On Tuesday, the global stock markets took a tumble as anxiety about the economic forecast escalated following President Trump’s implementation of sweeping tariffs against some of the United States’ key trading partners, including Canada, Mexico, and China.
Kicking off the day with a 0.7 percent drop, the S&P 500 added to the previous day’s 1.8 percent decline, marking its steepest fall of the year to date. Investors appeared to seek refuge in government bonds, which drove the yield on the 10-year Treasury note to its lowest level since October—yields decrease as bond prices increase.
This decline in yields, however, underscored growing apprehensions about the economy’s endurance in the face of prolonged tariffs. This worry was also mirrored in shifting expectations around the Federal Reserve’s interest rate cuts, with investors now anticipating up to three reductions this year. Such an abrupt adjustment signifies fears that the Fed might be compelled to act swiftly to buoy a faltering economy.
“Though a trade war could spur short-term inflation,” noted Ian Lyngen, an interest rate strategist at BMO Capital Markets, “it entails considerable threats to global economic expansion.”
Earlier in the day, European markets also experienced declines, driven by fears of an impending global trade dispute after both China and Canada swiftly retaliated with their own tariffs.
The Euro Stoxx 50 index, representing major companies within the eurozone, saw a drop of up to 2.4 percent, marking its poorest performance in about four months. Meanwhile, Germany’s DAX index fell as much as 2.7 percent, wiping out nearly all the gains it had made after a record-setting session tied to promises of increased European military expenditures.
German automotive stocks faced significant pressure, largely due to the presence of assembly plants in Mexico for vehicles destined for the United States. Volkswagen’s shares decreased roughly 4 percent, with BMW seeing a decline of more than 5 percent. Daimler Truck, which owns brands like Freightliner and Thomas Built Buses, saw its shares fall over 6 percent, while Continental, a significant auto parts manufacturer, lost 9 percent.
Elsewhere, the U.S. dollar index, which balances the dollar against a collection of other major currencies, dipped by 0.5 percent. The Canadian dollar slid to a one-month low against its U.S. counterpart before bouncing back. In contrast, the Mexican peso continued its downward trajectory against the dollar for the fourth straight day.
Oil prices weren’t spared, declining after the OPEC oil cartel and some ally nations announced plans to boost production. Brent crude, the global oil benchmark, fell 1.6 percent, settling at $70.47 per barrel.
Amidst the sweeping losses Tuesday morning, some European defense companies managed to stay in positive territory. This came after the European Commission revealed plans for increased military spending, including a proposal for €150 billion ($158 billion) in defense investment loans to E.U. countries. Shares in the German arms manufacturer Rheinmetall ticked up 1 percent, building on a 14 percent surge from the previous day. British defense firm BAE Systems also saw its shares rise by 1 percent following a 15 percent jump on Monday.
