Shares slide, US Treasuries rally as Trump tariffs unleash recession fears

Financial markets were gripped by recession fears as stocks extended a punishing global selloff on Friday in the wake of US President Donald Trump's sweeping tariffs, helping drive a rally in US Treasuries and supporting gold near a record peak.

Investors struggled to catch their breath as sharp asset price moves in the past 24 hours pummelled Wall Street stocks in their worst performance since the COVID-19 pandemic.

The frenetic activity in markets came after Trump on Wednesday announced Washington's steepest trade barriers in more than 100 years, sparking a scramble among investors for safe havens like government bonds, the yen and gold.

As the week draws to a close, there were few signs of easing investor nerves.

US stock futures pointed to further weakness, with Nasdaq futures falling 0.7% while S&P 500 futures lost 0.66%.

That came after S&P 500 companies lost a combined $2.4 trillion in stock market value overnight, their biggest one-day loss since the coronavirus pandemic hit global markets on March 16, 2020, while other Wall Street indexes similarly suffered sharp falls.

EUROSTOXX 50 futures also declined 0.53%, while FTSE futures were down 0.32% and DAX futures 0.52%.

Japan's Nikkei (.N225), tumbled 3.4% and was on course to lose nearly 10% for the week, its worst weekly performance since March 2020.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), fell 0.5% in thin trade, with markets in China, Hong Kong and Taiwan closed for a holiday. The index was set to lose more than 2% for the week.

"If the current slate of tariffs hold, a Q2 or Q3 recession is very possible, as is a bear market," said David Bahnsen, chief investment officer at The Bahnsen Group.

"The question is, does President Trump seek some sort of off-ramp for these policies if and when we see a bear market in the stock market. We believe Trump will then pivot to focus on the number of companies that are making significant investments in the US, but it's unclear that would reverse market sentiment."

US Treasury yields slid as investors poured into the safe-haven bonds. Bond yields move inversely to prices.

The benchmark 10-year Treasury yield struck a six-month low of 3.9720%, while the two-year yield bottomed at 3.6200%, also its lowest level since October.

Reflecting the heightened worries of a global recession, particularly in the United States, traders have since ramped up bets of more Federal Reserve rate cuts this year, on the view that policymakers would have to ease more aggressively to shore up growth in the world's largest economy.

Fed funds futures now point to over 100 basis points worth of cuts by December, from closer to 70 bps shortly before Trump's tariffs were announced on Wednesday.

"Central banks are not well-equipped to deal with stagflation as the impacts of slower growth and higher inflation pull policy in opposing directions," said David Doyle, head of economics at Macquarie Group.

"This means that stronger core inflation is likely to limit the extent of any policy response from the Fed due to the headwinds created for growth."

Fed Chair Jerome Powell is due to speak later on Friday and investors will be looking out for his latest assessment of the U.S. economy and any clues on the policy outlook following Trump's fresh tariff salvo.

In the foreign exchange market, the risk-sensitive Australian and New Zealand dollars tumbled more than 1% each.

The dollar was down 0.3% against the yen at 145.68, after having tumbled 2.2% in the previous session, its steepest daily fall in more than two years.

The euro rose 0.38% to $1.10935 after a 1.9% jump on Thursday, while the Swiss franc edged 0.7% higher to 0.8530 per dollar, having also surged 2.6% in the previous session.

Against a basket of currencies, the dollar languished near a six-month low at 101.67.

"Much of the weakness of the US dollar this year can be related to the weight of long positions that were built into the end of the year coupled with the refocusing of attention on US growth risks that have accompanied tariff talk for weeks," said Jane Foley, senior FX strategist at Rabobank.

Elsewhere, spot gold was perched near a record high at $3,096.37 an ounce and was on track for a fifth straight weekly gain, as worries about the impact of Trump's tariffs on the global economy boosted the metal's safe-haven appeal.

Oil, a proxy for economic activity, extended its steep decline from the previous session.

Brent futures fell 0.93% to $69.49 a barrel, while U.S. West Texas Intermediate crude futures sank 1% to $66.30 per barrel, both on track for their worst week in months.