Markets reeling after Trump sparks recession fears
Global markets took a hit on Monday as analysts warned of a bleak economic outlook after President Donald Trump refused to dismiss recession fears.
When asked whether the world’s largest economy was heading toward recession, Trump responded that a “period of transition” was taking place.
“I hate to predict things like that. There is a period of transition, because what we’re doing is very big.
“We’re bringing wealth back to America, that’s a big thing. And there are always periods of, it takes a little. It takes a little time, but I think it should be great for us,” Trump said on Sunday.
The FTSE 100 quickly fell into the red on Monday morning as Trump’s trade war and uneasy comments lingered over markets.
The UK’s flagship stock index hit a one month low, down as much as 0.8 per cent.
The FTSE 250 down a further one per cent.
Bank stocks were hit particularly badly by Trump’s comments, with the FTSE 350 bank index down nearly two per cent.
Defence stocks, which had recently rallied due to higher spending prospects, also fell as much as two per cent.
Germany’s Dax lost 0.8 per cent and Cac 40 in Paris fell 0.4 per cent as global markets reeled Monday morning from the economic uncertainty in the US.
The yield on two-year Treasury bonds marked a steep fall from mid-February amidst speculation of US interest rate cuts.
US markets expect the Federal Reserve to cut rates three times by the end of the year following recession fears.
Wall Street giant Goldman Sachs downgraded its growth forecast to 1.7 per cent, falling from its previous estimate of 2.4 per cent.
This marks the first outlook delivered by the bank that is below wider market consensus in two and a half years and was propelled by ongoing the tariffs war.
Russ Mould, investment director at AJ Bell, said: “The FTSE 100 slipped lower in early trading on Monday as fears about deflation in China and a recession in the US took air out of the market’s balloon.”
He added: “President Donald Trump’s failure to dismiss a question about the country potentially heading towards recession as he talked about a ‘period of transition’ for the economy saw yields on US government debt slide as investors begin to assume a downturn is coming.”
Sole market guarantee is ‘volatility’
Trump slapped a 25 per cent tariff on Canadian and Mexican imports as part of the President’s trade war last week.
However, two days later, he made numerous goods exempt from the new fees.
Canada responded with escalation swiftly by imposing £16bn worth of retaliatory tariffs on items such as American orange juice, coffee and appliances.
Head of markets at interactive investor, Richard Hunter said: “The sole market guarantee at the moment is volatility, and US markets ended another turbulent week in the red, despite a slight reprieve in the final session.”
Hunter said the main indices were “struggling to find form given the overall backdrop, with the Dow Jones having added just 0.6 per cent and the S&P500 and Nasdaq having fallen by 1.9 per cent and 5.8 per cent respectively.”
“The FTSE100 has perhaps lost some of its lustre over the last few trading sessions, where international investor attention has turned to the more aggressive spending plans which have been announced elsewhere in Europe.
“While this may have diminished the attraction of the index as the obvious value play within the area, its constituents continue to provide a solid backbone given its exposure to defensive and stable sectors,” he added.
US inflation figures announced Wednesday
Investors will be keeping an eye on US inflation figures, set to be released on Wednesday, for any indication of a weakening economy under Trump.
Fawad Razaqzada, market analyst at City Index said: “US inflation has been creeping higher for five consecutive months, leaving the Federal Reserve in a rather awkward position.
“On one side, economic cracks are beginning to show in certain sectors, yet inflation expectations among consumers are ticking upwards—no doubt stoked by concerns over tariffs and Trump’s tax-and-spend agenda.
“The pressing question now is whether these rising expectations will translate into sustained inflationary pressures or if softer economic data and falling oil prices have provided some much-needed respite in February.”
In a note produced Monday morning, HSBC Global Research upgraded “Europe (ex UK) to overweight (from underweight)” and downgraded the US to “neutral”.
The analysts believed a Trump victory would “reinforce US exceptionalism” however underestimated “how the US’ wavering support for NATO and Ukraine would trigger a watershed moment for the eurozone – with Germany expected to also follow through with sizeable fiscal stimulus.”
The analysts said they were not “turning negative” on US equities but “tactically” saw better opportunities elsewhere.
“Prevailing uncertainty around tariffs could see US equities remain challenged in the next few weeks, but we are hesitant to turn too cautious on the medium-term outlook,” they added.