LIVE MARKETS-Lessons from April's tariff turmoil

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LESSONS FROM APRIL'S TARIFF TURMOIL

While markets are not out of the woods after Trump's tariff to-and-fro last month, it now looks like the worst may be behind us, and investors may have learnt some valuable lessons, particularly about the euro zone.

The bloc's government bond markets held up remarkably well, particularly Germany's but also those in the periphery, countries such as Italy and Spain.

"Even the more vulnerable “periphery” bond markets did not see yield increases as large as those in the US and the UK," says Capital Economics deputy chief markets economist Jonas Goltermann.

"If nothing else, the resilience of euro-zone bond markets is a sign of how far they have come from the dark days of 2010-12 or, to a lesser extent, 2020, when surging bond yields in the periphery threatened to undermine the euro project."

There are reasons for the resilience. The ECB's abbreviation-heavy, crisis-fighting mechanisms - TPI, TLTRO, APP etc - have provided a safety net, while the threat of a country exiting the euro looks slim.

But Goltermann warns that euro zone bond markets are not invulnerable.

"The underlying debt dynamics in France and Italy remain problematic, and the political outlook in France looks fraught ahead of the 2027 presidential election," Goltermann says.

"Further flare-ups around political events are probable, but the euro-zone now looks in a better position to manage such episodes than it was a few years ago."

(Samuel Indyk)

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