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Fears that Donald Trump will sustain his trade war even at the risk of a global recession led to an accelerating rout in asset prices as financial markets reopened after the weekend.
Equities fell heavily, haven currencies rose and bond yields declined across the board as Trump signalled he intends to persist with the highest US tariffs in a century.
Contracts tracking the blue-chip S&P 500 were down 3.1 per cent. Stoxx Europe 600 futures fell 2.8 per cent and Asian shares were pummelled, with Hong Kong’s Hang Seng index down more than 10 per cent.
The heavy falls in risky asset prices signal investor alarm that the tariffs could quickly lead to a global economic downturn. Goldman Sachs raised the probability of a US recession from 35 per cent to 45 per cent in the wake of “a sharp tightening in financial conditions”.
“We have massive Financial Deficits with China, the European Union, and many others. The only way this problem can be cured is with TARIFFS, which are now bringing Tens of Billions of Dollars into the U.S.A. They are already in effect, and a beautiful thing to behold,” Trump wrote on Truth Social.
Asked later about the market falls, Trump told reporters that “sometimes you have to take medicine to fix something”.
The falls come after more than $5tn was erased from the S&P 500 on Thursday and Friday at the end of its worst week since the onset of the coronavirus pandemic in 2020. The S&P 500’s more than 10 per cent decline over Thursday and Friday is only the fourth time in the past 85 years that the index has fallen so far so fast.
Trump upended the global trade order, imposing duties of more than 40 per cent on some of America’s biggest trading partners. China announced retaliatory duties on Friday of 34 per cent.
There were signs of disarray among the president’s supporters as markets dropped. Billionaire investor Bill Ackman attacked commerce secretary Howard Lutnick as “indifferent to the stock market and economy crashing”, saying he “profits when our economy implodes” due to his long position on fixed income.
The benchmark 10-year US Treasury yield, closely watched by Trump administration officials, fell 0.08 percentage points to 3.91 per cent as investors piled into bonds globally. Japan’s 10-year JGB yield fell 0.07 percentage points to 1.11 per cent, while China’s 10-year yield fell 0.09 percentage points to 1.64 per cent.
“Investors are closing down a lot of positions in light of the volatility,” said Jason Lui, head of Asia-Pacific equity and derivative strategy at BNP Paribas. “[The falls are] a reflection of some of the positioning unwind, especially the foreign positioning in Japanese banks and financials.”
Commodities sustained heavy losses, with West Texas Intermediate, the US oil price benchmark, falling 3.4 per cent to $59.80 a barrel. International benchmark Brent crude dropped 3.4 per cent to $63.35.
LME copper, widely seen as a proxy for growth because of its industrial usage, fell more than 7 per cent to $8,690 a tonne. Bitcoin fell 0.8 per cent to $78,198 a token.
The US dollar declined 0.3 per cent against a basket of its largest trading partner currencies, while the Japanese yen rose 0.8 per cent to ¥145.6 a dollar. Chinese authorities set the onshore renminbi at its weakest level since early December at Rmb7.19 a dollar.
Earlier, Treasury secretary Scott Bessent dismissed the “short-term” market reaction to the president’s aggressive tariffs, telling NBC that the White House will “hold the course”. Asked whether Trump’s tariffs were negotiable, he said: “We’re going to have to see what [other] countries offer and whether it’s believable”.
