Global stock markets plunged on Monday (April 7th) in response to the impact of President Trump’s tough tariff policies. The markets quickly adjusted their expectations, betting on the Federal Reserve cutting interest rates as early as May to ease economic downturn pressures. According to CME FedWatch data, the market’s expectation of a rate cut in May has risen to nearly 65%.
President Trump has been steadfast in advancing his global tariff policies, emphasizing it as an economic “remedy.” Subsequently, major Asian stock indices tumbled on Monday (April 7th). This led to rapid reactions in the interest rate futures market, with bets on potential rate cuts of up to five notches this year, causing significant drops in US bond yields, pressure on the US dollar, and increased favor for safe-haven assets.
On Sunday, Trump told reporters that he does not want the stock market to decline, but he views the broad tariffs as a “remedy.” He emphasized that he will not reach an agreement with China unless the US trade deficit issue is resolved.
Initially, the market believed that the billions of dollars evaporating from the stock market and the massive impacts on the economy might force Trump to reconsider his policies. However, it appears that Trump will not change his stance despite the recent market turmoil.
JPMorgan’s chief economist Bruce Kasman stated that if the US trade policy continues, both the US and global economies will face downward pressure. He believes that the risk of a recession has reached 60%.
“We still expect the Fed to begin cutting rates in June this year,” he added. “However, we now believe that the committee will continue to cut rates at each meeting from June until January next year, ultimately lowering the upper end of the federal funds rate target range to 3.0%.”
Although Federal Reserve Chairman Jerome Powell stated last Friday that the Fed is “not in a rush” to act on interest rates, the expectations in the market have shifted with the sharp declines in the Asia-Pacific stock markets.
According to the latest data from CME FedWatch, as of April 7th, the market is betting on a rate cut in May with a probability exceeding 50%, reaching over 60% (64.9%), and the probability of another rate cut of one notch in June is close to 60% (58.1%). These numbers significantly exceed the data from the previous month.
This dovish shift in expectations led to a 1% decline in the USD against the safe-haven Japanese yen, reaching 145.16 yen. The euro, on the other hand, appreciated by 0.5% to $1.1005, while the USD fell by 1.45% against the Swiss franc to 0.8484. The Australian dollar, closely tied to global trade, continued to decline by 0.5%.
On Monday, S&P 500 futures fell nearly 5% amid volatility, while Nasdaq futures plummeted by 5.7%. Coupled with the nearly $6 trillion lost in market value last week, the market faced further pressure.
European markets also experienced depreciation, with the Euro Stoxx 600 index declining by 5.3% as of the time of publication. Germany’s DAX index fell by 9.4%, and the European bank index dropped by 4.8%, marking a 20% decline from recent highs.
In Asia, the Hang Seng Index in Hong Kong dropped by 12%, marking the largest decline since the global financial crisis of 2008. In mainland China, the A-share market plunged with the CSI 300 index falling by 6.3% and the Shenzhen Component Index dropping by 8%, as the market awaits further stimulus measures from Beijing.
The Nikkei 225 Index in Japan fell by 7.8%, hitting a new low since the end of 2023; South Korea’s KOSPI Index declined by 5%; and the MSCI Asia-Pacific stock market index plummeted by 7.8%, marking the largest single-day decline since 2008.
Taiwan’s stock market was closed for the Ching Ming Festival last Thursday and Friday. When trading resumed on Monday, it fell by nearly 10%, prompting government intervention to restrict short selling activities.
Emerging markets in Asia recorded widespread declines, with India’s Nifty 50 index dropping by 4%.
Oil prices remained under pressure, reflecting the market’s pessimism about the global economic outlook. Brent crude dropped by $2.20 to $63.40 per barrel, while US West Texas Intermediate crude fell by $2.75 to $59.23 per barrel.
Market funds poured into safe-haven assets, causing a 9 basis point drop in the yield of the US 10-year Treasury bonds to 3.90%. At the same time, federal funds rate futures prices rose, indicating expectations that the Fed will cut rates by an additional 25 basis points this year.
(Information in this article was partially referenced from Reuters reports.)