The past week saw dramatic moves across global financial markets, driven by the escalating trade tensions stemming from the U.S. imposing substantial new tariffs. Equities sold off sharply, with major indices like the S&P 500, Russell 2000, Nasdaq and global emerging markets plummeting 4-8% from April 2nd to April 8th. The speed and magnitude of the decline suggests markets were caught off guard by both the severity of the new tariffs and the retaliatory measures announced by China and threatened by Europe.

Safe haven assets saw strong inflows, with gold spiking nearly 5% to top $3,000/oz briefly, its highest level in years, before settling around $2,980. The U.S. dollar initially weakened as the instigator of the trade war, but then strengthened again as a safe haven play. However, the Japanese yen and Swiss franc saw the biggest gains among major currencies.

Bond yields fell as investors priced in rising recession risks and potential Fed rate cuts in response to a trade-induced slowdown. U.S. 10-year Treasury yields dipped below 4% intraday. The market is now pricing in nearly 1% of Fed cuts over the next 12-15 months. However, some question if the Fed will have scope to ease aggressively if tariffs prove inflationary.

The Australian dollar was hit particularly hard, plummeting over 4%and at one point breaching $0.60, one of its sharpest on day drops in decades. Australia's heavy trade exposure to China and Asia makes it vulnerable to a trade war induced global slowdown.

Overall, the week represented a dramatic flight from risk as the simmering trade tensions between the U.S. and China boiled over into a full-blown trade war. The key question now is whether the tariffs prove temporary as deal-making posturing, or endure and inflict serious damage on global trade, growth and risk assets. Markets will be closely attuned to any signs of negotiation or de-escalation in the week ahead.