Trump's tariff wrecking ball still swinging

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist 

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U.S. President Donald Trump's tariff 'wrecking ball' swung through financial markets again on Monday, sending investors scuttling for cover and wiping hundreds of billions of dollars more off the value of global stocks.

With Trump doubling down on his protectionist agenda and threatening further levies on China, the likelihood of U.S. and global recession is increasing by the day. Despite the scale of the market rout, however, recession still isn't 'in the price'. More on that below, but first a round up of another extraordinary and volatile day on world markets. 

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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When does a market slide become a slump, and when does that morph into a meltdown? And when does that crater into a crash? 

There may not be any definitive demarcation lines, but if they do exist they have rarely been more blurred, as the stock market rout deepens on fears over the global economic damage being inflicted by U.S. President Donald Trump's tariffs.

Hong Kong's Hang Seng index plunged 13% for its worst day since 1997 and Japan's Nikkei and the Nasdaq extended their bear market declines, and trading in several markets and stocks across Asia was suspended as losses triggered circuit breakers.

Wall Street held up better than most on Monday, but few observers would be confident it marks a turning point. The fog of tariff uncertainty is too thick to give investors, businesses and households any visibility much beyond the end of their noses.

That fog isn't helped by the blizzard of headlines - from Trump himself, policymakers, officials and business leaders around the world - which is intensifying. Not only that, it is increasingly filled with confusion and contradiction. 

Trump on Monday said tariffs are here to stay and he could increase them on China if Beijing doesn't withdraw its retaliatory levies on U.S. imports. Tariffs could be permanent, and there could also be talks, he added.

Europe, meanwhile, proposed counter-tariffs of 25% on a range of U.S. goods including soybeans, nuts and sausages, though other potential items like bourbon whiskey were left off the list, according to a document seen by Reuters.

There could well be a number of bilateral negotiations opening up soon between Washington and major trading partners which could see deals eventually be reached. But volatility and uncertainty are unlikely to ease up much in the interim.

Among the myriad policymakers' voices fighting to be heard right now, the most important one remains Trump's. Fed Chair Jerome Powell spoke on Friday but was non-committal, and unless markets or the economic data take a severe turn for the worse, he may prefer to maintain a 'wait and see' approach.

U.S. rates traders are now almost fully pricing in four rate cuts this year as growth forecasts get slashed and the oil price slump helps soften the inflationary push from tariffs. Brent crude is at its lowest in nearly four years and is down almost 30% from a year ago.

1. No Fed 'put' when it's unclear which way the economy may pivot

2. US Tech may learn tough tariff history lesson: Mike Dolan

3. Trump leaves emerging market central banks with no clean choices

4. ECB rates could fall faster as recession risk mounts

5. BlackRock's Fink says stocks could extend fall by 20% as CEOs see recession

If a proper bear market is unfolding on Wall Street, then it still has a long way to go, especially if the U.S. economy tips into recession. 

While the S&P 500 on Monday narrowly avoided what would have been the worst three-day selloff since the Great Depression, that doesn't mean we have reached a turning point. Stock valuations and earnings forecasts have fallen, but they still appear far too high when considering both previous market downturns and the immense economic turmoil being unleashed by U.S. President Donald Trump's protectionist trade agenda. 

A U.S. recession this year isn't yet the consensus view – with only two big banks, JPMorgan and Barclays, officially calling one – but it almost certainly will be if Trump's tariffs stay in place and the rest of the world retaliates. 

The consensus U.S earnings outlook certainly hasn't adjusted for what JPMorgan equity analysts say would be the "waterfall event" of a U.S. recession. They have lowered their 2025 earnings per share forecast to $250 from $270, adding that the risks are still skewed to the downside.

That essentially implies zero earnings growth this year compared to the consensus view of around 10%. The latter is optimistic, to say the least, in a world where the U.S. is hurtling towards stagnation or contraction, China is struggling to head off deflation, and Europe and other major economies are likely already tipping into recession.

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