Major stock indexes experienced a sharp decline on Monday as U.S. President Donald Trump remained steadfast on his extensive tariff plans. Investors, increasingly wary of a potential recession, speculated that the Federal Reserve might cut interest rates as early as May.
Futures markets swiftly priced in nearly five quarter-point rate cuts this year, driving Treasury yields down significantly and weakening the dollar as investors sought safe-haven assets.
Trump Holds Firm on Tariffs
The market turmoil intensified after Trump told reporters that investors would need to endure the consequences, emphasizing that he would not negotiate with China until the U.S. trade deficit was resolved. In response, Beijing acknowledged the market’s reaction to their retaliatory measures.
“The only real circuit breaker is President Trump’s iPhone, and he is showing little sign that the market selloff is bothering him enough to reconsider a policy stance he has held for decades,” said Sean Callow, a senior FX analyst at ITC Markets in Sydney.
Despite the immense financial losses and the potential economic downturn, investors had initially hoped that Trump would reconsider his stance.
Rising Recession Risks and Fed Policy Outlook
Bruce Kasman, head of economics at JPMorgan, highlighted the growing risk of recession: “The scale and disruptive impact of U.S. trade policies, if sustained, could be enough to push a still-healthy U.S. and global economy into recession.” He estimated the risk of an economic downturn at 60%.
Kasman added, “We continue to expect the first Fed rate cut in June. However, we now anticipate that the Committee will cut rates at every meeting through January, reducing the upper bound of the funds rate target range to 3.0%.”
Markets in Freefall
S&P 500 futures plunged nearly 5% in volatile trading, while Nasdaq futures dropped 5.7%, compounding last week’s nearly $6 trillion market losses.
The downturn extended to Europe, where the Stoxx 600 index declined 5.3% and Germany’s DAX fell 9.4% (.GDAXI). Investors offloaded recent market favorites, with defense stocks plunging 11.5% and Rheinmetall sinking 21%.
The European banking index dropped 4.8% and is now down 20% from its recent peak (.SX7P). In Asia, Hong Kong’s Hang Seng Index (.HSI) fell 12%, marking its steepest decline since the 2008 financial crisis.
China’s blue-chip CSI 300 index fell over 7%, stabilizing only when state media reported that China’s sovereign fund, Central Huijin, was buying shares.
Elsewhere in Asia, Japan’s Nikkei (.N225) dropped 7.8% to its lowest level since late 2023, South Korea’s KOSPI (.KS11) fell 5%, and MSCI’s gauge of Asia-Pacific shares (.MIAP00000PUS) tumbled 7.8%, heading for its worst single-day loss since 2008. India’s Nifty 50 also declined by 4%.
Oil and Safe-Haven Assets React
Fears of slowing global growth continued to weigh on oil prices following last week’s sharp losses. Brent crude fell $2.20 to $63.40 per barrel, while U.S. crude slid $2.75 to $59.23 per barrel.
The rush to safe-haven assets saw 10-year Treasury yields fall 9 basis points to 3.90%, while Fed fund futures indicated increased expectations of a Fed rate cut as early as May. Market probabilities suggested a 54% chance of a rate reduction, even though Fed Chair Jerome Powell stated on Friday that there was no urgency to cut rates.
The shift in sentiment weakened the U.S. dollar, which slipped 1% against the Japanese yen to 145.16 yen and 1.45% against the Swiss franc to 0.8484. The euro climbed 0.5% to $1.1005, benefiting from concerns over the dollar, though the trade-sensitive Australian dollar lost another 0.5%.
Inflation, Earnings, and Market Uncertainty
Despite expectations of rising inflation due to tariffs, investors are betting that recession risks will outweigh the price increases.
Upcoming U.S. consumer price data is expected to show a 0.3% rise for March, but analysts believe that tariffs will soon drive up costs on a wide range of goods, from food to automobiles. Higher costs could squeeze corporate profit margins just as earnings season begins, with major banks set to report on Friday.
Goldman Sachs analysts warned in a note: “We anticipate that fewer companies than usual will provide forward guidance for both Q2 and full-year 2025 during upcoming earnings calls. Rising tariffs will force many firms to either raise prices or absorb lower profit margins, leading to negative revisions in consensus earnings estimates.”
Even gold was not immune to the selloff, dipping 0.3% to $3,026 per ounce, as investors liquidated positions to cover losses and margin calls, raising fears of a broader market meltdown.
Leave A Comment