Escalating trade tensions between the United States and China, potential countermeasures from Europe, and a slew of upcoming central bank decisions and economic reports are setting the tone for yet another turbulent week in financial markets. Persistent concerns over a global slowdown, dovish shifts in rate expectations, and heightened volatility across equities, currencies, and commodities have prompted investors to brace for further uncertainty in the days ahead. Below is a detailed look at the dominant themes likely to shape market sentiment this week.

1. Escalating Sino-U.S. Trade War

Trade war fears remain front and center after China imposed retaliatory tariffs in response to the Trump administration’s sweeping levies on Chinese imports. Last week’s volatility in global stock markets laid bare investors’ concerns over the deteriorating relationship between the world’s two largest economies. The S&P 500 and Dow Jones Industrial Average each posted their steepest two-day slides since the onset of the COVID pandemic, with losses exacerbated by rapid shifts in risk sentiment.

U.S. President Donald Trump, unfazed by the market turmoil, reaffirmed that his trade policies “will never change” and criticized China for “playing it wrong.” Markets are increasingly worried that neither side will back down, which could lead to a further escalation in tariffs and inflict deeper damage on global growth and corporate confidence.

2. Europe on Alert: Possible Countermeasures

The European Union has signaled it may unveil its own countermeasures against the U.S. steel and aluminum tariffs. EU member states are set to vote on a potential response, while informal meetings of economic and financial ministers are scheduled for later in the week. In Germany, trade numbers and the final inflation reading will shed light on whether Europe’s largest economy is showing resilience or succumbing to trade headwinds.

Market participants are anxious to see if further trade barriers from Brussels might prompt additional steps from Washington. Heightened uncertainty on both sides of the Atlantic has already contributed to a sharp spike in volatility across currency pairs, with the euro whipsawing against the dollar on any hint of policy escalation.

3. The Fed’s Balancing Act and Key U.S. Data

Despite intensifying trade tensions, the Federal Reserve’s next policy steps remain in play. Chair Jerome Powell has emphasized the Fed’s wait-and-see approach in light of uncertain tariff effects on both growth and inflation. Investors will parse the Federal Open Market Committee’s March meeting minutes midweek, followed by consumer inflation (CPI) on Thursday and producer inflation (PPI) on Friday. Weekly jobless claims and the University of Michigan’s consumer sentiment surveys will round out a data-heavy U.S. slate.

In recent sessions, markets have aggressively priced in up to four Fed rate cuts before year-end, driven by fears that tariffs will curtail growth. However, Powell cautioned that tariffs also raise the risk of higher inflation, complicating the outlook for monetary policy. If inflation remains near or above target, the Fed may find it difficult to slash rates as swiftly as traders anticipate.

4. RBNZ Rate Decision and Other Central Bank Signals

Outside the U.S., the Reserve Bank of New Zealand (RBNZ) is poised to cut its cash rate by 25 basis points from 3.75% to 3.50% this week. With external pressures mounting, RBNZ officials have signaled an ongoing easing bias, though expectations of additional cuts later this year have moderated. As with many central banks worldwide, policymakers in Wellington must contend with a difficult combination of faltering trade, a strong currency in certain cross-rates, and persistent inflation worries.

In Japan, Bank of Japan Governor Kazuo Ueda speaks on Wednesday amid a quiet domestic data calendar. Prime Minister Shigeru Ishiba has taken a conciliatory tone regarding U.S. tariffs, hinting at possible negotiations to head off more aggressive trade disputes. Even so, haven flows into the yen have intensified, especially with global equities still under pressure.

5. UK Prospects, Data, and Sterling’s Slide

In the UK, the upcoming GDP release and industrial production data on Friday could provide further clarity on the economy’s health. Sterling rallied briefly last week before tumbling once China responded to U.S. tariffs, pulling risk-sensitive currencies lower. With short-term interest rate futures pricing in a rising probability of Bank of England rate cuts later in 2025, the pound has been vulnerable to any signs of global slowdown or hints of a UK-specific growth stumble.

6. Commodities, Currencies, and Volatility

Commodities have not been spared from the selloff. Oil prices sank to multi-year lows on concerns that tariffs will undercut demand and slow worldwide economic activity. Gold, normally a preferred safe haven, has seen profit-taking as investors sold liquid assets to cover equity margin calls. Copper has suffered pronounced losses, reflecting the market’s gloomier outlook for manufacturing and construction demand.

Currency markets have also whipsawed. The Australian dollar—often viewed as a barometer for global risk—fell sharply, reflecting both trade war concerns and tumbling commodity prices. Meanwhile, the Japanese yen has been well-bid, supported by flight-to-safety flows and relative stability in Japanese yields. Despite robust U.S. job growth figures, the dollar is being pulled in opposing directions by higher rate expectations on one hand and mounting recession fears on the other.

7. Outlook: More Volatility Ahead

With investors forced to juggle the threat of rising tariffs, central bank policy uncertainty, and a fragile global economy, volatility shows few signs of abating. Market participants will focus intently on upcoming U.S. data releases to gauge whether any deterioration in confidence is filtering into hard economic numbers. Meanwhile, central bankers worldwide face a daunting challenge in balancing growth concerns and inflation pressures against the backdrop of increasingly unpredictable geopolitics.

Until a breakthrough emerges on trade negotiations—or until markets perceive that enough bad news has been priced in—further turbulence seems all but inevitable. Global equities, commodities, and currencies remain vulnerable to sudden sentiment shifts, making the coming week a critical period for determining whether the worst of the selloff is over or if deeper declines are yet to come.