowdowns.
Brent crude, however, fell 1.0 per cent to US$72.5 per barrel, driven by expectations of increased OPEC+ output following their upcoming meeting to set September quotas. This decline puzzles me somewhat: while higher supply makes sense, softening global demand due to trade tensions could also be at play, signalling broader growth concerns.
Jobs report: A looming test
The market’s gaze now shifts to the upcoming July jobs report, due Friday, which economists predict will show a more deliberate pace of hiring and an unemployment rate rising to 4.2 per cent. This data point carries significant weight.
A softening labor market could amplify fears of an economic slowdown, especially if paired with tariff-related headwinds. Conversely, a stronger-than-expected report might offer temporary relief, though I doubt it would fully dispel the tariff overhang.
In my opinion, this report will serve as a litmus test for US economic resilience. A tick up in unemployment could prompt the Federal Reserve to reconsider its rate stance, particularly if inflation pressures from tariffs persist. For investors, it’s a moment to watch closely, as it could either reinforce or challenge the current risk-off sentiment.
Bitcoin’s plunge: A crypto microcosm
The cryptocurrency market, particularly Bitcoin, mirrors this broader retreat. Bitcoin’s price dropped 2.18 per cent to US$115,621 over 24 hours, a decline fuelled by leveraged liquidations, technical breakdowns, and waning institutional enthusiasm. Between July 31 and August 1, over US$560 million in crypto positions were liquidated, with US$153 million tied to Bitcoin alone.
This cascade of forced selling intensified as Bitcoin breached the US$118,859 support level (the 23.6 per cent Fibonacci retracement of its 2024-2025 rally), turning it into resistance and accelerating technical selling.
Technical indicators reinforce this bearish turn. The Relative Strength Index (RSI) is at 49.44, and a MACD histogram at -630 signals weakening momentum, with the next support at US$114,500 (38.2 per cent Fibonacci) in sight. If breached, an additional US$149 million in liquidations could follow, per technical analysis data.
Beyond technicals, institutional demand has cooled, with spot Bitcoin ETF assets under management stagnating at US$151.48 billion despite US$47 billion in corporate purchases. Meanwhile, a shift toward altcoins has seen Bitcoin’s dominance dip 0.51 per cent, as capital flows to riskier crypto assets.
Coinglass data paints a stark picture: in one hour on August 1, US$284 million in liquidations hit the crypto market, with US$276 million from long positions, including US$91.6493 million for Ethereum and US$76.0871 million for Bitcoin. Over four hours, liquidations exceeded US$409 million. The Fear & Greed Index slid to Neutral (57) from Greed (62), capturing this sentiment shift.
To me, Bitcoin’s woes encapsulate the broader market’s struggles. The liquidation wave reflects overleveraged optimism meeting harsh reality, while the technical breakdown and institutional pullback suggest a maturing market reacting to global cues. I see this as a warning sign: if even speculative assets like Bitcoin falter, the risk-off mood may be deeper than it appears.
For me, the key takeaway is adaptability. Investors must brace for volatility, balancing safe havens like gold with selective exposure to resilient sectors. The interplay of inflation risks, trade disruptions, and labor market signals will shape the near-term outlook.
Source: https://e27.co/from-dollars-to-digital-coins-tariffs-shake-the-financial-world-20250801/
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