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The US dollar, Treasuries and equities sold off as banks and investors warned Donald Trump’s tariffs could tip the US into recession even as the president stepped back from a full-blown trade war.
The dollar slid against major trading partner currencies to a more than 20-month low as the rush out of US assets sent the yen, euro and pound sterling surging.
The yield on the benchmark 10-year US Treasury hit 4.46 per cent on Friday, up from 4.17 per cent at the close on April 1, the day before Trump’s “liberation day”. Gold prices jumped to an all-time high as investors fled into haven assets.
On Thursday, the S&P 500 dropped 3.5 per cent, a sharp turnaround from the previous session’s 9.5 per cent surge. Wall Street’s benchmark share index is down 6.1 per cent for April. The tech-heavy Nasdaq Composite dropped 4.3 per cent after its best day since 2001. Shares in Tokyo also slid on Friday.
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Markets had regained ground on Wednesday after Trump paused the steep “reciprocal” tariffs on a swath of countries for 90 days. The gains were a reprieve from the heavy selling across US markets, which had this week seeped into the $29tn Treasury market, the bedrock of the financial system.
But Wall Street banks and investors said the president’s decision to hoist duties on Chinese imports as high as 145 per cent and keep in place a 10 per cent universal tariff still presented a serious risk for the US and global economy.
“US exceptionalism has been tarnished,” said Mitul Kotecha, head of emerging markets macro strategy at Barclays. “A lot of this sell-off is happening in Asian hours . . . there is concern that foreign investors, especially the Chinese, will start unloading US Treasuries.”
The 30-year yield rose 0.03 percentage points to 4.9 per cent on Friday after rising 0.13 percentage points on Thursday.
Goldman Sachs said it was “too early for the ‘all clear’” and warned that “while some immediate tail risks have been reduced, policy uncertainty remains very high and is likely to weigh on consumer and business activity”.
Markets remained under heavy pressure as Trump held a televised cabinet meeting in the White House. Treasury secretary Scott Bessent, answering a reporter who asked about the slide in markets, said: “I don’t see anything unusual today.” He answered the question after Trump said he had not seen the markets on Thursday.
Trump said about China: “We would love to be able to work a deal. They’ve really taken advantage of our country for a long period of time.” He also said he was prepared to bring back the broad reciprocal tariffs if other countries declined to forge new trade deals with Washington.
China on Thursday imposed its additional 84 per cent tit-for-tat tariffs against the US, bringing its total levy on American imports to more than 100 per cent. President Xi Jinping signalled he would not back down from the escalating trade war, but Beijing made no immediate move to match Trump’s even higher rate.
“If you want to talk, the door is open, but the dialogue must be conducted on an equal footing on the basis of mutual respect,” said China’s commerce ministry. “If you want to fight, China will fight to the end. Pressure, threats and blackmail are not the right way to deal with China.”
The renminbi on Thursday weakened to its lowest level since 2007 in the latest sign Beijing was willing to tolerate gradual depreciation in response to US tariffs.
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Fears of a widening trade war between the world’s two biggest economies also drove oil prices lower, with international benchmark Brent crude settling down 3.3 per cent at $63.33 a barrel. West Texas Intermediate settled just below $60 a barrel, a price analysts said could threaten the US shale sector.
The trade dispute with China, the world’s biggest exporter, has boosted the average US tariff on imports from the Asian country to 134.7 per cent, according to the Peterson Institute for International Economics.
A separate analysis from the Yale Budget Lab said American consumers now face a tariff rate of 27 per cent, the highest level since 1903, when taking into account US tariffs and those imposed against America.
Uncertainty over Trump’s trade policies and objectives was likely to “beset markets and macroeconomic outlooks in the months and quarters ahead”, added Bill Campbell, global bond portfolio manager at DoubleLine.
Reporting by Kate Duguid, Will Schmitt, Harriet Clarfelt and George Steer in New York, Steff Chávez and Aime Williams in Washington and William Sandlund and Arjun Neil Alim in Hong Kong
