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In a significant market upheaval, stocks took a nosedive as investors flocked to safe-haven assets like bonds, gold, and the Japanese yen on Thursday, following the announcement of unexpected trade tariffs by Donald Trump. These tariffs, aimed at fortifying the U.S. economy, are reverberating through global trade and supply chains.
The technology sector bore the brunt of the fallout, particularly affecting manufacturing operations in China and Taiwan, where tariffs soared above 30%. Altogether, exports from China to the U.S. now encounter a staggering 54% tariff burden.
According to Ben Wiltshire, a global rates trading strategist at Citi, “The U.S. effective tariff rate on all imports appears to be the highest it has been in over a century.”
Nasdaq futures plunged by 3.3%, and during after-hours trading, the market capitalization of major technology firms, often referred to as the “Magnificent Seven,” saw a loss exceeding $760 billion. Apple, heavily reliant on Chinese manufacturing for its iPhones, experienced a nearly 7% decline in stock price.
Broad-market indicators reflected this downturn as well, with S&P 500 futures dropping by 2.7% and FTSE futures falling 1.6%. European equity futures also succumbed to this trend, sliding nearly 2%.
Gold prices surged to an all-time high, surpassing $3,160 an ounce, while oil prices – a critical indicator of global economic health – fell by over 2%, settling at $73.24 per barrel for benchmark Brent futures.
In Asia, Japan’s Nikkei index experienced a decrease of 2.8%, hitting an eight-month low, with the majority of its components suffering losses, including shippers, banks, and exporters. Across the region, the MSCI index for Asia-Pacific shares excluding Japan dropped more than 1%.
As investor sentiment turned cautious, the yield on benchmark 10-year U.S. Treasury bonds decreased by 14 basis points, reaching a low of 4.04%, as markets braced for an anticipated slowdown in U.S. economic growth. Concurrently, futures for interest rates suggested an increased likelihood of rate cuts in the near future.
Jeanette Gerratty, chief economist at Robertson Stephens, remarked, “The tariffs are so comprehensive and larger than we anticipated.” Trump’s policy introduced a base tariff rate of 10% on imports from all nations, with particularly steep rates levied against specific trading partners in Asia.
China’s exports now face a 34% tariff, while Japan, Vietnam, and South Korea are subject to tariffs of 24%, 46%, and 25%, respectively. The European Union’s tariff is set at 20%.
Chinese stock markets responded immediately, with the CSI300 index slipping by 0.24% and the Shanghai Composite Index dipping 0.1%. The Hang Seng Index in Hong Kong also fell by 1.6%, and South Korea’s Kospi declined by 2%. Additionally, Van Eck’s Vietnam ETF dropped by over 8% in after-hours trading, while Australian shares fell 2%.
The Chinese yuan suffered, falling to its weakest point since mid-February, with an onshore value of 7.3060 yuan per dollar. This drop mirrors the trend in the offshore market, where the yuan also reached a two-month low. Trump’s announcement also plugged a loophole that allowed low-value packages to be shipped from China, potentially impacting the operations of its vast online retail sector.
Ten-year Japanese government bond futures experienced their sharpest surge in eight months, indicating increased demand for safer investments amidst the turbulent market.
Commenting on the broader implications, Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong, stated, “The tariffs announced today pose a significant risk to global trade,” adding that “Supply chains in East Asia are particularly under pressure.”
As the U.S. dollar gained strength against most Asian currencies in a volatile trading session, the yen stood out, strengthening against the dollar to trade above 148 yen. In response to the tariffs, it is anticipated that affected nations may implement their own countermeasures, leading to a potential spike in prices across various sectors.
IG market analyst Tony Sycamore warned, “The tariff rates unveiled this morning far exceed baseline expectations, and if they are not negotiated down swiftly, we could see heightened recession expectations in the U.S.”
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