It didn’t take long for the triumphalism Trump administration’s Liberation Day tariff barrage to morph into a global market rout.
In less than 48 hours concern became panic and a chaotic retreat with Wall Street amongst the biggest casualties with key indices down around 10% or more in the two days immediately following the tougher-than-expected announcement.
The S&P 500 plummeted 6%, the largest single day capitulation since March 2020 when markets went into a Covid-related tailspin.
But that was hardly the end of it; losses extended in afterhours trading with futures markets for the S&P 500 and Nasdaq both down around another 6.5%.
Futures trading has priced in a 4.3% fall on the ASX 200 following Friday’s 2.4% tumble.
With ASX 200’s market capitalisation currently $2.48 trillion, that would translate into wealth destruction of around $110 billion this morning.
Friday’s $US5 trillion wipe out on Wall Street has taken total losses in US stocks since the Trump inauguration to $US9 trillion.
Giant investment bank J.P. Morgan has now priced in the chance of a US recession at 60% by the end of the year, UK rival Barclays says it is a foregone conclusion and thrown in a European recession this year for good measure.
Here’s how Reuters tallied up the week’s scoreboard.
- The S&P 500, Nasdaq, Dow and Russell 2000 all suffer their worst week since 2020. Same goes for Japan’s Nikkei and European stocks.
- The Nasdaq is now down more than 20% from its December peak, putting it officially in bear market territory.
- The Roundhill ‘Magnificent Seven’ ETF slides 10% for its worst-ever week, and seventh weekly loss in a row. It is now 30% below its December high.
- High yield U.S. credit spreads start to blow out, pushing above 400 basis points.
- Oil falls 10%.
- U.S. chip stocks plunge more than 7%. The Philadelphia semiconductor index is now down 40% from its July all-time high.
- The VIX ‘fear index’ of Wall Street volatility leaps to its highest since August 5. Excluding that one day of turmoil fuelled by yen carry trade fears, the VIX is at its highest in five years.
Global bank stocks have been particularly hard hit by fears of a recession and mounting credit risk from borrowers.
Those fears were heightened by China’s announcement it would match US tariffs with 34% tariffs of their own on US goods.
A lot of the money being yanked out of shares is being piled into US and German government bonds.
US Treasury yields tumbled 26bps in two just two days.
The US dollar, traditionally seen a safe haven in troubled times, posted its biggest daily fall in 2 and half years, an early sign the greenback’s global standing may be eroding in the wake of the Trump administration’s protectionist assault.
Given the Australian dollar’s perception as a “risk asset”, it wasn’t a beneficiary of the US dollar’s weakness, and it fell 4.5% to below 60 US cents.
(However, it could be noted the weaker Aussie dollar will do a fair bit to neutralise the impact of the 10% tariff on exports to the US).
“What we’re seeing today is a further indication that the structure and nature of the U.S. dollar’s relationship to global markets has changed,” Macquarie global foreign exchange and rates strategist Thierry Wizman said.
“There’s an underlying basis for this, which is the changing role of the U.S. in the world,” Mr Wizman added.
The news from China that the world’s biggest oil importer planned equally stiff retaliatory tariffs sparked a collapse in oil prices.
The global benchmark Brent crude fell 6.5% to $US65.58 per barrel, while the US benchmark, West Texas Intermediate crude fell 7.4%, although news that the OPEC+ cartel was sticking to its plans to raise production also added additional downward pressure to prices.
