Economy

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump’s bid to upend the international trading order with huge tariffs has wiped $5.4tn from US stocks in two days, as China hit back with its own levies, deepening fears of recession in the global economy. The S&P 500 index tumbled 6 per cent on Friday, following a 4.8 per cent drop the previous day, shedding $5.38tn in market value, in the wake of the US president’s “liberation day” announcement on Wednesday, according to Financial Times calculations based on FactSet data.The blue-chip index’s 9.1 per cent fall for the week was the biggest since the onset of the pandemic five years ago.Tech stocks, including behemoths such as Apple and Amazon, retreated, pushing the Nasdaq Composite down more than 20 per cent from its mid-December peak, tipping the gauge into “bear market” territory. Across the Atlantic, Europe’s Stoxx 600 shed 8.4 per cent on the week, while the UK’s FTSE 100 fell 7 per cent. MSCI’s Asia index fell 4.5 per cent.The turmoil underscores how Trump’s plans to enact a 10 per cent universal tariff and hit many countries with bigger “reciprocal” duties within days has shaken investor confidence and triggered fears of a slowdown in the world’s biggest economy. China, the world’s biggest exporter, added to the sense of gloom on Friday when it announced duties of 34 per cent on all US imports. “If the reciprocal tariffs are not walked back by April 9, which I don’t think they will be, you will probably be looking at a recession in the United States and the European Union,” said Ajay Rajadhyaksha, global chair of research at Barclays. “Unless there is a very quick end to this global trade war, we think we get a US recession this year.”Federal Reserve chair Jay Powell also warned on Friday that Trump’s tariffs would cause “higher inflation and slower growth”. “It is now becoming clear that the tariff increases will be significantly larger than expected. The same is likely to be true of the economic effects,” Powell said.Ahead of Powell’s speech, Trump had called on the Fed chief to lower borrowing costs, saying on his social media platform that “this would be a PERFECT time” to cut interest rates. He also said China had “PANICKED — THE ONE THING THEY CANNOT AFFORD TO DO”, in a reference to Beijing’s plan to retaliate against US tariffs with steep duties of their own.But the comments from the US president did little to calm equity markets amid wider fears of further deterioration in the economic outlook.JPMorgan on Friday slashed its forecast for the US economy, saying it now expected output to decline 0.3 per cent in 2025, on a fourth- quarter-over-fourth-quarter basis, compared with its previous estimate of an expansion of 1.3 per cent. The Wall Street bank added that “the recession in economic activity is projected to push the unemployment rate up to 5.3 per cent”. Citigroup similarly cut its US growth target for 2025 to 0.1 per cent from 0.6 per cent previously. “Uncertainty surrounding the US economic outlook is at its highest point since the Covid disruption. A modern developed economy has never increased tariffs this significantly or rapidly,” Citi said.The bearish sentiment was a sharp contrast to the strong employment report for March, released on Friday morning, which showed the US added more jobs than expected and a jobless rate of 4.2 per cent. In a sign of deepening anxiety across markets, investors fled lowly rated US corporate bonds and other risky assets as they rushed for shelter in havens such as Treasury bonds. The sell-off gained momentum as banks hit hedge fund clients with demands to stump up extra cash as portfolios were knocked by the market turbulence, while several companies including fintech company Klarna froze plans for initial public offerings.The Vix index, a measure of expected volatility in US stocks often called Wall Street’s “fear gauge”, soared 15.1 points to 45.1, the highest level since 2020.The rout extended to commodity markets, with international oil benchmark Brent on Friday sliding 6.5 per cent to settle at $65.58 a barrel, its lowest point in three years. US oil marker WTI fell 7.4 per cent on the day to settle at $61.99 a barrel, below the price many shale producers need to break even.The price of copper, often considered a proxy for traders’ view of the health of global industry, was down about 9 per cent in the UK evening. US Treasury bonds have been the primary beneficiary of the sell-off in stocks, with the 10-year Treasury yield — a rate closely tied to growth expectations — falling to 3.86 per cent, its lowest level since before Trump’s election.Additional reporting by Jamie Smyth in New York More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldHedge funds have been hit with the biggest margin calls since Covid shut down huge parts of the global economy in 2020, after Donald Trump’s tariffs triggered a powerful rout in global financial markets. Wall Street banks have asked their hedge fund clients to stump up more money as security for their loans because the value of their holdings had tumbled, according to three people familiar with the matter. Several big banks have issued the largest margin calls to their clients since the beginning of the pandemic in early 2020.The margin calls underscore the intense turbulence in global markets on Thursday and Friday as Trump’s tariffs announcement was followed by retaliatory duties by China, and other countries readied their own responses. Wall Street’s S&P 500 share index was set to post its worst week since 2020, while oil and riskier corporate bonds have sold off heavily. “Rates, equities and oil were down significantly . . . it was the breadth of moves across the board [which caused the scale of the margin calls],” said one prime brokerage executive, adding that it was reminiscent of the sharp and broad market moves in the early months of the Covid pandemic. “We are proactively reaching out for clients to understand [risk] across their overall books,” said a prime brokerage executive at a second large US bank. According to two people familiar with the matter, Wall Street prime brokerage teams — which lend money to hedge funds — came into the office early on Friday and held all hands on deck meetings to prepare for the large amount of margin calls to clients.Thursday was the worst day of performance for US-based long/short equity funds since it began tracking the data in 2016, with the average fund down 2.6 per cent, according to a new weekly report by Morgan Stanley’s prime brokerage division.The report said that the magnitude of hedge fund selling across equities on Thursday was in line with the largest seen on record, as they dumped equity positions at a level in line with the US regional bank crisis in 2023 and the Covid sell-off in 2020.Selling was concentrated in sectors including megacap technology, groups exposed to artificial intelligence across software and semiconductors, high-end consumer, and investment banks.The selling drove US long/short equity fund net leverage, a measure of borrowing used to magnify bets, down to an 18-month low of about 42 per cent, the Morgan Stanley report said.The pain so far would have been greater had many hedge funds not been scaling back their stock positions and cutting their leverage with banks in recent weeks in response to the trade war Trump had been threatening. In a further sign of the tumult across the hedge fund sector, gold — a traditional safe haven for investors — dropped 2.9 per cent on Friday, despite the deep gloom among global investors. Suki Cooper, a precious metals analyst at Standard Chartered, suggesting the precious metal was being used to “meet margin calls.”Additional reporting by Kate Duguid in New York More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldMexican and Canadian officials spent Wednesday afternoon frantically searching Donald Trump’s “reciprocal tariff” list for the latest bad news from Washington, only to discover they had been granted a reprieve. An exemption for goods exported to the US under the three countries’ free trade agreement relieved those who had feared the US president would place further tariffs on his two biggest trading partners.“Mexico doesn’t have additional tariffs . . . that’s because of the good relationship we’ve built between the government of Mexico and the government of the United States, based on respect,” President Claudia Sheinbaum said the following day.But Canada’s Prime Minister Mark Carney, currently on the campaign trail ahead of a general election later this month, cautioned the “actions by the US administration, while not specifically targeting Canada, will rupture the global economy and adversely affect global economic growth”.In response, he announced 25 per cent tariffs on non-USMCA compliant vehicles imported from the US that will take effect in the coming days. According to a Canadian government official the measure is expected to raise C$8bn (US$5.6bn) that will be used to provide relief packages to protect workers and businesses. Some content could not load. Check your internet connection or browser settings.Despite the difference in tone, both leaders claim their approaches have helped them this week avoid what Trump calls “liberation day” tariffs. Although their free trade agreement with the US was agreed during Trump’s first term, the president has threatened them with tariffs for months, blaming Ottawa and Mexico City for soaring levels of illegal immigration and the trafficking of the deadly opioid, fentanyl.After imposing 25 per cent tariffs on steel and aluminium imports soon after taking office, in February the US president applied an addition 25 per cent levy on all imports from Canada and Mexico, apart from Canadian oil and energy products, which faced 10 per cent. Days later he postponed the measures, only to reverse his decision last month and then U-turn again. He also imposed 25 per cent tariffs on all car imports, regardless of whether or not they comply with the free trade agreement, known as the USMCA, that came into effect on April 2. Some content could not load. Check your internet connection or browser settings.In response Ottawa in March imposed a 25 per cent tariff on a broad range of US products worth C$29.8bn. Mexico has not retaliated, instead following what Sheinbaum calls a “cool headed” strategy of meeting Trump’s demands rather than confronting him.Mexican officials on Thursday said the strategy had borne fruit and they would focus on getting an even better deal. Economy minister Marcelo Ebrard said: “It’s a great achievement, I’d say, from the point of view of where we started not long ago that there would be no exemptions.”Sheinbaum and Carney have also enjoyed significant bumps in the polls since Trump began imposing tariffs on their countries. The US president’s levies, along with threats to annex Canada as a 51st state have provoked anger north of the border, with Canadians boycotting US goods and the new prime minister’s firm stance winning him plaudits at home. But despite avoiding the most recent tariff curveball, the impact of the existing levies could be severe. Some content could not load. Check your internet connection or browser settings.According to Trump’s latest executive order, Mexico and Canada’s 25 per cent tariff on non-USMCA goods would go down to 12 per cent if the US is happy with their compliance on stopping fentanyl and halting illegal migration.However, goods that do not comply with USMCA rules, as well as steel, aluminium and cars, will remain subject to the earlier 25 per cent tariff. Car manufacturing, long considered the heart of regional economic integration, with parts famously crossing all three nations for assembly, is particularly vulnerable to the levies, with millions of jobs dependent on the sector.Carmaker Stellantis has furloughed US workers and has paused some production in Mexico and Canada.Mexico’s economy is in a sharp slowdown and many economists believe it is sliding towards recession, while Carney has raised concerns that any negative impact of tariffs on the US economy could also hit its neighbours.“When the US has a recession it’s very difficult for Canada to avoid something similar,” he said. A broader change to the USMCA also looks likely, with Carney saying there had been “so many violations” that the free trade agreement needs “a renegotiation”.Nonetheless, Mexico remains upbeat, with Sheinbaum on Thursday trying to lure companies to invest in USMCA-compliant production in the country.“We think that with the dialogue we’ve established there are the conditions to have a better deal,” she said. More

U.S. Federal Reserve Chair Jerome Powell and U.S. President Donald Trump.
Craig Hudson | Evelyn Hockstein | Reuters

President Donald Trump on Friday called for Federal Reserve Chair Jerome Powell to cut interest rates, even as his tariff blitz roiled markets and raised fears of a rebound in inflation.
“This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly,” Trump said in a post on Truth Social. “Energy prices are down, Interest Rates are down, Inflation is down, even Eggs are down 69%, and Jobs are UP, all within two months – A BIG WIN for America. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”

Trump’s post comes as global equity markets are selling off sharply. The president’s new tariff policy, unveiled Wednesday, has raised concerns about a global economic slowdown.
The new trade policies may also be a barrier that keeps the Federal Reserve from cutting. The central bank has paused its rate cuts in recent meetings, in part because progress on reducing inflation appeared to have plateaued. The new tariffs could lead to a widespread rise in prices, at least temporarily, that further complicates the inflation picture.
On Friday, Powell told business journalists in Arlington, Virginia, that the Fed was “well positioned to wait for greater clarity” before making changes like rate reductions. He also said that the tariffs announced were “significantly larger than expected.”
Market-based interest rates have already fallen sharply this week, with the 10-year U.S. Treasury yield now below 4%. Treasury yields often fall when investors are worried about a potential recession.
Movement in the fed funds futures market implies that traders now expect at least four rate cuts of 0.25 percentage point from the central bank this year, according to the CME’s FedWatch tool. At a meeting last month, central bankers projected just two rate reductions.

Trump has downplayed concerns about this week’s market volatility, at one point comparing the reaction to a patient who undergoes surgery.
When asked about those comments Friday, Powell said, “I make it a practice not to respond to any elected officials comments, so I don’t want to be seen to be doing that. It’s just not appropriate for me.”
Trump regularly commented on central bank policy during his first term as president and was often at odds with Powell. That has led to speculation that he might look to remove the Fed chair before his term ends next year. Trump said in December that he does not intend to fire Powell, and the Fed chair has said he doesn’t think the president is legally allowed to do so.
The Fed has two main goals in promoting price stability and maximizing employment. The March nonfarm payrolls report released Friday showed a slight increase in unemployment to 4.2%, but the rise of 228,000 jobs was more than expected.
Friday’s jobs report does not reflect any impact of the tariffs announced this week.

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The key points In an intervention at the SABEW conference on Friday, Fed chair Jay Powell gave an updated assessment of the state of the US economy and the central bank’s likely reaction function two days after the Trump administration’s announcement of sweeping tariffs.Powell struck a more hawkish tone compared to his most recent public statements in mid-March, indicating — albeit obliquely — that the Fed is more concerned with upside risks to prices.The verdict Fed chair Jay Powell’s remarks and subsequent interview on Friday clearly had the primary goal of reassuring markets and indicating that the US central bank has not been jolted by Donald Trump’s “liberation day” tariffs, and that it will instead continue to hold out for hard data confirming the effects of the new trade measures before altering its policy stance. Yet veiled behind his words, there was a definite hawkish tilt from the Fed chair, who had previously suggested that new tariffs may be “transitory”. For now, we continue to expect the Fed to cut the benchmark rate twice in 2025. However, we have low confidence in our forecast, which is highly contingent on how the new trade war will play out in the coming weeks and whether it will hurt real activity more than it will raise inflation. With little evidence likely to emerge before May, we think the Fed will hold at its next meeting.The details Powell’s speech at the SABEW conference on Friday contained two key messages for markets. The first is that the Fed’s framework for thinking about the US economy has not fundamentally changed, despite the introduction of substantial and highly disruptive universal tariffs by the Trump administration on Wednesday. “While uncertainty is high and downside risks have risen, the economy is still in a good place,” he said, adding that “many forecasters have anticipated somewhat slower growth this year”. The implication was that many of the developments that have recently shown up in soft, and more recently, hard data — falling consumer and business confidence and declining consumption — is not an unusual economic development and should not warrant panic.But while the Fed chair sought to project calm, he also gave clear hints that, at the margin, “liberation day” policies will increase inflationary risks and raise the likelihood of a hawkish response by the central bank. Powell described the tariffs as “significantly larger than expected . . . the same is likely to be true of the economic effects” and indicated that “it’s possible that the effects could be more persistent [ . . . the Fed’s role is to] make certain that a one-time increase in the price level does not become an ongoing problem”. This indicated a new hawkish bias relative to the last time Powell spoke after the March press conference. At the time, he had suggested he viewed tariffs as likely transitory. In addition, the Fed chair reiterated that “our stance is in a good place [ . . . it is] moderately restrictive”. This suggests that the Fed is still primarily targeting the inflation side of its dual mandate, dispelling the notion of any near-term rate cut. The strong payrolls report that came out today suggests no easing is required from the labour market. With this and the good labour market data out today, we think the Fed is now on a path to pausing for as long as it needs. More from Monetary Policy RadarStrong March payrolls indicates US economic strength ahead of trade warService sectors led above-expectations job gains of 228,000 in March, but data is unlikely to matter after Trump tariffsHow will ‘liberation day’ affect central banks’ rate cycle?Tariffs will bring back talk of transatlantic divergence, though forces beyond trade also matter More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldNormally, it wouldn’t be unusual to have a Federal Reserve chair — or any Fed official — say they plan to serve out their full term. As we keep saying, these are not normal times. So it’s notable that Fed Chair Jay Powell said Friday that he plans to remain in his role. If this week is any indication, the next year seems like it could be a rather . . . important period for US price stability. And employment. And financial stability, for that matter.“I fully intend to serve all of my term,” Powell said in a Q&A with the Society for Advancing Business Editing and Writing, or Sabew. It wasn’t 100-per-cent clear what exact period of time he meant: he’ll be chair of the rate-setting policy committee until May 2026, but his full term on the Board of Governors continues until January 31 2028. (He has previously declined to answer the question of whether he’ll stay until 2028.) One reason this is interesting: If he does plan to stick around until 2028, Fed Board members serve on the rate-setting policy committee, so this would give him continued (if somewhat diminished) influence over monetary policy after the end of his leadership role. Another reason that’s maybe more pressing: There seems to be a nascent conflict between him and the US President about rate policy. Minutes before Powell started speaking at the Sabew event, President Trump posted that it would be “a perfect time” for the Fed to cut rates. This certainly breaks decorum, and in the past, presidential comments about rates have been interpreted as an assault on the Fed’s independence (which has only really existed since 1951, and was not imposed by Congress). But the White House is making far more aggressive intrusions into other agencies’ independence. And it’s been threatening an aspect of independence that has the legal protection of being created by Congress: Personnel, and their terms of service. The Trump Administration dismissed two Federal Trade Commissioners last month, despite a 1935 ruling that says the president doesn’t have “illimitable power of removal” for agencies created by Congress. This was in a case specifically about the FTC. Still, Powell doesn’t seem too concerned about monetary policy input from the US President at the moment. “It feels like we don’t need to be in a hurry” to cut rates, he told Sabew. Stocks didn’t have a huge reaction to that news in real time, though, so it doesn’t seem like investors were waiting on Powell to save their bags. More