Global Markets Rejoice On 90-Day Tariff Pause
Stock futures fell following a big rally on Wall Street which spread to other markets in Asia
On Episode 554 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Bagga, Market Expert.
SHOW NOTES
(00:00) Stories of the Day
(00:50) Global markets rejoice on 90-day tariff pause, take stock
(02:58) TCS net profits are down as revenue touches Rs 2.59 trillion
(04:51) Why bond markets and not stock markets can destroy fortunes and Governments
(20:03) Global commodity prices are crashing
(22:17) Microsoft is pulling out of data centres
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Friday, the 11th of April and this is Govindraj Ethiraj, headquartered in Broadcasting and Streaming from Mumbai, India's Financial Capital. Our top headlines and themes for the day.
Global markets rejoice after a 90-day tariff pause and take stock.
Why bond markets and not stock markets can destroy fortunes and bring down governments.
TCS net profits are down as revenue touches 2.5 trillion rupees.
Global commodity prices including metals are crashing
and Microsoft is pulling out of data centres.
A Bond Debacle We Did Not Expect
On Thursday, stock futures fell following a big rally on Wall Street. On Wednesday, we spread to other markets in Asia. That's on Thursday morning thanks to President Donald Trump's 90-day pause on some of those reciprocal tariffs.
On Thursday, Dow Jones Industrial Average Futures were down 400 points as were S&P Futures and Nasdaq Futures at about a percentage. On Wednesday, Wall Street exploded with the S&P 500 rising more than 9% for its third largest gain in a single day since World War II according to CNBC. The markets rocketed after Trump announced those temporary drops in tariff rates for most countries to 10% for 90 days and I'll come back to that.
Canada and Mexico will not be subjected to an additional 10% duty. However, the European Union also announced a similar 90-day pause on U.S. goods. Donald Trump said that he thought people were jumping a little bit out of line and they were getting yippy and a little bit afraid.
Now just to wrap up the tariff trauma, the universal 10% levy continues on all countries except China and so does the 25% rate on all aluminium, steel and cars entering the United States. So the trade war between China and the U.S. of course now deepens as Trump imposed a 125% tariff on Chinese goods and China has retaliated with 84% tariffs. Trump says or said that he thinks the U.S. and China will end up making a very good deal. On the other hand, markets and businesses think a little differently. Mohammed El-Erian, Alliance's chief economic advisor, told CNBC on Wednesday that I think you need certainty. I think the 90 days that's a good period but quickly people are going to start asking what happens next.
Others echoed a similar sentiment saying that there was potential for more turmoil ahead. Market volatility could remain elevated despite the 90-day pause on tariffs for non-retaliating countries, a chief economist at LPL Financial told CNBC and he also said that hard data from the early part of the year suggests that the economy is slowing irrespective of trade policies.
TCS Profits Are Down
Back home, India's largest IT services company, TCS, or Tata Consultancy Services, reported a 1.7% decline in consolidated net profit for the quarter ended March 31st, 2025. That's about 10 days ago at 12,224 crores year-on-year. For the same period last year, TCS declared a net profit of 12,434 crores.
So very little difference. Consolidated revenue for the same quarter was up to about 65,500 crores. That's up about 5%.
So TCS is the first major result out yesterday, which gives you some flavour of the Q4 and full year results season, at least for IT companies. And more on what we could expect is coming up. For TCS, regional performance varied significantly with the United States showing a 1.5% decline. The UK business also saw a drop at about 4%. The European Union saw a steeper decline at 6.4%. The Indian market interestingly grew and quite robustly almost 8.2% during the quarter at obviously or most likely lower numbers. The Asia-Pacific region, however, was down too at about 4.2% according to numbers compiled by Business Standard. So for the full year, and this gives you a sense of size, that's for 2024-2025, TCS reported a net profit of 48,500 crores, which is about roughly 6% up compared to 45,900 crores in the previous year. Total income for the year stood at about 259,000 crores, that's 2.59 trillion rupees, which is also up about 6% compared to about 2.45 trillion rupees in the previous financial year. And that obviously gives you a sense on how large India's largest IT firm is.
Bond Blues
Now back to Wall Street. On Wednesday, all the action had been on the bond market. Now this is important. We do talk about bond markets, but not as much because it's relatively dull and boring and retail investors have much less direct exposure.
But what's happening in the US on Wednesday, or rather what happened in the US on Wednesday is telling. We spoke about it to some extent in yesterday's episode, but let's go a little deeper. The first thing that happened is investors sold off their bond holdings, which resulted in prices dropping and yields spiking.
Now this does not happen usually because investors usually buy US treasuries during times of market volatility. Also, just to bring you back on where we are right now, a Washington Post columnist, Heather Long, says that what happened on Wednesday was that investors started dumping US government bonds. They sold and sold and sold, she says.
Now this is not normal. Typically, US government bonds are a safe haven. Whenever stocks tank or there's turmoil around the world, she says, investors rush to buy plain vanilla bonds from the US Treasury.
It's the equivalent of chicken soup for unhealthy markets. But suddenly those bonds turned bitter. Ultimately, of course, Trump caved into the bond markets and admitted to reporters that people were getting a little queasy in the bond market.
He also didn't want to follow the fate of British Prime Minister Liz Strauss, who resigned in 2022 after a similar bond market fiasco in reaction to her policies. More on that coming up. But the thing is, as Heather Long points out, US government bonds are at the centre of almost everything that happens in markets.
Many investments around the world are priced according to how much more risky they are than US government bonds. So the bottom line fact is that the strength of US Treasuries or the dollar itself is based on trust in the US financial system. If that trust is at question, then all bets are off the table.
And that's me saying it. Also, the fact that the bond market could take such a hit was clearly not anticipated by anyone with all attention on the stock market, and maybe some provisioning, if only mental, about the knock it could take. Heather Long also writes, it's striking how unprepared the White House was for this outcome.
As recently as Sunday, she said Treasury Secretary Scott Besant was celebrating how low the yield on the 10-year Treasury had fallen and predicting this could spur a revival of the housing market as mortgage rates became cheap again. By Wednesday, he was forced to go on to a television channel to reassure people around the world that this will not turn into a crisis. He said that, I believe that there is nothing systemic about this.
I think it's an uncomfortable but normal deleveraging that's going on in the bond market. So why is the bond market important and how does it play into the global financial system? And how does all of this affect our own markets and where we are?
And finally, as we go into the Q4 results season with TCS, as you just saw, how do things stack up? So I reached out and spoke to Ajay Bagga, a well-known markets expert last night, and I began by asking him to walk us through this latest bond market drama on Wall Street.
INTERVIEW TRANSCRIPT
Ajay Bagga: Govind, if you look at global markets, the bond markets are the biggest markets by size. Second, the interest rate on the U.S. bonds, the U.S. government bonds, what we call U.S. Treasuries, really determines a lot of the rates around the world. A lot of lending that happens around the world happens based on the so-called risk-free rate, which is the U.S. Treasury rate. So any move in that rate has a cascading effect. Third, it is the most liquid market in the world. It is the biggest bond market.
$29 trillion is the outstanding U.S. government treasury pool. So the most liquid, and it's seen as a safe haven where you park money whenever there is risk, and countries park their FX reserves. So out of that $29 trillion, nearly $12 trillion is owned by various countries which have parked their foreign reserves in that market.
What happened over the last two days, the U.S. bond yields, basically the interest rate that you get today if you buy a U.S. bond, there is something called a coupon, which when the bond is issued, suppose it's issued at a 5% coupon, you will get a 5% payment twice a year, two and a half, two and a half, twice a year. So that's the coupon. Yield is basically depending on the price of the bond.
The yield goes up and down, or the price of the bond goes up and down based on the yield. I would say the causation is that way. So the yield of the U.S. treasury actually tells you what the market is thinking. Is the market thinking of a recession? Is the market thinking of an expansion? Is there tightness of liquidity in the market?
What we saw in the U.S. treasury market over the last two days, Wednesday and Thursday, there was a lot of tightening in the market. There were huge sales that hedge funds and foreign governments were making. Normally, given the uncertainty in the markets, money should have flown into the U.S. treasuries, but we saw people exiting. So two explanations came out. One, that some foreign countries were selling out their positions. Second, hedge funds, which were having liquidity problems elsewhere in the market, were selling the U.S. treasuries. That led to the yields on the U.S. treasury spiking and the prices of the bonds came down. So it is an inverse correlation. When yields go up, prices come down.
When yields go down, prices go up. So there were heavy losses on the U.S. treasury happening, plus the interest rates were tightening. What that was showing, that liquidity was going out, and this is trillions of dollars that were moving.
And when that happens, it happened in 2020, just as the COVID strike came. The Fed had to step in. The U.S. central bank has to step in and inject liquidity by buying out bonds. So yesterday, traders actually started saying markets have gone so tight that there could be an accident with some players who don't have liquidity or cash right now. The Fed might have to step in today itself. There was, in fact, even talk of an emergency rate cut by the Fed, as happened in March 2020, when COVID struck.
So to beat all that, we finally saw Trump blink and he postponed the tariffs. So that is what happened. It's a very deep market, a very huge market, and a very internationally owned market.
And the contagion from that market reaches every part of every market very fast. So transmission is very fast. So Trump had to act fast, and he acted yesterday.
Govindraj Ethiraj: And how does this affect what is happening in other markets in the world? And I'm still talking about bonds and treasuries.
Ajay Bagga: We saw German yields going up. We saw tightening in the Japanese market. Japanese market yields went up.
The UK was at 20-year highs. So if you remember the list trust crisis in the UK about one and a half years back, that was because of what is called the guilt market. The government bond market in the UK seized up when the prime minister brought in a budget of expanding government expenditure without giving clarity on how they would fund it.
And we saw a huge sell-off happening in that market. It all seized up. The UK government again had to step in and save that market.
So this was getting transmitted around the world. Even you will be surprised, yesterday a 25 basis point rate cut happened by the RBI. But the India 10-year yield went up by two basis points.
So the R yields also went up. There was tightening happening even in our markets. Because the RBI has controlled the amount of exposure foreigners can take in our markets, which are about $2 trillion, still on the margin when the selling comes too heavily or too bunched up, or when the liquidity need is so high that people are ready to deal at any price, then the market sees up.
So it was happening all over the world, Govind, in all the big markets. Yesterday, New Zealand cut rates, India cut rates. And overall, there was a lack of liquidity.
And then there are the offshore markets, what we call the euro-dollar market, big tightening of the dollar availability. So financial conditions became very tight by yesterday, which was a precursor to starting a collapse of sentiment. And a few companies, a few hedge funds could have gone under if that liquidity tightness continued for a week or so.
Govindraj Ethiraj: Right. And how can we read now, or rather, can we look for connections between all of this and what is likely to play out in our equity markets?
Ajay Bagga: The immediate reaction was upwards for the markets, and the volumes were huge. Retail money is flowing into the stock markets. And yesterday, it was more a short covering happening.
They were very hugely oversold markets, the US markets. We saw that kind of a gain in the US market. It was the third highest since World War II.
You can imagine the kind of gains that happened. 9%, 10%, the markets went up. Individual companies went up 15%, even 19%.
Indian markets, the offshore gift Nifty was also up 700 points plus. Today, there are some negative features. So the US futures are looking negative right now.
That might lead to a little bit of reduction in the gap up opening. But tomorrow, it's looking like at least a 2% up market. Is there a follow through?
A lot will depend on the foreign institutional investors. We have seen very heavy selling in the last three days, 9,000 crores, 4,000, 4,000. DIIs have bought more than that, and they have held the market together.
But a lot will depend on that. Sentiment-wise, I would say on a scale of 1 to 10, if we were at extreme oversold, extreme poor sentiment at 1, we would probably come to 2.5. But it's not at 5 or 6 right now. Sentiment is broken.
For a more durable time, trust is broken. And 90 days gives no chance to a business to take a capex decision or a future investment decision. You need clarity that this is what it is, and this will stay for the next three years, four years.
Then businesses can come in and start investing. So consumer sentiment is down, business sentiment is down, and investor sentiment as well is down.
Govindraj Ethiraj: And this is sort of happening globally, right? I mean, even in India, you're saying that a business would find it tough to take a capex decision, even if there is no direct connection with a global market or if I'm not necessarily an exporting company.
Ajay Bagga: For an exporting company, yes. For domestic, the structural trends are good. Indian recovery is on.
But nearly about 20% of our top 200 company revenues come from abroad. If you take it to the nifty, it becomes even larger because of the tech companies, pharma, and textile, and all that linkages. It's higher.
So there is an impact. And we saw that in 2008. For the first couple of months, three months, we are in denial.
We say we are decoupled. And then when the pain increases in the US, we also fall. So we have seen that in 2008.
We have seen in taper tantrum, 2013, Chinese depreciation, 2015, and Trump tariff one in 2018-19. India came into the linkage. And that linkage is via the portfolio investors, largely.
So they start selling. Good news is, till 2019, we didn't have this big cohort of domestic money, which comes in. So that has changed the characteristics of the market, where 9,000 crores was sold by FIs, but 12,000 crores was bought by DIIs.
We had that capacity to absorb and still have some buying over that. So that has changed now. And hopefully, that will make India a more resilient market.
So we are resilient, but we are not insulated.
Govindraj Ethiraj: Q4 earning season is starting, or has started actually. PCS results are already out, slightly down on net profits. But overall, what's your sense?
And is there a sense of predictability about how things could come? And is that looking good? And broadly, what are your thoughts?
Ajay Bagga: I would not like to be a CEO of a company giving guidance right now. When Trump doesn't know his mind between morning to evening, what will a company give you guidance about? The easiest is, I was hearing the Walmart Investor Day speech.
And they said, we are suspending quarter 1 earnings guidance. I think that's the easiest one. But then as investors, we need some guidance, however broken it might be.
So the word uncertainty, word volatility, word trade tariff is coming in earnings announcements. The outlook on earnings has deteriorated, I would say, for India Q4. We were thinking December is the bottom as far as the corporate earnings goes.
But I think March will now become the new bottom. And June, you will see the pickup happening. So we have shifted by a quarter, I think, largely again, because of the IT numbers being very soft.
And banks will not perform as well as the street is expecting. The margins are a little constricted on banks because the liquidity was tight. So liquidity became surplus on March 29.
But most of the quarter, we saw a drag on the credit because of very tight liquidity. So the two biggest segments are going to have a bad day. Metals and cement will have a bad day.
So heavy lifting will have to happen from smaller segments. So I think December earnings might come, March earnings might come marginally higher than December. But right now it is neck to neck.
So that Rs.250 CPS on Nifty is what Rs.250 to Rs.256 is the range we have. We are trending more towards Rs.250 than to Rs.256.
Govindraj Ethiraj: Ajay, thank you so much for joining me.
Ajay Bagga: Thanks, Govind. Always a pleasure. Commodity prices are crashing.
Global Commodity Prices Are Falling Thanks To Heightened Trade War Tensions
Oil prices, just to pause there for a moment, are holding now just above $63 a barrel after some sharp swings we saw on Wednesday and Thursday. A US-China trade war, as it is, will lead to a consumption slowdown and the 90-day pause is not enough to wish it away.
Brent futures had fallen almost $2.5 to about $63.20 a barrel of crude, which is roughly, or rather, a little above $63 a barrel on Thursday. A Bloomberg report says that the S&P GSCI index, which tracks global commodities across the energy, metals and agriculture sectors, shows that prices have declined over 8% since April 2 when President Trump announced those reciprocal tariffs. Now, this was despite the slight recovery in prices after the White House announced a tariff U-turn on Wednesday.
An analyst at BCA Research told Bloomberg that the collapse in commodities is a circuit breaker, a sign that a global recession is afoot. Now, China is the largest consumer of commodities and the higher-than-expected tariffs are likely to be a drag not only on China's growth but also on its consumption of some of those commodities. And within commodities, energy fell the most at about 12%, as you can see from oil itself, according to S&P's global GSCI energy gauge.
Industrial metals were second at about 9%, followed by soft commodities at 5.2%, according to S&P Global. An analyst at Fitch Solutions Research Unit, BMI, told Bloomberg that commodity prices are being hammered by fast-deteriorating sentiment as global recession fears mount amidst escalating trade and geopolitical tensions. And she also said that the probability of the U.S. falling into recession is now more than 50%. Copper, in particular, is a leading indicator of economic health, given its use in many sectors, and copper futures in New York are currently trading at about $8,380 per tonne, which is about a 16% decline since April 2nd, according to data from FactSet, quoted by Bloomberg.
Microsoft Takes A Pause On Data Centres
Microsoft has said it is slowing or pausing some of its data centre construction, including a $1 billion project in the state of Ohio, in another sign that demand for artificial intelligence technology might not need as much computing power as earlier thought. Microsoft confirmed this week that it is halting early-stage projects on rural land it owns in central Ohio, outside of Columbus City, and will reserve two of the three sites for farmland, according to AP News. Microsoft's President for Cloud Computing, Noel Walsh, in a post on LinkedIn said, Any significant new endeavor at this size and scale requires agility and refinement as we learn and grow with our customers.
What this means is that we are slowing or pausing some early-stage projects. Analysts with TD Cowen reported earlier this year that Microsoft was also scaling back some of its international data centre expansion and cancelling some leases in the U.S. for use of data centres operated by other companies. Other analysts, according to AP, for months have tied some of the changes to a shift in Microsoft's close relationship with business partner OpenAI, the maker of ChatGPT.
It quoted Craig Ellis at B. Reilly Securities saying, OpenAI was moving in one direction by prioritising the development of more advanced AI systems, which require vast computing resources, while Microsoft may not have been moving in that same direction. Interestingly, in January, President Trump had touted OpenAI's partnership with Oracle and SoftBank to pledge $500 billion in new AI infrastructure in the U.S., starting with a data centre in Texas, according to that same AP article. Now, the interesting thing is that there's a power generation angle, too. President Trump had cited AI needs as part of the justification for using his emergency authorities to boost the declining U.S. coal industry, and tech companies have also sought to tap into nuclear power, including a proposed Microsoft-backed revival of the shuttered Three Mile Island plant in Pennsylvania, which would feed an electricity grid supplying data centres in Ohio as well as Virginia. Microsoft has said that it still plans to spend more than $80 billion globally to expand its AI infrastructure this fiscal year that ends in June, and has already doubled data centre capacity in the last three years.
In an interview with CNBC the week before, its chief executive officer, Satya Nadella, said that data centre plans are established in response to consumer needs, and they would be tweaked when the company received new signals on demand or methods for efficiency. Will we be perfectly matched up every second? No, he said.
