Major stock indexes in Asia experienced significant declines on Monday, as U.S. President Donald Trump’s commitment to his extensive tariff plans heightened investors’ concerns about a recession. This has led many to speculate that the Federal Reserve may begin cutting interest rates as early as May. Futures markets quickly adjusted, anticipating nearly five quarter-point cuts in U.S. rates this year, resulting in a sharp drop in Treasury yields and putting pressure on the dollar.
The downturn intensified following Trump’s remarks that investors would “have to take their medicine,” indicating he would not negotiate with China until the U.S. trade deficit was addressed. Beijing responded by saying that the markets had communicated their stance regarding retaliatory measures. Sean Callow, a senior FX analyst at ITC Markets in Sydney, remarked that the only true “circuit breaker” lies in Trump’s mobile phone, suggesting that he is not showing any signs of altering his long-held policy stance despite the market turmoil.
Many investors had anticipated that the massive loss of wealth, amounting to trillions of dollars, would compel Trump to reassess his strategy. However, Bruce Kasman, head of economics at JPMorgan, indicated that if current U.S. trade policies persist, they could destabilize a still-healthy U.S. and global economy, raising the risk of recession to 60%. He maintains expectations for a rate cut by the Fed in June and forecasts continued easing through January, potentially lowering the target range to 3.0%.
In terms of stock performance, S&P 500 futures dropped 3.5%, while Nasdaq futures fell 4.4%, contributing to nearly $6 trillion in market losses from the previous week. This trend extended into Europe as well, with EUROSTOXX 50 futures down 3.6%, and major indices in Japan and South Korea seeing significant falls, indicating widespread fear across global markets. The market pressure also affected oil prices, which declined sharply due to a dimmer outlook for global growth.
The flight to safe havens resulted in a reduction of 10-year Treasury yields, accompanied by a jump in Fed fund futures forecasting an increased likelihood of a rate cut. While the dollar weakened against the yen and Swiss franc, the euro remained relatively stable. Despite signs of rising inflation, fueled by tariffs, investors appeared to prioritize the looming recession risk over potential price increases.
As the earnings season approaches, analysts expect fewer companies than usual to offer guidance on their future performance, with profit margins likely facing downward revisions in the forthcoming quarters. Even gold, often seen as a safe haven, experienced a slight decline, suggesting a broader trend of profit-taking amidst a chaotic market environment.