Asian Markets Recover, But Recession Fears Intact

Asian markets are rebounding on Tuesday, 8 April. However, this comes right after they experienced their worst session in years on Monday following last week’s tariffs and China’s response to retaliate against the US with a reciprocal levy.

The Hang Seng (HSI) plunged over 13% after reopening on Monday behind a public holiday last Friday, and Japan’s Nikkei (NIY) experienced a 7.9% drop for the session, with tech mammoth Sony falling more than 10%. China’s CSI300 also witnessed a 7% drop, which may indicate market panic. (Source: CNN)

Meanwhile, US stocks swung on Monday after reports that President Donald Trump would pause tariffs for 90 days were quickly denied by the White House, which helped equity markets close mixed in the US.

However, with Trump taking the threat rhetoric up a notch by warning China of a new 50% tariff “If [it] does not withdraw its 34% increase” by Wednesday, investor concerns of a recession are mounting.

The Monday Rollercoaster

The US stock market experienced a short-term relief rally on Monday, amounting to some $2.4 trillion in market cap within just 10 minutes after an X account named Walter Bloomberg posted:  “HASSETT: TRUMP IS CONSIDERING A 90-DAY PAUSE IN TARIFFS FOR ALL COUNTRIES EXCEPT CHINA.”  However, the White House denied the false report circulating on social media, resulting in the S&P500 (ES) erasing $2.5 trillion in market cap roughly half an hour after it was injected into the markets. (Source: Wall Street Journal)

For context, Trump announced a global 10% tariff on all imports last Wednesday, 2 April (which took effect Saturday, 5 April), and a new 34% tariff on China. This was in addition to a 20% tariff already imposed earlier and a 15% average rate on Chinese goods when he took office, bringing the average tariff on Chinese products to a staggering 69%. Last Friday, China announced it would impose reciprocal tariffs on 10 April, Thursday, and added some restrictions on around 27 US companies. Global markets have been in a free fall since then.

What May Be at Stake This Week

Despite the short-term cheer following the false reports on Monday, the rhetoric coming out of the US worsened. Donald Trump announced on social media that if China did not withdraw its levy by Wednesday, 9 April, the US would impose an additional 50% tariff on all Chinese imports to the US from 9 April. The US President also threatened to bring an immediate end to negotiations. China responded to the latest rout as well. The Chinese Commerce Ministry said that “the US threat to escalate tariffs on China is a mistake on top of a mistake” and that the country “will fight to the end.” 

This escalation in the trade war is raising concerns that global economies will fall into recession. The Dow Jones (YM) entered official correction (-10%) and the Nasdaq (NQ) bear market (-20%), mimicking losses induced during Covid. The S&P500 lost over $5 trillion on Thursday and Friday alone and also entered correction territory, as the trade war escalation is increasing the chances of stagflation, where inflation pressures persist and economic growth slows.

Although all eyes remain glued on the next developments in the tit-for-tat between the US and China this week on Wednesday and Thursday, the upcoming FOMC minutes on the 9th and 10th and CPI inflation on the 9th and 10th will at least shed some light on the Fed’s stance. Fed Chair Jerome Powell has repeatedly said that the Fed does not need to act before data shows the real impact of tariffs. But the markets appear more concerned about growth, with the futures now pricing in an 85% chance of more than three rate cuts in 2025, with odds of a May cut up to 40% compared to 22% last week and June at 70%.

Wall Street Sounds the Alarm

The big names of finance, Jamie Dimon, Stan Druckenmiller, Bill Ackman, and Larry Fink publicly, and even Elon Musk, have all started to speak out more loudly recently about the persistence of the White House to continue its sweeping tariff plan. JPMorgan’s (JPM) Dimon said on Monday that tariffs will impact the US economy negatively in the long term. Notably, JPMorgan said last Thursday that the chances of the US falling into recession stand at 60% and added that these chances would rise in case of retaliatory tariffs (which are already planned). 

Meanwhile, UBS (UBSG.VX) lowered its price target for the S&P to 5800 from 6400 due to the impact of tariffs. Analysts at its Global Wealth Management division gave three to six months for the situation to resolve before slipping into a significant downside scenario.

Interestingly, RSM analysts pointed out that China is only one of the biggest trading partners of the US, with the European Union yet to take notable action on the latest tariff announcements. However, Canada is already in retaliation mode while the UK is on the negotiating table.

All the while, Trump himself said that he was “not going to make a deal” until the “trillion-dollar trade deficit with China” was solved, and he denied deliberately causing the market crash.

Conclusion

The trade war escalation between the US and China has pushed global markets into dangerous territory, with trillions in value erased and major indices entering correction territory. 

As Trump maintains his hardline stance and China vows to "fight to the end," the markets are caught between mounting recession fears and uncertain monetary policy by the Fed. 

With trade deadlines approaching and the FOMC minutes and the CPI inflation report all on the horizon in the next few sessions, investors remain on edge as they attempt to steer through this period of exceptional uncertainty.

*Past performance does not guarantee future results