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Fears surrounding Donald Trump’s commitment to his trade war, even at the risk of a global recession, caused a rapid decline in asset prices as financial markets reopened after the weekend. Equities experienced significant drops, safe-haven currencies strengthened, and bond yields decreased across the board as Trump indicated his intention to continue with the highest US tariffs in a century.
The S&P 500 contracts were down by 3.1%, Stoxx Europe 600 futures fell by 2.8%, and Asian shares suffered heavy losses, with Hong Kong’s Hang Seng index plummeting by more than 10%. These sharp declines in risky asset prices reflect investor concerns that the tariffs could lead to a global economic downturn. Goldman Sachs raised the probability of a US recession from 35% to 45% due to the “sharp tightening in financial conditions.”
In a statement on Truth Social, Trump defended his tariffs, stating, “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.” Trump’s remarks came as a response to the market turmoil, where he mentioned that sometimes tough measures are necessary to address underlying issues.
The recent market turmoil followed the erasure of over $5 trillion from the S&P 500 in the previous week, marking its worst performance since the start of the pandemic in 2020. Trump’s imposition of tariffs exceeding 40% on major US trading partners, including China, which retaliated with a 34% duty, disrupted the global trade landscape.
As markets tumbled, there were signs of discord among Trump’s supporters. Billionaire investor Bill Ackman criticized commerce secretary Howard Lutnick for being “indifferent to the stock market and economy crashing,” alleging that Lutnick benefits from economic downturns due to his long position on fixed income.
The benchmark 10-year US Treasury yield fell to 3.91%, Japan’s 10-year JGB yield dropped to 1.11%, and China’s 10-year yield decreased to 1.64% as investors sought refuge in bonds. Commodity prices also saw significant declines, with oil benchmarks like West Texas Intermediate and Brent crude falling by 3.4%, and LME copper dropping by more than 7%.
The US dollar weakened against major currencies, while the Japanese yen strengthened. Chinese authorities set the onshore renminbi at its lowest level since early December. Treasury secretary Scott Bessent dismissed the short-term market reaction to Trump’s tariffs, emphasizing the administration’s commitment to maintaining its course and evaluating other countries’ offers.
In conclusion, the global financial markets are experiencing heightened volatility and uncertainty due to Trump’s aggressive trade policies. Investors are closely monitoring developments to assess the potential impact on the global economy and financial stability.
