United States
The introduction of widespread tariffs by the US led to a sharp collapse in risk assets on Thursday, with the S&P 500 experiencing its largest decline since 2020. The higher prices resulting from the tariffs, combined with anticipated disruptions to supply chain models as global trade arrangements are upended, spooked investors.
At the close, index levels were sharply lower. The Dow dropped 3.98%, falling by 1,679 points. The S&P 500 fell 4.84%, closing at 5,396, a loss of 275 points. All sectors of the S&P 500 were lower, except for consumer staples. The Nasdaq Composite plummeted 5.97%, closing at 16,550, down 1,050 points. The broad, far-reaching nature of the tariffs had not been priced into the markets, with some calling it a “worst-case scenario.”
The expectation that the US administration’s policy measures would lead to a self-imposed recession led traders to conclude that lower interest rates would be coming. This resulted in further drops in bond yields, with the 10-year falling 9 basis points to 4.04%, and the 2-year falling 16 basis points to 3.70%. Corporate bonds did not fall as much as credit spreads widened, indicated by the Markit CDX North American Investment Grade Index, a basket of credit default swaps widening on Thursday. The US dollar weakened significantly, dropping 1.50% on the Bloomberg Dollar Index, its lowest level since October 2024.
The falls were widespread, with the biggest drops coming from companies exposed to supply chain issues and those with overseas production. Apple, which manufactures most of its iPhones in China, fell 9.25% to $203.19, and Amazon dropped 8.98% to $178.41. Tech stocks were also hit hard, with Nvidia falling 7.81% to $101.80 and Meta collapsing 8.96% to $531.62. Fears of potential restrictions on US technology stocks from Europe, in response to the tariffs, contributed to the decline.
Banks were also heavily affected, with the banking sub-index falling 9.02%, particularly in regional banks. Expectations of increased arrears due to an unpriced-in recession were the primary cause. Wells Fargo dropped 9.12%, while regional lender Trust Financial Group fell 10.88%. Larger-cap banks also saw significant losses, with Citigroup dropping 11.4% and Bank of America falling 11.06%, closing at $37.22.
While the declines were substantial, volatility is expected to persist. The VIX finished the day at 29.68, well above its long-term average of 17.6%. On Friday, traders will be looking to the monthly employment report for any signs of a slowdown in the jobs market. More importantly, they will be awaiting a speech from Federal Reserve Chairman Jerome Powell. When Powell last spoke, his comments helped soothe investor concerns, triggering a rally in share indexes. Investors worldwide will be hoping for a similar outcome this time.
Europe
European shares plunged on Thursday as investors reacted to the new tariff regime announced by the US. The Euro Stoxx 600 dropped 2.57%, falling 13.8 points to 523.12. The major regional exchanges in France and Germany fell 3.31% and 3.01%, respectively. In the UK, the declines were more moderate, with the FTSE 100 dropping 1.55% to 8,474.74, a loss of 133 points.
On the Euro Stoxx 600 index, there were significant differences between sectors. Only three of the 11 sectors saw gains, with Utilities leading the way (+3.10%) and Real Estate (+2.19%). The sectors that advanced were generally defensive stocks, with a domestic focus, benefiting from lower interest rates. On the other hand, the tech (-5.41%) and energy (-5.19%) sectors suffered the most.
Traders increased positions that would benefit from potential cuts in official rates by the European Central Bank (ECB). As a result, bond yields fell. In Germany, the 2-year bond yield dropped by 9 basis points to 1.94%, while the 10-year yield decreased by 7 basis points to 2.65%. In the UK, the declines were more pronounced, with the 10-year yield falling by 11 basis points to 4.52%, and the 2-year yield dropping 16 basis points to 4.00%. The EUR/USD rallied strongly as the US dollar weakened against other currencies. The EUR/USD rose 1.53% to 1.1019, and the GBP/USD increased by 0.60% to 1.3083.
The tech sector led the decliners, falling 5.41%, followed by banks, which saw a significant drop of 5.49% in the banking sub-sector. Globally oriented banks were hit hardest, with HSBC collapsing 8.87% and Standard Chartered dropping 13.32%. Luxury goods and consumer discretionary companies also experienced large losses, with LVMH falling 5.62% and Adidas down 11.72%.
The US’s imposition of a 10% “retaliatory tariff” effectively increases the tariff on EU goods to 20% when previous tariffs are factored in. While exporters to the US account for only 12% of Euro Stoxx 600 revenue, strategists warned that the second-order effects, such as weaker growth and the potential for a broader global tariff war, could lead to lower earnings across the board. European leaders have already begun discussing the possibility of targeting digital services, where the US has significant surpluses. French President Macron even called for European companies to suspend investments in the US. Traders are now awaiting any formal response from the EU and the UK.
Australia
Asian markets fell sharply on Thursday after announcements regarding tariff levels came in worse than expected. Japan’s benchmark index dropped 2.77%, while Vietnam’s index plunged 6.6%. Although reciprocal tariffs on Australian goods were set at a base level of 10%, this still weighed on local sentiment, dragging the ASX 200 down by 0.94%, or 74.80 points, to close at 7,859.70—recovering slightly from deeper losses earlier in the session.
Only three sectors managed gains, led by the defensive consumer staples sector. Technology and energy stocks saw the steepest losses, although selling pressure was broad-based, with four sectors falling more than 2%.
As analysts unpacked the details of the tariffs, concerns resurfaced about a global slowdown in trade and its likely impact on economic growth. While Australia may avoid a surge in inflation by not retaliating with its own tariffs, it is unlikely to escape the drag on growth. This led rate traders to price in increased expectations for the Reserve Bank of Australia (RBA) to cut interest rates to support the economy.
Bond markets rallied sharply: the 10-year Australian government bond yield fell 15 basis points to 4.26%, while the 2-year yield dropped 17 basis points to 3.52%. Futures markets now reflect higher odds of a rate cut in June, with June bank bill futures yielding 3.82%—7 basis points lower—compared to the current 3-month bank bill rate of 4.11%.
The real estate sector was among the hardest hit, falling 2.01%. Goodman Group gave up the prior session’s gains, dropping 3.65% to $29.02, while Charter Hall fell 4.73%. However, some small caps bucked the trend, with BWP Trust rising 0.57% to $3.51.
Weaker global growth weighed on the materials and energy sectors, especially as oil and iron ore prices fell. BHP lost 3.42% or $1.31, to end at $37.01. Reports emerged suggesting BHP is considering spinning off its iron ore and coal operations as part of a long-term strategy to focus on copper and potash. Rio Tinto also declined, shedding 2.73% to $ 111.94, as shareholders in London prepare to vote on whether to engage external experts to assess the company’s dual listing structure.
Energy stocks declined in tandem with oil prices, which fell 2.75% in Asian trading. Woodside dropped 2.89% (down 67 cents) to $22.48, while Whitehaven Coal slumped 7.60% to $4.86.
Financial stocks showed mixed performance. CBA rose 1% to $156.37 as investors sought safety in its domestically focused business model. In contrast, Macquarie Group fell 2.89% to $191.27, dragged down by its global exposure. Its shares are now at their lowest levels since June 2024.
Technology stocks mirrored the decline seen in US markets. WiseTech Global dropped 2.68% to $81.74, while Xero fell 3.44% to $150.42. The worst performer of the day was Ansell, which plunged 14.34% or $ 4.19 to $29.34, due to its heavy export exposure to the US and manufacturing operations in Asia.
The ASX200 futures have followed global markets lower losing 1.18% with a drop of 93 points. The Australian dollar has rallied adding 0.40% to 0.6325.
Commodities
In the biggest decline in three years, oil prices collapsed as traders concluded that global economic growth would plummet due to tariffs. The West Texas Intermediate (WTI) contract dropped by 7.04%, falling to US$66.66, a decrease of US$5.05. Brent crude also tumbled, down 6.62% to US$69.99, losing US$4.96. Adding to the already bearish sentiment on Thursday, OPEC+ agreed to increase oil production in May by more than expected. Members of the cartel agreed to boost production by 411,000 barrels per day, up from the widely expected 135,000 barrels. Imports of oil, gas, and refined products were exempt from the new tariff regime. Market analysts anticipate continued volatile price movements in the near term as any countermeasures are announced.
Copper also suffered a significant decline, falling by US$334, or 3.4%, to US$49,336 per tonne. Analysts expect further losses as economic growth slows. Iron ore lost an additional 94 cents, continuing the drops seen in Asia on Thursday, and closed at US$100.94 in New York. This represents a 1.5% drop from the same time yesterday, even before any announcements.
Gold initially rallied, reaching US$3,167 per ounce, but then retreated. The precious metal fell by US$29.16, or 0.93%, to close at US$3,106. The decline was attributed to the need for investors to raise cash for margin calls and profit-taking. Silver, which is more industrial-focused, dropped by 6.28%, settling at US$31.76. Bitcoin also dropped, falling by 4.3% to US$81,891.
Economic Calendar
US:
- Non-Farm Payrolls (Mar) – 11:30pm
- Fed Chair Powell Speech – 3:00am
This article was written by Paul Darwell, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
