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Global stock markets experienced a sharp decline on Monday, primarily driven by concerns that newly implemented U.S. tariffs might instigate a broader economic downturn worldwide. Shares in both Asian and European exchanges faced significant setbacks, while leading U.S. indices approached bear market territory during pre-market trading. Additionally, crude oil prices saw a notable drop.
This recent wave of selling in riskier assets comes in the wake of President Donald Trump’s announcement regarding escalated import tariffs paired with retaliatory responses from China, which triggered substantial market drops last Thursday and Friday.
In a reaffirmation of his stance on Sunday evening, Trump stated, “sometimes you have to take medicine to fix something.”
WATCH l Trump defiant despite the market reaction:
‘Your question is so stupid’: Trump defends tariffs despite market collapse
President Trump continued to advocate for the tariffs, disregarding the chaotic results in global markets. During a flight on Air Force One, he expressed frustration at a reporter’s question, stating, “I don’t want anything to go down, but sometimes you have to take medicine to fix something.”
U.S. futures indicated further market weakness, with S&P 500 futures showing a decline of 3.4 percent and Dow Jones Industrial Average futures down by 3.1 percent. Nasdaq futures lost 5.3 percent.
In response, several nations, including South Korea and Pakistan, announced plans to dispatch trade officials to Washington for discussions aimed at clarifying the situation.
Conversely, German economy minister Robert Habeck expressed resistance upon arriving at a European Union trade ministers meeting in Luxembourg. He described the rationale behind the extensive tariffs as “nonsense” and noted that past efforts by individual countries for tariff exemptions have not been successful.
He emphasized the importance of EU unity, stating, “We are in a strong position — America is in a position of weakness.”
Trump has defended the tariffs as necessary to address U.S. trade deficits, a justification criticized by many economists who argue that such deficits do not inherently indicate economic health. In the case of Canada and Mexico, he proposed tariffs as a measure to limit fentanyl trafficking into the U.S., despite data showing low levels of drug interdiction from Canada.
In his recent letter to shareholders, JPMorgan Chase CEO Jamie Dimon warned investors that the instability linked to U.S. tariffs could hinder economic growth, spark inflation, and possibly produce prolonged adverse effects. He wrote, “The quicker this issue is resolved, the better because some of the negative effects increase cumulatively over time and would be hard to reverse.”
Following Trump’s announcement of the highest trade barriers seen in over a century, JPMorgan’s economists raised the likelihood of a U.S. and global recession within this year to 60 percent from a previous estimate of 40 percent.
Previously, Dimon had urged critics of the tariffs to “get over it,” though he had acknowledged the need for careful implementation.
Flirting with bear territory
Should the potential losses indicated by pre-market futures be realized when U.S. markets open, the S&P 500 could officially transition into bear market territory, typically defined as a drop of over 20 percent from its peak. As of the end of the previous week, the index was down by 17.4 percent.
The Federal Reserve could mitigate the negative impact of tariffs on the U.S. economy by lowering interest rates, a move that Trump advocated for on social media early Monday. Such cuts may encourage borrowing and spending among companies and consumers. However, Fed Chair Jerome Powell warned that rising tariffs might heighten inflation expectations and that lower rates could further drive up prices.
LISTEN l Bloomberg podcast host Joe Weisenthal on the tariff tumult:
Fundamental shifts in the market landscape have raised anxieties about job security in sectors like automotive manufacturing. Chief Economist at JP Morgan recently adjusted the probability of a global recession by year’s end to 60 percent, emphasizing the gravity of the current economic climate.
The market turmoil deepened on Friday, marking the worst trading crisis since the onset of the COVID-19 pandemic, as the S&P 500 experienced a six percent plunge, the Dow faced a 5.5 percent drop, and the Nasdaq composite decreased by 3.8 percent.
Deutsche Bank analysts noted that “there’s no sign yet that markets are finding a bottom and beginning to stabilize” in their recent research insights.
While Chinese markets generally react differently compared to global trends, they also faced downturns with Hong Kong’s Hang Seng dropping 13.2 percent and the Shanghai Composite index declining by 7.3 percent. In Taiwan, the Taiex fell by 9.7 percent, while South Korea’s Kospi lost 5.6 percent.
Despite falling markets, Chinese authorities portrayed confidence. The People’s Daily, the official publication of the Communist Party, insisted, “The sky won’t fall,” in response to U.S. tariffs, stating that the country was prepared for the challenges and had various tools at its disposal.
Oil prices plummet
Stock markets in the Middle East also faltered on Monday, grappling with the repercussions of U.S. tariff policies alongside a marked decline in oil prices.
Brent crude experienced almost a 15 percent drop over the past five trading days, with prices hovering just above $63 USD per barrel, a figure that is nearly 30 percent lower than the previous year. This pricing is well below the estimated break-even threshold for Saudi Arabia and other Middle Eastern oil producers, compounded by the 10 percent tariffs affecting Gulf Cooperation Council members such as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
PricewaterhouseCoopers (PwC) issued a warning, suggesting that the stability and predictability of international trade could be compromised due to these measures and expected retaliatory actions from other nations.
In Asia, Tokyo’s Nikkei 225 index closed down by 7.8 percent. European markets followed suit, with Germany’s DAX index initially plunging over 10 percent before recovering slightly to a 5.8 percent decrease during morning trading in Frankfurt.
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www.cbc.ca