Market Bloodbath: Tariff Fears Drive U.S. Stocks Lower, Rate Cuts Expected
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Major stock indices plunged on Monday as U.S. President Donald Trump showed no intention of backing down from his aggressive tariff strategy, leading investors to anticipate a rising risk of recession. This, in turn, increased speculation that the Federal Reserve might start cutting interest rates as early as May. Futures markets quickly adjusted, pricing in nearly five quarter-point rate cuts in the U.S. this year, which led to a sharp drop in Treasury yields and a weakening of the dollar as investors sought safe-haven assets.
Trump stated that investors would have to "take their medicine" and reiterated that he would not reach a deal with China until the U.S. trade deficit was addressed. Meanwhile, Beijing maintained its stance on retaliatory measures, asserting that the markets had spoken.
Analysts feared that Trump's trade policies, if prolonged, could push both the U.S. and global economies into recession, with JPMorgan putting the risk at 60%. They now expect the Fed to begin easing rates in June, with cuts likely at every meeting through January, potentially bringing the target range for the federal funds rate to 3.0%.
U.S. markets experienced significant turmoil, with S&P 500 futures dropping nearly 5%, and Nasdaq futures falling by 5.7%. This added to last week's market losses of nearly $6 trillion. The negative sentiment also spread to European markets, with the Stoxx 600 dropping 5.3% and Germany’s Dax falling 9.4%. In Asia, Hong Kong’s Hang Seng Index saw its largest drop since the 2008 financial crisis, while China’s CSI 300 index fell over 7%, only stabilizing after reports that China’s sovereign fund had stepped in as a buyer.
The broader downturn led to a 7.8% drop in Japan’s Nikkei and a 5% fall in South Korea's stock market. Emerging Asian markets also suffered, with India’s Nifty 50 index declining 4%.
Global oil prices were under pressure, reflecting the gloomier growth outlook, with Brent crude dropping $2.20 to $63.40 per barrel, and U.S. crude falling $2.75 to $59.23 per barrel.
Treasury yields fell, with the 10-year yield dropping 9 basis points to 3.90%, while futures markets quickly priced in a greater chance of the Fed cutting rates. This dovish outlook also put pressure on the dollar, which fell 1% against the Japanese yen and 1.45% against the Swiss franc. The euro rose slightly, while the Australian dollar weakened further.
Despite rising inflationary pressures from tariffs, investors were betting that the looming threat of recession would outweigh the inflation impact. March’s U.S. consumer price data was expected to show another increase, but analysts believed tariffs would soon drive prices higher, affecting everything from food to automobiles. This would squeeze profit margins for many companies, just as earnings season began, with major banks set to report on Friday.
Goldman Sachs analysts noted that many companies might refrain from offering forward guidance for the upcoming quarters, as rising tariffs would force them to either hike prices or accept lower profit margins. They predicted negative revisions to profit margin estimates in the near future.
Even gold prices were affected by the broader market selloff, slipping 0.3% to $3,026 an ounce, as investors scrambled to cover losses in other assets.
Paraphrasing text from "Reuters" all rights reserved by the original author
