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AFR

Alex Gluyas Deputy markets editor

Apr 6, 2025 – 11.18am

More than $114 billion could be wiped off the Australian sharemarket on Monday after China retaliated against the Trump administration’s trade tariffs, sharply increasing investor and economist concerns that the world’s largest economy is heading toward a recession this year.

Wall Street’s three major indexes have dropped more than 9 per cent since Donald Trump unveiled sweeping tariffs last week. The S&P 500 shed nearly 6 per cent on Friday while the Nasdaq sank 5.8 per cent – placing it firmly in a bear market, down more than 20 per cent from its recent peak.

The falls came after Beijing announced an additional 34 per cent tariff on goods from the United States, the same rate imposed by the White House. The US president said China had “panicked” and “played it wrong”, dimming hopes of a trade deal between the two economic superpowers.

The turmoil is set to spill over to the Australian sharemarket on Monday, with futures indicating the S&P/ASX 200 will slump 4.3 per cent, or 331 points, at the open, wiping a further $114.8 billion off the benchmark’s value and extending last week’s 3.9 per cent slump – its worst since 2022.

“We are at a point of peak uncertainty,” said MST senior research analyst Hasan Tevfik. “We continue to believe we’re in the second phase of the Trump presidency, which is the most bearish.”

“Our initial thoughts were that this phase might last a couple of quarters and involve a moderate downturn in US growth. However, the prospect of recession suggests an even bigger downturn that may last for longer.”

At the weekend, JPMorgan joined other brokers in forecasting that the US will enter a recession this year. The downturn will be severe, Tevfik said, and that the US Federal Reserve would be unable to prevent a recession.

Fed chairman Jerome Powell acknowledged over the weekend that Trump’s tariffs were much “larger than expected” and warned that policymakers will not be in a rush to rescue investors.

Other evidence, however, points to a reasonably strong economy. A jobs report on Friday showed employers added 228,000 positions in March, far more than anticipated. The unemployment rate rose slightly to 4.2 per cent.

“Recession risks are very amplified both in the US and globally, and central banks are handicapped with how much they’ll be able to cut rates,” said Perpetual’s head of investment strategy Matthew Sherwood.

“There doesn’t appear to be any circuit breaker to stop the downward momentum in shares at the moment, so it’s really hard to see where the bottom is.”

The Cboe Volatility Index, known as Wall Street’s fear gauge, closed at the highest level since April 2020.

The deterioration in the global economic outlook also hurt the Australian dollar, which sank 4.4 per cent to a five-year low on Friday – its worst drop since the onset of the COVID-19 pandemic in March 2020.

The Aussie dollar is highly sensitive to weakness in China because of Australia’s strong trade links with the world’s second-largest economy. Commonwealth Bank warned clients of further pain to come.

“Our view remains for the Aussie to trade below US60¢ in coming weeks as markets price in more bad news for the global economy,” said CBA FX strategist Carol Kong.

A sharp decline in commodity prices has heaped further pressure on Australia’s currency as Trump’s trade war fuels concerns about softening demand for raw materials.

The Bloomberg Commodity Spot Index, a gauge comprising 22 raw materials, has dropped 6.8 per cent since Wednesday, the biggest two-day loss since September 2011.

US oil futures have dropped 14 per cent in two days, settling near $US61 a barrel, while Brent closed at its lowest level since 2021. Copper slid as much as 7.7 per cent while iron ore futures dropped to $US98 a tonne.