Around $110 billion of value was wiped from companies listed on the Australian share market today.
The 4.2 per cent slump for Australia’s benchmark ASX 200 index built on Friday’s 2.4 per cent slide and Thursday’s comparatively tame 0.9 per cent fall.
I’m not sure what it says about Aussie traders that they had the chance to react first to Donald Trump’s tariff announcement and Thursday’s local consensus appeared to be broadly, “meh, not too much to see here”.
Or maybe they’re just quietly confident Australia will continue to be the lucky country, which global financial catastrophes recently appear to have largely bypassed.
There’s certainly been plenty to see across global markets.
China’s three major share indices responded to the imposition of reciprocal tariffs on US imports with varying scales of crash, from more than 7 per cent in Shanghai to a 13 per cent wipe-out in Hong Kong.
Shortly after opening, major European markets were also sliding further into the red, Germany’s DAX dropped 6 per cent — having opened 9 per cent lower — and London’s FTSE was off nearly 5 per cent.
US traders had a whole evening to digest President Trump’s Rose Garden comments before trading on Thursday — their opening bid was a near 5 per cent fall for the benchmark S&P 500 led by an even bigger decline for big tech.
By Friday, it was clear that the more they heard and thought about Trump’s tariff plan, the more frightened they became of it — the S&P 500 lost another 6 per cent.
After a weekend to ponder what’s going on, it seems few people are taking up the buying opportunity spruiked by the President .
At the time of writing, the US share futures were down another 3.2 per cent, having at one point earlier today been off close to 5, meaning there’s no clear end in sight to the selling.
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GFC vibes
I started at the ABC as a finance cadet reporter in February 2008.
By September that year, Lehman Brothers had collapsed and the global financial crisis (GFC) was officially under way.
There are so many echoes from that period in the current situation, but also some key differences.
For a start, like most crashes, the GFC hit after share prices began falling from a record high — a high that some warned was overvalued, while many other obviously kept piling in.
US shares recently hit another record high, based on the soaring values of the Magnificent Seven tech stocks.
As before the GFC, some of the smartest money in the market — such as Warren Buffett’s Berkshire Hathaway — had started getting out and hoarding cash.
Like in the lead-up to the GFC, a period of low rates was followed by high inflation and a dramatic increase in borrowing costs.
As with the GFC, share price falls started off as relatively before dramatic events catalysed heavier losses, although during the GFC it was the better part of a year between the market’s peak in late 2007 and the total capitulation triggered by Lehman’s collapse.
I recent days I have spoken to quite a few contacts, friends and acquaintances who were also kicking around financial markets back in 2008.
All of them are deeply concerned about what’s going on now, and the outlook for the next few years.
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Tariffs are the beginning, we don’t know the end
One of those I’ve spoken to is Satyajit Das, one of the few analysts who warned about the risks of the global financial crisis before they eventuated.
Writing in Market Watch, Das noted that Trump’s ambitions are not limited to raising tariffs in an attempt to revive American manufacturing.
“Trump’s controversial trade tariffs are likely to be the first step, not the final one, of a broad and bold strategy to remake the US — and the global — financial system,” he wrote.
Here Das refers to an analysis written last year by the Trump administration’s chair of the Council of Economic Advisers, Stephen Miran, before he took up that post.
Aside from tariffs and currency adjustments to favour the US, he proposed a forced exchange of certain existing US Treasury bonds for 100-year or perpetual low or no interest securities. Alternatively, bond investors may be forced to pay a user fee for the privilege of holding them.
“The Trump administration is risking permanent damage to US capital markets,” Das argues.
“Restructuring US debt as Miran suggests would constitute a technical default. Far from ‘Make America Great Again’, this would accelerate America’s fall from greatness.“
Remember that, alongside gold, the US dollar and Treasury bonds are considered the great global financial safe havens of our times. If investors aren’t safe in Treasuries, perhaps there is no longer any “risk-free rate of return” — everything will need to be repriced.
This plan isn’t officially on the table yet, but the fact that its author holds a position of influence in the Trump administration highlights the uncertainty and fear that is now gripping financial markets.
Having chosen to whack tariffs indiscriminately on friend and foe alike, many traders are coming to the conclusion that nothing is sacred and therefore no asset is safe from this administration’s desire to restore the perceived glory days of the US economy, at everyone else’s expense, and quite possibly its own.
“Plans to interfere with free capital flows risks the dominant role of the US dollar, which is immeasurably more important than manufacturing in terms of America’s dominant economic position,” Das continues.
Stephen Miran’s analysis ends with this concluding sentence.
“There is a path by which the Trump Administration can reconfigure the global trading and financial systems to America’s benefit, but it is narrow, and will require careful planning, precise execution, and attention to steps to minimise adverse consequences.”
It seems that, if there is indeed a grand plan, most traders lack confidence that Donald Trump is the right man to successfully carry it out.
