Stocks slide; bonds, gold buoyed as tariffs stoke recession fears

[LONDON] Major global share markets fell sharply on Monday (Mar 31) and gold surged to another new record after US President Donald Trump said tariffs would essentially cover all countries, stoking worries that a global trade war could lead to a recession.

Trump’s comments to reporters on Air Force One seemed to dash hopes that the levies would be limited to a smaller group of countries with the biggest trade imbalances.

Trump is due to receive tariff recommendations on Tuesday and announce initial levels on Wednesday, followed by auto tariffs the day after.

“What the Trump administration has shown us so far is that you should not expect a consistent approach,” said George Lagarias, chief economist at Forvis Mazars.

“This is what scares the market the most. Inconsistency breeds uncertainty, and markets hate uncertainty.”

US stock indexes opened sharply lower on Monday (Mar 31) as investors shied away from risky assets.

The Dow Jones Industrial Average fell 290.65 points, or 0.68 per cent, to 41,293.25. The S&P 500 lost 56.93 points, or 1.01 per cent, to 5,524.77, and the Nasdaq Composite lost 277.34 points, or 1.58 per cent, to 17,039.68.

Europe’s STOXX 600 fell 1.7 per cent to its lowest level in almost eight weeks, while major indexes in Frankfurt, London and Paris fell between 1.3 per cent and 2 per cent.

Japan’s Nikkei led the rout in Asia, losing an eye-watering 4.1 per cent and falling to a six-month low as automaker stocks continued to suffer fallout from Trump’s talk of 25 per cent tariffs on imported cars.

MSCI’s broadest index of Asia-Pacific shares outside Japan shed 1.9 per cent.

Seeking any safe harbour from the trade storm, investors piled into sovereign bonds and the Japanese yen and pushed gold prices to another all-time high.

“For the first time in years, we find ourselves genuinely worried about risk assets,” said Ajay Rajadhyaksha, head of rates markets at Barclays.

“If policy chaos and trade wars worsen much further, a recession is now a realistic risk across major economies,” he added. “For the first time in many quarters, we favour core fixed income over global equities.”

Many economists are worried that tariffs will hit the US economy hard, even as they limit the Federal Reserve’s scope to cut rates by driving inflation in the short term.

Analysts at Goldman Sachs now see a 35 per cent chance of a US recession, up from 20 per cent previously, saying they expect Trump to announce reciprocal tariffs that average 15 per cent across all US trading partners on Apr 2.

Data out on Friday underlined the risks as a key measure of core inflation rose by more than expected in February while consumer spending disappointed.

That raised the stakes for the March payrolls report due on Friday where any outcome below the 140,000 gain expected would only add to recession fears. Also due are a rush of surveys on factories and services, along with figures on trade and job openings.

Bond investors seemed to be betting the slowdown in US economic growth will outweigh a temporary lift in inflation and prompt the Fed to cut rates by about 80 basis points this year.

This, combined with a flight from risk assets, saw the 10-year Treasury yield drop as low as 4.184 per cent while the two-year yield hit 3.842 per cent. Germany’s 10-year yield fell as low as 2.659 per cent, its lowest since Mar 5.

The outlook for rates could become clearer when Fed Chair Jerome Powell speaks on Friday, following a host of other Fed speakers this week.

The drop in US yields saw the US dollar ease 0.4 per cent to 149.30 yen, while the euro held at US$1.0817. The dollar index was steady at 104.05, having slipped for the previous two sessions.

The perceived safety of gold saw the metal hit another all-time high at US$3,128.06 an ounce.

Brent rose 0.8 per cent to US$74.24 a barrel, while US crude added 0.4 per cent to US$69.65 per barrel, as Trump has threatened secondary tariffs on buyers of Russian oil if he felt Moscow was blocking efforts to end the war in Ukraine. REUTERS