Investors flee as Trump tariffs slash stocks

Investors rushed to gold, bonds and the yen as they feared a global economic recession following President Donald Trump’s draconian U.S. tariffs.

The traders were clearly shaken by the new 10% baseline tariff on imported products plus additional, eye-watering'reciprocal tariffs' on countries Trump claimed imposed high trade barriers against the U.S.

Brussels and other capitals of the region were in a frenzy as the EU 27 countries faced a reciprocal 20% levy. The bourses fell between 1.3% to 2% in the early going.

Tokyo's stock market fell 2.7% overnight in Asia, putting it on track for its worst weekly performance in almost two years. Wall Street futures fell 3% while the dollar hit a six-month high.

JPMorgan analysts said that the tariffs are "significantly higher" than what they had imagined as the worst-case scenario.

Fitch, a credit rating agency, warned that they would be a game-changer for the U.S. economy and global economies. Deutsche Bank said it was a once-in-a lifetime event which could knock 1%-1.5% of U.S. economic growth in this year.

Olu Sonola, a Fitch analyst, said that "many countries are likely to end up in recession." If this tariff rate is maintained for a long time, you can forget about most forecasts.

The rush for ultra-safe government securities that guarantee income has driven U.S. Treasury rates down to around 4%. Germany's 10-year rate, the European benchmark, fell by 8.5 basis points to 2.64%.

The tariffs are likely to raise import taxes to levels not seen in over a century in the largest economy in the world. In the event that they trigger recessions, it is likely that central banks will cut interest rates around the globe. This benefits bonds.

Nasdaq Futures fell 3.2% before what was expected to a be a turbulent U.S. start.

Apple's market cap dropped by over $240 billion after its shares fell 7% on Wednesday. Nvidia's share price dropped by 5.6%, or $153 billion. This is a further addition to the trillions of dollars that have been wiped from the market capitalisations of the "Magnificent 7" tech giants this year.

Trump's levies are particularly harsh on Asia.

China received a 34% tax, Japan 24%, South Korea 25 and Vietnam 46%. Vietnamese shares fell 6.7% as a result. Australian shares and the Aussie Dollar also fell, as the country too was affected.

CHINA FOCUS

Investors sold exposure to global growth as countries such as China, Canada and Europe promised countermeasures.

Brent futures, which are a good proxy for economic activity and the state of the economy, fell as much as 3%, dropping Brent prices below $73 per barrel. This is likely to be its worst day this year.

The gold price reached a record-high of $3,160 per ounce but then slowed down. Meanwhile, the Japanese yen rose more than 1.5 percent to 147.01 dollars as traders sought safety outside the U.S. Dollar.

The Swiss Franc, another safe haven, reached its highest level in four month as the euro also jumped 1% to $1.0970.

Adam Hetts is the global head of Multi-assets and Portfolio Manager at Janus Henderson Investors. He said: "Eyewatering tariffs country by country screams 'negotiation tactics' which will keep markets in a state of tension for foreseeable future."

China's currency remained relatively stable, with the yuan dropping only 0.4% in spite of tariffs on Chinese exports exceeding 50% and Vietnam being hit as a result.

The Chinese economy is large and there's a hope that Beijing will support Hong Kong and Shanghai stocks. Losses in Hong Kong were limited to 1.5%, and Shanghai losses to 0.5%.

George Saravelos, strategist at Deutsche Bank, said that China should be the main focus of attention in the coming days.

He asked: "Will China wait for trade talks... or will it absorb this shock? "Or will China try to 'export the shock'... via devaluation of yuan?"

(source: Reuters)