London’s blue-chip index has suffered its biggest daily fall since the start of the pandemic as stock market losses in the UK and America accelerated after China retaliated with an extra 34 per cent tariff on all US goods, increasing anxiety about a global trade war.
The FTSE 100 closed 4.95 per cent, or 419.76 points, lower to 8,054.98 as traders fled to the safety of government bonds. The benchmark index has lost almost 7 per cent of its value this week in a global market rout triggered by President Trump’s sweeping import taxes on more than 90 trading partners.
Falls in the European Union were steeper, with the Dax index in export-reliant Germany down almost 5 per cent and France’s CAC losing 4.3 per cent. Italy’s FTSE MIB tumbled nearly 6.5 per cent — the eurozone’s third-largest economy is heavily exposed to US tariffs through its goods exports.
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The sell-off deepens equity losses. US markets recorded their worst single day of trading since the onset of the pandemic. The S&P 500 shed more than 4.5 per cent and the tech-focused Nasdaq was down nearly 6 per cent on Thursday — the first full trading day after the US administration raised average tariff levels from 2.5 per cent to 25 per cent, their highest in a century.
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Investors chose the relative safety of government bonds, driving down yields in the UK and the eurozone. The yield on the US ten-year Treasury bond, a benchmark for the government and one of the most important financial assets in the world, dropped below 4 per cent for the first time since last October, before the presidential elections. The bond rally reflects fears that the world’s largest economy will be plunged into a downturn by tariffs that risk raising inflation and impinging on economic growth.
Kristalina Georgieva, managing director of the International Monetary Fund, gave warning on Thursday of “a significant risk to the global outlook at a time of sluggish growth”.
She said: “It is important to avoid steps that could further harm the world economy. We appeal to the United States and its trading partners to work constructively to resolve trade tensions and reduce uncertainty.”
Analysts at Bank of America said that US tariffs and retaliation from trading partners could wipe 0.5 percentage points off average global GDP, 1 percentage point in China and upwards of 1 to 1.5 percentage points from the US economy. The European Union and the UK face hits of between 0.4 and 0.6 percentage points to annual growth this year.
“For Asian and European based exporters, the tariffs mean reduced demand because of higher prices their US customers will face and reduced revenue if they choose to cut selling prices to offset the tariffs,” Chris Iggo, chair of Axa investment management said.
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Markets are primed for central banks to step in and revive tariff-hit economies such Canada, Mexico and parts of the European Union by increasing the pace of interest rate cuts. Traders now expect the US Federal Reserve to cut interest rates four times this year to support a flailing economy and jobs market — up from estimates just above zero made earlier in this year when stock markets boomed on the back of the “Trump trade”.
Traders are betting on three rate cuts from the Bank of England this year, up from two before the tariffs announcement, which will impose a 10 per cent tax on most UK goods entering the US.
The dollar rose against most major currencies on Friday, after new data showed the US economy generated 228,000 jobs in March, almost 100k higher than forecasts from economists. But the figures were not enough to arrest the decline in global stocks as markets focussed on the consequences on the US cutting itself from global supply chains. “Despite the current resilience in the labour market, there is a risk that things could fall apart given the tariff shock,” Janet Mui, head of market analysis RBC Brewin Dolphin, a wealth manager, said.
Movements in the dollar are being watched closely for signs of any loss in confidence in the US-run financial system. The dollar has traditionally strengthened on the back of US trade protectionism as investors seek out its safety during market volatility. The dollar index, which measures the currency against its major trading partners, is down more than 6 per cent so far this year.
