Source : the age
By Stan Choe
New York: Financial markets around the world are reeling following President Donald Trump’s latest and most severe volley of tariffs, and the US stock market may be taking the worst of it.
The S&P 500 was down 4 per cent in morning trading local time, worse than the drops for other major stock markets. The Dow Jones Industrial Average was down 1520 points, or 3.6 per cent, as of 10.10am Eastern time, and the Nasdaq composite was 4.0 per cent lower.
Repercussions from US President Donald Trump’s sweeping tariff announcements spread across global markets.Credit: AP
The Australian sharemarket is set to fall at the open, adding to heavy losses on Thursday. Futures at 2.20am AEDT are pointing to a fall of 68 points, or 0.86 per cent, at the open.
Little was spared as fear flared globally about the potentially toxic mix of higher inflation and weakening economic growth that tariffs can create.
Everything from crude oil to Big Tech stocks to the value of the US dollar against other currencies fell. Even gold, which has hit records recently as investors sought something safer to own, pulled lower. Some of the worst hits walloped smaller US companies, and the Russell 2000 index of smaller stocks dropped more than 5 per cent into what’s called a “bear market” after losing more than 20 per cent from its record.
Investors worldwide knew Trump was going to announce a sweeping set of tariffs late Wednesday (Thursday AEDT), and fears surrounding it had already pulled the S&P 500 10 per cent below its all-time high last month. But Trump still managed to surprise them with “the worst case scenario for tariffs,” according to Mary Ann Bartels, chief investment officer at Sanctuary Wealth.
Trump announced a minimum tariff of 10 per cent on imports, with the tax rate running much higher on products from certain countries like China and those from the European Union. It’s “plausible” the tariffs altogether, which would rival levels unseen in roughly a century, could knock down US economic growth by 2 percentage points this year and raise inflation close to 5 per cent, according to UBS.
Such a hit would be so frightening that it “makes one’s rational mind regard the possibility of them sticking as low,” according to Bhanu Baweja and other strategists at UBS.
Wall Street had long assumed Trump would use tariffs merely as a tool for negotiations with other countries, rather than as a long-term policy. But Wednesday’s announcement may suggest Trump sees tariffs more as helping to solve an ideological goal – wresting manufacturing jobs back to the United States, for example – than just an opening bet in a poker game.
If Trump follows through on his tariffs, stock prices may need to fall much more than 10 per cent from their all-time high in order to reflect the global recession that could follow, along with the hit to profits that US companies could take. The S&P 500 is now down about 11 per cent from its record set in February.
“Markets may actually be underreacting, especially if these rates turn out to be final, given the potential knock-on effects to global consumption and trade,” said Sean Sun, portfolio manager at Thornburg Investment management, though he sees Trump’s tariffs announcement as more of an opening move than an endpoint for policy.
One wild card is that the Federal Reserve could cut interest rates in order to support the economy. That’s what it had been doing late last year before pausing in 2025. Lower interest rates help by making it easier for US companies and households to borrow and spend.
Yields on Treasurys tumbled in part on rising expectations for coming cuts to rates, along with general fear about the health of the US economy. The yield on the 10-year Treasury fell to 4.01 per cent from 4.20 per cent late Wednesday and from roughly 4.80 per cent in January. That’s a huge move for the bond market.
The Fed may have less freedom to move than it would like, though. While lower rates can goose the economy, they can also push upward on inflation. And worries are already worsening about inflation because of tariffs, with US households in particular bracing for sharp increases. The Fed has no good tool to fix what’s called “stagflation,” where the economy stagnates and inflation stays high.
In stock markets abroad, indexes fell sharply worldwide. Australia’s sharemarket dropped 1 per cent, erasing $21 billion off its books. France’s CAC 40 dropped 3 per cent, and Germany’s DAX lost 2.3 per cent in Europe.
Japan’s Nikkei 225 dropped 2.8 per cent, Hong Kong’s Hang Seng lost 1.5 per cent and South Korea’s Kospi dropped 0.8 per cent.
AP
