Futures markets moved swiftly to price in almost five quarter-point cuts in U.S. rates this year, pulling Treasury yields down sharply and hampering the dollar.
The carnage came as White House officials showed no sign of backing away from their sweeping tariff plans, and China declared the markets had spoken on their retaliation through levies on U.S. goods.
President Donald Trump told reporters that markets would have to take their medicine and he would not do a deal with China until the U.S. trade deficit was sorted out.
Investors had thought the loss of trillions of dollars in wealth and the likely body blow to the economy would make Trump reconsider his plans.
“The size and disruptive impact of U.S. trade policies, if sustained, would be sufficient to tip a still healthy U.S. and global expansion into recession,” said Bruce Kasman, head of economics at JPMorgan, putting the risk of a downturn at 60%. “We continue to expect a first Fed easing in June,” he added. “However, we now think the Committee cuts at every meeting through January, bringing the top of the funds rate target range down to 3.0%.” S&P 500 futures slid 4.31% in volatile trade, while Nasdaq futures dived 5.45%, adding to last week’s almost $6 trillion in market losses.
Japan’s Nikkei sank 7.8% to lows last seen in late 2023, while South Korea lost 4.6%.
The gloomier outlook for global growth kept oil prices under heavy pressure, following steep losses last week.
Brent fell $2.12 to $63.46 a barrel, while U.S. crude dived $2.05 to $59.94 per barrel.
The flight to safe havens saw Treasury futures surge a full point, a very rare move for Asian trade, while Fed fund futures jumped to price in an extra quarter-point rate cut from the Federal Reserve this year.
Markets swung to imply around a 63% chance the Fed could cut as soon as May, even though Chair Jerome Powell on Friday said the central bank was in no hurry on rates.
Yields on 10-year Treasuries dropped 10 basis points to 3.897% amid the general flight from risk assets.
NEVER MIND INFLATION
That dovish turn saw the dollar slip another 0.9% on the safe-haven Japanese yen to 145.59 yen, while the euro held firm at $1.0955. The dollar shed 1.2% on the Swiss franc to 0.8501, while the trade-exposed Australian dollar dropped a further 0.7%.
Investors were also wagering the imminent threat of recession would outweigh the likely upward shove to inflation from tariffs.
U.S. consumer price figures out later this week are expected to show another rise of 0.3% for March, but analysts assume it is just a matter of time before tariffs push prices sharply higher, for everything from food to cars.
Rising costs will also put pressure on company profit margins, just as the earnings season gets underway with some of the big banks due on Friday. Around 87% of U.S. companies will report between April 11 and May 9.
“We expect during upcoming quarterly earnings calls fewer companies than usual will provide forward guidance for both 2Q and full-year 2025,” analysts at Goldman Sachs said in a note.
“Rising tariff rates will force many companies to either raise prices or accept lower profit margins,” they warned. “We expect negative revisions to consensus profit margin estimates in coming quarters.”
Even gold was swept up in the selloff, easing 0.7% to $3,013 an ounce.
The drop left dealers wondering if investors were taking profits where they could to cover losses and margin calls on other assets, in what could turn into a self-feeding fire sale.