US stock markets recovered some early losses on Monday after opening sharply lower as fears over the global impact of Donald Trump’s tariffs continued.
Trading on America’s main stock market indexes had been skittish – shares initially fell by more than 4% before briefly turning positive on a rumour that the US president was considering a pause on introducing import taxes.
The White House declared this was “fake news” and the S&P 500, the Nasdaq and the Dow Jones resumed their downward journey although the declines were not as steep.
In London, the FTSE 100 dropped to its lowest level for a year while leading stocks markets in Germany and France also fell.
Last Wednesday, Trump announced tariffs on the US’s trading partners.
Stock markets in the US and in the UK experienced their worst one-day falls since the beginning of the Covid pandemic in 2020. More than $5 trillion (£3.9tn) was erased from the S&P 500.
In early trading on Monday, the S&P 500’s decline briefly extended to more than 20% since a peak in February, putting it into bear market territory.
Economists speculated that many countries would attempt to negotiate deals with the US on the tariffs.
But Trump doubled down, telling reporters on Sunday night that “sometimes you have to take medicine to fix something”.
If world leaders are unable to agree terms with Trump, the tariffs may have a destructive effect on economies globally, analysts have warned.
“Fundamentally, investors are worried about a big hit to corporate [profits] and a massive slowdown in economic growth,” said Russ Mould, investment director at AJ Bell.
On Monday, Goldman Sachs, the US investment banking giant, raised the likelihood of a recession in the US from 35% to 45%.
Last week, after China retaliated against the US with its own tariffs, JP Morgan forecast there was a 60% chance the world’s largest economy will enter a downturn.
In a letter to shareholders on Monday, JP Morgan’s chief executive Jamie Dimon, said that the tariffs “will likely increase inflation and are causing many to consider a greater probability of a recession”.
He wrote: “Whether or not the menu of tariffs causes a recession remains in question, but it will slow down growth.”
In the UK, that could mean a 0.8% fall in economic growth this year, economists at KPMG forecast.
“There is a strong incentive to seek a negotiated settlement that diminishes the need for tariffs,” said Yael Selfin, KPMG’s chief economist.
China’s decision to impose retaliatory tariffs of 34% on the US escalated worries about a trade war between the two nations, continued to weigh on the price of oil which fell more than 4%.
Trump hit back at China’s tariffs on his social media, criticising Beijing for “not acknowledging my warning for abusing countries not to retaliate”.
“They’ve made enough, for decades, taking advantage of the Good OL’ USA!” he added.
Meanwhile, copper, an indicator of economic growth because it is widely used in industry, closed more than 7% lower on Friday.
The price of gold, which is usually seen as a “safe” investment, also dropped slightly.
