The News

World markets plummeted Monday — in some cases by the largest margin in decades — a day after US President Donald Trump’s massive “Liberation Day” tariffs took effect, and days after China hit back with tit-for-tat tariffs.

Haven assets including US Treasury bonds, the Japanese yen, and the Swiss franc soared amid fears of a worldwide recession : Goldman Sachs, JP Morgan, and S&P Global all raised their forecasts of the likelihood of a downturn .

“It’s hard to put in context the magnitude of the shock that has reverberated since ‘Liberation Day’,” Deutsche Bank economists wrote. “Rarely if ever have the next few days been so important.”

SIGNALS

European credit, junk bonds indicate recession may be on the horizon

Sources: Bloomberg, Financial Times

Indexes measuring credit default swaps soared in Europe over the last few days, an indication of “ just how nervous investors are ” in the wake of Donald Trump’s tariffs, Bloomberg wrote. Credit is the “ canary in the coal mine ” for a recession, one analyst told the Financial Times: The Markit CDX North American Investment Grade Index, the most active credit index in the world, jumped as much as 8.5 basis points over the weekend. At the same time, European junk bonds also shifted dramatically, with lower-rated companies likely to find it difficult to recover their debt servicing costs. “Everyone is stunned by what is happening,” Paris-based credit researcher Benjamin Sabahi told Bloomberg. “Inflation is likely to be back and revenues expectations adjusted downward.”

Beijing hits back as US-China trade war escalates

Sources: The Wall Street Journal, Trivium China

China’s swift retaliation to US President Donald Trump’s latest tariff round reflects how badly Beijing’s relationship with Washington has deteriorated, with virtually no lines of communication open between the two powers. Beijing had been cautiously optimistic about Trump’s second term, but Chinese officials have failed to make inroads with his administration, The Wall Street Journal reported. China’s response, which Washington considers an escalation, is in line with leader Xi Jinping’s trade strategy to “ hit back – and wait ,” Trivium China analysts wrote. Trump and Xi “are locked in a paradox of pressure and pride,” one expert said, and with neither wanting to appear weak, a “ cycle of tit-for-tat retaliation ” is inevitable, the Journal wrote, at least in the near term.

Trump unlikely to backtrack on tariffs: Economist

Source: Unherd

The markets were Donald Trump’s bellwether for success in his first presidential term, but this time, Trump is unlikely to fold in the face of global financial turmoil , economist Wolfgang Munchau wrote in Unherd: “Tariffs define [Trump]... they are where he differs from all the other leaders of the Right.” Munchau predicted that Trump will eventually take the more cautious tariff approach pushed by US Treasury Secretary Scott Bessent and chairman of the Council of Economic Advisers, Stephen Miran, who see duties as a negotiation tool. That strategy’s success depends on a narrow set of conditions, Munchau wrote, including Trump’s willingness to “put the tariff gun on the negotiating table” and strike broad deals, rather than pursue spiraling bilateral agreements and tariff wars.