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Dollar and shares tumble as Trump tariffs cause recession fears

The stock market limped into the weekend on Friday. The dollar was headed for its worst month-end in a while, and gold flirted near a record high as investors worried that U.S. president Donald Trump's tariffs could tip the global economic system into recession.

Asian shares have struggled to recover the heavy losses of Thursday's session. The Nikkei 225 index in Japan fell by 1.85%. This is a continuation of its 2.8% decline from last Thursday.

MSCI's broadest Asia-Pacific index outside Japan fell 0.26% on thin trading, as markets in China Hong Kong and Taiwan were closed for the holiday.

Overnight, the S&P 500 lost $2.4 trillion, which is their largest one-day drop since the global coronavirus outbreak on March 16, 2020. Other Wall Street indexes also saw sharp drops.

Investors rushed to safety assets after Trump announced Washington's highest trade barriers in over 100 years on Wednesday.

David Bahnsen is the chief investment officer of The Bahnsen Group. He said that if tariffs remain unchanged, a recession in Q2 or Q3 is possible as well as a bear market.

The question is whether President Trump wants to take these policies off the table if we experience a stock market bear market. We think Trump will pivot and focus on companies making significant investments in America, but it is unclear if that would change the market sentiment.

U.S. Stock Futures stabilized during the early Asian session. Nasdaq futures rose 0.05% while S&P500 futures declined 0.06%.

In response to the increased fears of a global economic recession, especially in the United States of America, traders have stepped up their bets on more Federal Reserve rate reductions this year. They believe that policymakers will have to ease up more aggressively in order to boost growth in the largest economy in the world.

Fed funds futures point to a roughly 96 basis point reduction by December. This was closer to 70 bps just before Trump announced his tariffs on Wednesday.

David Doyle, Macquarie Group's head of economics, said that central banks were not equipped to handle stagflation because the effects of lower growth and higher inflation push policy in opposite directions.

This means that a stronger core inflation will likely limit the extent of the Fed's policy response due to the headwinds for growth created."

Investors will be watching for Fed Chair Jerome Powell's speech on Friday. They are interested in his assessment of the U.S. economic situation and the outlook on policy following Trump's latest tariff salvo.

The dollar rose 0.09% to 146.23 yen on the foreign exchange markets, after falling 2.2% the previous day, its steepest drop in over two years.

The euro remained at $1.1043 following a 1.9% increase on Thursday. Meanwhile, the Swiss Franc was last at $0.8591 after also gaining 2.6% on that day.

The dollar was at 102.04 against a basket. This is a new six-month low.

The U.S. Dollar has been weakening this year due to a combination of heavy long positions built up at the end of last year and the renewed focus on U.S. economic growth risks, which have accompanied the tariff talks for weeks.

Bond prices have also soared as investors flee to safe assets.

The 10-year U.S. Treasury benchmark yield, which had fallen by 14 basis points in the previous session, was little changed last week at 4.0436%. Bond yields are inversely related to bond prices.

Spot gold, meanwhile, was nearing a record high of $3,112,81 per ounce and on course for a fifth consecutive weekly gain as concerns about the impact Trump's tariffs would have on the global economic system boosted its appeal as a safe-haven metal.

Brent crude futures were down 0.13% to $70.05 per barrel while U.S. West Texas Intermediate Crude futures dropped 0.15% at $66.85 a barrel.

(source: Reuters)