Closing post
With European stock markets closed after suffering heavy losses today, the dollar still weaker against rival currencies, and Wall Street in the red, it’s time to wrap up.
Americans have been warned to brace for higher prices within days after Donald Trump pulled the trigger on Monday and imposed US tariffs on goods from Canada and Mexico, and hiked tariffs on China.
Global stock markets came under pressure again on Tuesday, with leading indices falling sharply – and the benchmark S&P 500 losing all its post-election gains – as Canada, Mexico and China vowed to retaliate, and investors balked at the prospect of an acrimonious trade war.
US retail giants predicted that prices were “highly likely” to start rising on shelves almost immediately after a 25% duty came into effect on exports from Mexico to the US.
Most Canadian exports to the US also now face a 25% duty, with a 10% rate for energy products. The Trump administration imposed a 10% levy on all Chinese exports to the US last month, which has now been doubled to 20%.
Here’s the full story:
And here’s our US Politics Live blog, which is tracking all the latest developments:
Deutsche Bank warns of potential loss of the dollar's safe-haven status
There’s a risk that Donald Trump’s decision to impose new tariffs on Canada, Mexico and China will undermine the dollar’s safe-haven status, argues George Saravelos, global head of FX research at Deutsche Bank.
Saravelos told clients today that four developments this year suggest this may be happening:
First, the declining correlation between the US dollar and risk assets which has been at the core of portfolio construction for many real money investors over the last decade.
Second, the unusual and simultaneous outperformance of both high and low beta currencies, with the common denominator being cheap valuations versus the US dollar.
Third, the stark relative underperformance of US risky asset valuations versus the rest of the world going back three decades despite highly elevated global uncertainty.
Fourth, the US current account deficit breaching the 4% threshold in recent months which has historically marked the limits of dollar overvaluation.
There are heavier losses across European stock markets tonight.
Germany’s DAX has racked up a 3.5% fall, on fears that tariffs will hurt its industrial base.
France’s CAC lost 1.85%, while Italy’s FTSE MIB slumped by 3.4% today.
Simon Sutcliffe, Customs & Excise duty partner at audit, tax and business advisory firm Blick Rothenberg, says the ominous signs of an emerging full-blown trade war are on the horizon, adding:
“The EU and UK are waiting in trepidation, for their turn to come.
The mixing of politics, US domestic economics and the ongoing Ukraine conflict has coloured the US President’s decision-making process. Europe’s recent actions in support of Ukraine will likely have been viewed as a catalyst for wholesale tariffs to be considered anew on the EU and possibly the UK, even after the next round of worldwide tariff measures hit in the next few weeks.”
FTSE 100 posts biggest drop since last October
The launch of a trade war between the US and Canada, Mexico and China has triggered the biggest drop on the London stock market this year.
The FTSE 100 index of blue-chip companies has closed for the night, down 112 points or 1.27%, at 8,759 points – a day after hitting its record high.
That’s the biggest daily drop on the ‘Footsie’ since 8 October last year.
Oil companies such as BP (-5.7%) banks including Barclays (-6%) and investment groups including Scottish Mortgage Investment Trust (-6.2%) and Polar Capital Technology Trust (-5.9%) were among the fallers.
Trudeau: absolutely no justification for tariffs
Canada’s prime minister, Justin Trudeau, has just blasted Donald Trump over the tariffs which were imposed on Canadian imports to the US today.
Trudeau says that today, the US launched a trade war against Canada – their “closest partner and ally, their closest friend”.
“At the same time, they’re talking about working positively with Russia, appeasing Vladimir Putin - a lying, murderous, dictator. Make that make sense.”
Trudeau says there’s “absolutely no justification or need” for the tariffs, and warns that the trade war will “first and foremost harm American families”.
This will sabotage the Trump agenda of creating a “New Golden Age” for the United States, Trudeau says.
Addressing Americans, Trudeay says it is “totally false” to claim that Canada is not willing to help in the fight against illegal fentanyl.
The border is already safe and secure, he says, pointing out that less than 1% of fentanyl imports or illegal crossings to the US come from Canada. Even so, he says Canada introduced a new programme to police the border, to respond to Trump’s concerns.
Trudeau also confirms that Canada imposed 25% tariffs on C$30bn worth of US imports immediately, and will extend this to a further C$125bn in 21 days’ time.
BREAKING: Canadian PM, Justin Trudeau announces his response to US tariffs coming into effect today, by implementing "25% tariffs against $155 billion worth of American goods"
— Sky News (@SkyNews) March 4, 2025
Latest ➡️ https://t.co/PAiZ4D1jU3
📺 Sky 501, Virgin 602, Freeview 233 and YouTube pic.twitter.com/lImpQ8i6n3
Update: Trudeau also argues that Trump’s tariffs are “a very dumb thing to do”.
He says:
“Now, it’s not in my habit to agree with the Wall Street Journal, but Donald, they point out that even though you’re a very smart guy, this is a very dumb thing to do. We two friends fighting is exactly what our opponents around the world want to see.”
Updated
This is proving to be a volatile week for German investors.
Yesterday, the DAX index – which contains the largest German companies – hit a record high.
Today, it’s now slumped by 3.3%, a heavy fall, on fears that its industrial companies will suffer from a global trade war.
Auto parts maker Continental are still the top DAX faller, now down over 12%. It has said today it will try to pass on the cost of tariffs imposed by US President Donald Trump to its customers….
Konstantin Oldenburger, market analyst at CMC Markets, says:
The headlines surrounding an impending global trade war have become too loud to ignore on the once-booming trading floor of Frankfurt. Since nearly two-thirds of DAX companies generate their revenues outside the US, and with cyclic sectors like automotive and manufacturing being heavily represented, the index remains highly dependent on global trade. Consequently, any significant disruption from a worldwide trade war poses a substantial threat.
Continental’s warning of a lackluster year in 2025, marked by weak domestic car demand and trade tensions, brought these concerns directly home.
Whether factors such as artificial intelligence, pricing power, a more business-friendly government, and companies like Rheinmetall can shield the index from a larger correction remains to be seen. However, the sounds of trade disruptions are growing louder and are becoming increasingly difficult to ignore, even though Trump has yet to impose any direct tariffs against Germany or the European Union.
BlackRock buys Panama Canal ports amid Trump pressure
As well as launching trade wars and cutting support for Ukraine, Donald Trump has also been dropping heavy hints since entering the White House that he wants control of the Panama Canal.
Last month, he accused China of controlling the 82km (51-mile) canal, apparently a reference to the fact that there is a port at either end of the canal that is operated by a Hong Kong-based company.
Well, that’s just changed!
In a surprise move, CK Hutchison Holdings Ltd, the Hong Kong-based conglomerate, has agreed to sell those ports to US investment giant BlackRock.
BlackRock is acquiring Hutchison’s 90% stake in Panama Ports Company, which owns and operates the ports of Balboa and Cristobal in Panama. It is also buying 80% of the Hutchison Ports group, which operates 43 ports in 23 countries, in a deal worth over $19bn.
BlackRock’s CEO, Larry Fink, says:
These world-class ports facilitate global growth. Through our deep connectivity to organizations like Hutchison and MSC/TIL and governments around the world, we are increasingly the first call for partners seeking patient, long-term capital. We are thrilled our clients can participate in this investment.”
According to CK Hutchison’s co-managing director, Frank Sixt, the deal was competed after a “rapid, discrete but competitive process”.
Sixt insists that political pressure did not play a part (!), saying:
I would like to stress that the Transaction is purely commercial in nature and wholly unrelated to recent political news reports concerning the Panama Ports.
It must be noted that, however, the Transaction does remain subject to confirmatory due diligence, settlement of definitive documentations, and normal and usual completion procedures, adjustments and conditions as well as compliance by HPH with the rights of minority shareholders under existing shareholders agreements relating to the Sold HPH Interests.
Updated
Donald Trump’s trade wars could be bad for consumers (higher prices) and businesses (lower sales), but they could also keep lawyers busy.
Ben Knowles, partner at global law firm Clyde & Co , predicts a flurry of litigation between companies over existing contracts:
“From a legal and contractual perspective, tariffs of this scale will fundamentally alter the economic viability of existing agreements. As we’ve seen with past trade disputes, businesses affected by sudden tariff hikes may turn to litigation, seeking to renegotiate or exit contracts that are no longer commercially sustainable.
The coming months could see a wave of disputes raised as companies grapple with the impact of shifting trade policies.”
Reeves: UK will be hurt by trade war
Rachel Reeves has warned Britain’s economy will be hurt by Donald Trump starting a G7 trade war even if Donald Trump exempts the UK from tariffs.
The chancellor said a global slowdown in trade would hit UK growth and said she was pushing hard to make the case for free trade.
“It’s absolutely the case that even if tariffs aren’t applied to the UK, we will be affected by slowing global trade, by a slower GDP growth and by higher inflation than otherwise would be the case,” she told a conference in London hosted by the manufacturing trade group Make UK.
Reeves explained:
“I’ve always been really clear that I believe strongly that free trade is good for exporters and importers for both countries on the sides of a trade deal. So I don’t want to see tariffs increased. I don’t think it serves anyone well.”
She was speaking as Trump’s decision to go ahead with sweeping tariffs on imports from Canada, Mexico and China rattled financial markets, amid growing fears over an escalating global trade war.
Reeves said she hoped the UK would be able to secure a trade deal with the White House to avoid the heaviest impact on British firms.
“I think there’s every reason to be hopeful about coming to some sort of a trade deal,” she said, adding:
“I’m not naive. This is not going to be an easy thing to secure for reasons that we all understand. There will have to be give and take on both sides. We absolutely recognise that, but I do think there’s a big opportunity here.”
S&P 500's post-election gains are wiped out
The selloff on Wall Street is gathering pace – after half an hour’s trading, the S&P 500 is down 1.5%, losing 89 points to trade at 5,760.
That takes the S&P 500 share index back down to its levels just before last November’s election, meaning the Trump Bounce has been erased.
*S&P 500 ERASES ELECTION GAIN, WIPING OUT $3.4 TRILLION IN VALUE
— Joe Weisenthal (@TheStalwart) March 4, 2025
Updated
RBC’s McKay warns of hit to economic growth from US tariffs
The boss of Royal Bank of Canada has warned that the trade war with the US will hurt growth.
Dave McKay told investors at a conference in New York that he hopes the tariffs will be temporary, saying (via Bloomberg):
“It’s a little frustrating to see the loss on momentum.
“We still hope for the best outcome that these tariffs are short-lived and we get back onto a growth agenda on all sides of the border that we were on before.”
McKay, who runs Canada’s largest bank, warned that the threat of tariffs has been hitting growth this year, saying:
“That narrative from January to today and to last night has had immediate impact on the psychology of consumers, psychology of small businesses and the psychology of large corporates.
We saw housing starts start to slow and we saw consumption start to slow on both sides of the border.”
US financial stocks are sliding in early trading, pulling the S&P 500 banks index down by 3.4%.
Goldman Sachs are down 4.6%, with JP Morgan Chase losing 3.5%. American Express has lost 3.3%.
Investors may be concerned that a trade war will hurt US businesses, leading to more bad debts.
The rising expectations that the Federal Reserve will cut US interest rates three times this year are also a factor - lower interest rates eat into bank profits.
Wall Street drops in early trading
Wall Street has opened in the red at the start of trading.
The Dow Jones industrial average, the wider S&P 500 share index, and the tech-focused Nasdaq are all down around 1% in early trading in New York.
That adds to their losses yesterday, after Donald Trump announced he was pressing ahead with tariffs on Canada, Mexico and China, ratching up his trade war.
Investors can now react to the news that China has announced retaliatory tariffs on a range of agricultural imports from the US next week – including 15% tariffs would be imposed on chicken, wheat, corn and cotton, and 10% tariffs on sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables and dairy products.
Reuters points out that the Nasdaq Composite index is on course to confirm a fall into a correction (ie, down 10% from its record closing high).
Major US retailers warn Americans will pay more because of Trump’s trade war with top partners, report says
The CEOs of two large retailers in the United States say shoppers are likely to see prices rise as a result of the tariffs Donald Trump placed on Canada and Mexico, and his hike in levies on China.
The warnings from the CEOs of Best Buy and Target, reported by CNBC, contradict the president’s assertion that the costs of his trade war will not be borne by US consumers, who rebelled against his predecessor Joe Biden after the US economy was hit by its worst bout of inflation in decades.
“Those are categories where we’ll try to protect pricing, but the consumer will likely see price increases over the next couple of days,” Target CEO Brian Cornell told the network in an interview.
“If there’s a 25% tariff, those prices will go up.”
More here, in our US Politics Live blog.
Mexico's president condemns U.S. tariffs and promises retaliation
Mexican president Claudia Sheinbaum has said said there was no justification for U.S. President Donald Trump’s 25% tariffs on imports from Mexico and said her government would respond with tariff and non-tariff measures.
Sheinbaum told her regular morning press conference.
“There is no reason, rationale or justification to support this decision that will affect our people and nations ... Nobody wins with this decision.”
Speaking hours after new 25% tariffs on Mexico kicked in, Sheinbaum said Mexico had collaborated with the U.S. on migration, security and anti-drug trafficking.
She says:
“In these 30 days, decisive actions were taken against organized crime and fentanyl trafficking, as well as bilateral meetings on security and trade.”
Sheinbaum said she would give details on Mexico’s response, including retaliatory tariffs, at an event in the capital’s iconic Zocalo square on Sunday.
As flagged earlier, the Mexican peso has hit a one-month low against the US dollar.
European markets slide deeper into the red
European stock markets have dropped deeper into the red, as investors fret about worsening trade relations.
In London, the FTSE 100 index is now down 79 points, or 0.9%, at 8792 points, further from yesterday’s record high.
The selloff in German auto stocks has now pulled the DAX down by 2.8% in Frankfurt, while France’s CAC index is down 1.9%.
“Donald Trump forged a reputation for being Mr Unpredictable during his first term as US president. This time he’s on a mission to do something dramatic on a daily basis and markets continue to be taken aback by the pace and ferocity of his decisions. He is sending a clear message to the world: ‘Don’t mess with Donald’,” says Russ Mould, investment director at AJ Bell.
Mould adds:
“Investors were desperately hoping that Trump would delay tariffs on Canada, Mexico and China at the eleventh hour, yet the US president has stuck to his guns and brought them into power. Naturally, the recipients have started to retaliate and that has raised the prospect of a full-blown trade war.
“Investors knew there was a real chance this would happen but quietly hoped it would all go away and simply be Trump having a bark worse than his bite. Not this time around.
“Layered on top is Trump’s decision to pause US military aid to Ukraine showing you’ve got a political leader who is determined to show the world who’s boss.
Fears that the US economy could fall into stagflation are “overblown”, argues Atakan Bakiskan, US economist at Berenberg bank.
Markets seem to be gradually pricing in a scenario where growth significantly slows, and inflation remains elevated. Tariffs, rising uncertainty, federal layoffs, and weak macroeconomic data have all contributed to these growth concerns. The 10-year Treasury yield has fallen by more than 60 basis points from its 4.8% peak in mid-January, currently standing at 4.14%.
The equity market (S&P 500) has retreated by nearly 5% from its mid-February peak. The futures and swaps markets now expect three rate cuts by the end of 2025, compared to pricing in one cut at the beginning of the year. Investor sentiment is the most bearish since September 2022 (according to the American Association of Individual Investors), and the CNN Fear & Greed Index has dropped into “extreme fear” as risk-on sentiment collapsed. The Russell 2000, comprised of highly import-dependent small businesses, is down nearly 6% year-to-date.
The market is correct that inflation will remain sticky, but recent concerns about a sharp slowdown in the US are misplaced, in our view. Income-driven strong consumer spending and expansionary fiscal policy—the underlying drivers of the US economy—remain intact.
Bessent: Chinese manufacturers will eat the tariffs
U.S. Treasury Secretary Scott Bessent has claimed that Chinese manufacturers will swallow the US tariffs that were imposed overnight.
Speaking to Fox News, Bessent declared:
“China’s business model is export, export, export, and that’s unacceptable. I am highly confident that the Chinese manufacturers will eat the tariffs, prices won’t go up.
[It is not clear that this will happen, though. The argument is that a Chinese exporter would cut their sale price by around 10%, so that the price paid by an American customer wouldn’t change. But they might not want to suffer that financial hit, or even be able to…
Bessent also suggested that the US was in the “middle of a transition” regarding tariffs on Canada and Mexico.
Dollar at three-month low
The pound is continuing to climb against the US dollar, and is now up half a cent at $1.2746, its strongest level since mid-December.
The dollar index, which tracks the currency against six peers, is trading at a three-month low too, down 0.75% today.
Updated
China says it has filed additional complaints with WTO against U.S. tariffs
China says it had raised additional complaints with the World Trade Organization after U.S. President Donald Trump imposed extra duties on Chinese goods.
In a statement emailed to journalists, China’s mission to the WTO in Geneva says:
“China has raised WTO complaints against the United States’ newly imposed tariff measures.”
Wall Street is on track to open lower when trading begins in two hours time:
US STOCK INDEX FUTURES MOVE LOWER || S&P 500, NASDAQ FUTURES DOWN 0.3% EACH; DOW FUTURES DOWN 0.2%
— First Squawk (@FirstSquawk) March 4, 2025
Euro hits 2025 high
The weakness of the US dollar today has pushed the euro up to its highest level this year.
The single currency has gained 0.5% to $1.0543, its highest level since 10 December 2024.
Eutelsat's value has tripled this week (and it's only Tuesday lunchtime)
Shares in French satellite operator Eutelsat have surged on speculation that its OneWen system could replace Elon Musk’s Starlink in Ukraine.the country.
Eutelsat’s stock has surged 80% this morning, following a 68% jump yesterday, meaning it has tripled in value so far this week!
The FT reports that Eutelsat said today it was “actively collaborating with European institutions and business partners” about providing additional satellite connectivity in Ukraine.
There are fears that Starlink’s service in Ukraine could be under threat after the US suspended military aid to Kyiv on Monday.
French Eutelsat $ETL soars as investors bet on OneWeb satellites as European option to Starlink. Meanwhile #Tesla's EV sales in China dropped 49.2% y/y in February. ($TSLA -1.7% in premarket) pic.twitter.com/l8YMLTxjX0
— Ole S Hansen (@Ole_S_Hansen) March 4, 2025
OneWeb was a British satellite company, which merged with Eutelsat in 2022.
Updated
European carmakers hit by tariff worries
Germany’s stock market is being hit hard by trade war fears today.
The DAX index has fallen by over 2%, with its auto industry suffering badly.
Tiremaker Continental are the top DAX faller, down almost 9%, with Daimler Truck (-6.66%), BMW (-5.5%) and Mercedes-Benz (-4.5%) also weaker.
The pan-European Stoxx Autos index is down 4.3%, on track for its biggest fall since September 2022.
China to launch anti-circumvention probe into related US fiber optic products
China has widened its retaliation to the new US tariffs, by launching an investigation into US fiber optic products.
China ministry of commerce said it will investigate US producers of a type of optical fibre for potentially circumventing anti-dumping measures.
Tabloid newspaper Global Times has the details:
The ministry said in a notice that it has learned that relevant fiber optic products are suspected of circumventing China’s anti-dumping measures, and it initiated the probe at the request of domestic industries. Based on the investigation’s findings, a decision will be made on whether to impose anti-circumvention measures against the US, the notice said.
China has also suspended the import licences of three U.S. exporters, and halted China-bound shipments of U.S. lumber, Reuters reports.
Some economists are warning that the US could suffer a period of ‘stagflation’ – where prices rise but the economy stagnates.
Mathieu Savary, BCA Research’s chief european strategist, says this is a reason to favour European assets, telling clients:
“Europe is escaping its liquidity trap, its animal spirits are coming out of hibernation, and European investors are increasingly willing to buy European risky assets.”
“The US economy looks increasingly stuck in a mini-stagflation episode that will hurt global assets. However, Europe’s exit from the liquidity trap means that periods of weakness in European assets are to be bought, not sold, because Europe will come out roaring of this period of uncertainty.”
Mohamed El-Erian, advisor to Allianz and president of Queens’ College, Cambridge, saw stagflation risks in yesterday’s US manufacturing data, which reported lower growth and rising prices:
The whiff of stagflation risk continues to loom, as indicated by today's ISM Manufacturing Survey data.
— Mohamed A. El-Erian (@elerianm) March 3, 2025
The overall index dipped to 50.3, barely above the threshold that indicates contraction, due to shrinking new orders and employment indices, which fell to 48.6 and 47.6,…
Short-term US government borrowing costs have hit their lowest level since last October, as investors anticipate several interest rate cuts this year.
The yield, or interest rate, on two-year Treasury bills has dropped to 3.929% this morning, down 5 basis points from last night’s 3.98%.
Yields fall when bond prices rise, so this reflects increased demand for safe-haven US debt, as well as repriced interest rate expectations.
TWO-YEAR US TREASURY YIELD US2YT=RR FALLS TO 3.8960%, LOWEST SINCE OCTOBER 4
— PiQ (@PiQSuite) March 4, 2025
UK chancellor Rachel Reeves to call for major shake-up of defence procurement rules
Rachel Reeves will say she wants to speed up defence procurement and ensure the UK’s small and medium-sized businesses can benefit, when she addresses manufacturers this afternoon.
The chancellor has already pledged to ramp up defence spending to 2.5% of GDP, paid for by slashing the aid budget, and to rewrite the rules of Labour’s National Wealth Fund so that it can invest in defence.
But with the US tearing up the transatlantic alliance, 2.5% of GDP is only expected to be a staging post, our economics editor Heather Stewart reports.
In a “fireside chat” this afternoon at manufacturing trade body Make UK’s annual conference, Reeves will promise to cut red tape that slows down defence procurement, and open up more contracts to smaller firms.
She is expected to say,
“For too long politicians of all stripes have ducked and dodged the decisions need to fire up Britain’s industrial base and unleash its potential to keep the country safe.
We’re changing that by increasing defence spending and making defence a cornerstone of our industrial strategy to create jobs, drive growth and meet emerging global threats head on.”
Defence was already earmarked as one of the industries to be backed by the government’s industrial strategy - expected to be published around the time of the spending review, in June.
But the escalating demands for spending will raise questions about how other sectors expecting to receive government support are now likely to fare. The Ministry of Defence is notorious in Whitehall for delivering projects late, and drastically over budget.
Could Doge cuts push US into recession? Not if they change the maths!
It’s possible that the spending cuts being pushed by billionaire businessman Elon Musk’s so-called “department of government efficiency” (Doge) could push the US economy into a downturn.
Musk had suggested he could cut $2 trillion from federal spending, which would be almost a third of the $6.75 trillion spent by the US government in the 2024 fiscal year, or 23% of US GDP that year.
As government spending is tied up with consumer and business spending, such reductions would have a significant impact on the economy (as Y = C + I + G + NX, see below*.)
BUT, the US government may tamper with this way of calculating GDP.
Howard Lutnick, the US commerce secretary, said on Sunday that government spending could be separated from gross domestic product reports.
Lutnick told Fox News Channel’s Sunday Morning Futures:
“You know that governments historically have messed with GDP.
They count government spending as part of GDP. So I’m going to separate those two and make it transparent.”
* – this Keynesian cross model states that aggregate output = consumer expenditure, plus investment, plus government spending, plus net trade (exports minus imports).
German minister: EU won't be pushed around by Trump
European countries are wondering if they will be next to be hit by US tariffs.
Germany’s economy minister has said today that Europe will respond in a united and resolute way if US president Donald Trump were to impose tariffs on EU products – something he threatened to do last week.
Robert Habeck says in a statement:
“Germany supports the EU Commission’s approach of working with the U.S. government to find a negotiated solution. But the EU will not be pushed around. If President Trump imposes the announced tariffs on EU products, we will react with unity and self-confidence.”
US dollar weakens amid rising 'Trumpcession' fears
The US dollar is weakening today, amid growing concerns that Donald Trump’s policies could push America’s economy into a contraction, and possibly a full-blown recession.
The dollar index, which tracks the greenback against a basket of rival currencies, has dropped by 0.44% today, as traders anticipate that a trade war will drive up US inflation and hurt its economy.
Sterling has risen 0.2% to $1.2724 against the dollar, its highest level since 17 December. The euro is up 0.3% at $1.052.
The dollar’s weakness comes as markets now expect the US Federal Reserve to cut interast rates three times this year. In January and February, only one or two cuts were priced in.
Investors are jumpy after a closely watched gauge of the US economy weakened yesterday.
The Atlanta Federal Reserve’s GDPNow model now estimates US GDP will shrink at an annualised rate of 2.8% in January-March, the equivalent of a 0.7% quarterly decline in activity. That helped to prompt yesterday’s losses on Wall Street.
On March 3, the #GDPNow model nowcast of real GDP growth in Q1 2025 is -2.8%: https://t.co/T7FoDdgYos. #ATLFedResearch
— Atlanta Fed (@AtlantaFed) March 3, 2025
Download our EconomyNow app or go to our website for the latest GDPNow nowcast: https://t.co/NOSwMl7Jms. pic.twitter.com/FdSehrEcSg
That helped to prompt yesterday’s losses on the US stock market, even though the Atlanta Fed GDPNow can be volatile.
Kyle Rodda, senior financial market analyst at Capital.com, explains:
Wall Street tumbled off the back of the news, while the US Dollar declined as market participants began to contemplate the risks of a US recession. While much of the change is due to mechanical factors in the way GDP is calculated, a deepening trade deficit along with signs of weaker consumer spending and business activity has driven the Atlanta Fed’s GDP Nowcast to -2.8%.
Subsequently, the markets have shifted forward expectations of the next Fed rate cut to June, with May increasingly looking like a “live” meeting.
Talk of a “Trumpcession” has been growing in recent days, after the latest trade data last week showed a surge of imports as businesses tried to avoid new tariffs.
Manufacturing data yesterday showed a slowdown in US factory growth in February, with employment levels and new orders both contracting.
An index of US consumer confidence hit an eight-month low last month, while US retail sales dropped by the most in nearly two years in January.
A CBS News poll released on Sunday showed that 49% of Americans disapprove of president Trump’s handling of the economy.
Stephen Innes, managing partner at SPI Asset Management, says talk of a ‘self-inflicted “Trumpcession.”’ is on the rise:
Already queasy from a fading AI-driven rally, Wall Street is now staring down a worsening cocktail of Trump’s tariff fury, stretched equity valuations, and the cold, hard realization that the U.S. economy may be losing steam. Meanwhile, across the pond, Europe—long the ugly duckling of global markets—is suddenly the belle of the ball.
While America grapples with an economic hangover, European stocks are ripping higher, fueled by a mix of bargain-hunting, fiscal policy shifts, and the tantalizing prospect of a peace deal in Ukraine. The euro and bond yields are climbing, while the dollar and Treasuries slump—proof that global capital is rebalancing. Defence and infrastructure spending is setting the tone for a European revival, while Washington is left debating whether it’s about to stumble into a self-inflicted “Trumpcession.”
A recession, though, would mean two quarterly contactions in GDP in a row – which Paul Ashworth, chief North America economist at Capital Economics, doesn’t see happening.
He wrote last week:
Following the 0.5% m/m slump in real consumption in January and the massive 10% m/m surge in real goods imports, we now expect first-quarter GDP to contract by 1.0% annualised. Assuming that surge in imports reflects the front-running of tariffs, however, it should be more than reversed in the second quarter, when we expect GDP to rebound by 4.5% annualised.
The upshot is that a “Trumpcession” should be avoided and there is no need for the Fed to cut interest rates.
Ukraine international bonds slip after Trump pauses military aid
The value of Ukrainian government bonds is sliding this morning, after Donald Trump paused US military aid to Kyiv.
Ukraine’s GDP warrant – a security that pays out more to investors if the country’s economy grows strongly - has dropped by 0.6 cents to trade at 80 cents, its lowest level since mid-January.
A 10-year bond which matures in 2023, and whose future payments are linked to economic performance, have dropped by around 2 cents to around 59.19 cents on the dollar, a one-month low.
[Because these bonds continue to trade below their face value, it reflects uncertainty that bond-holders will be repaid in full when the debt matures.]
Shares in some European defence companies are rallying again today, as investors anticipate a surge in spending from Europe’s governments.
An index that tracks Europe’s aerospace and defence stocks has risen 0.5% to a fresh record high, Reuters reports, after surging 7.7% on Monday.
In London, Britain’s BAE Systems are up 1.5%, after a 14.5% jump yesterday, at £16.34, on track for a record closing high.
Oil hit by tariff and geopolitical fears
The oil price has hit its lowest level of the year, hit by anxiety over the tariffs imposed by the US, and the retaliatory measures from Canada and China.
Brent crude, the international benchmark, has fallen by 1% to $70.85 per barrel, the lowest since early December.
US crude is also at a 2025 low, at $67.79 per barrel.
News yesterday that the OPEC+ group has decided to proceed with a planned output increase in April is also weighing on the market.
Joseph Dahrieh, managing principal at brokerage Tickmill, says:
Crude oil futures continue to slide following OPEC+’s decision to increase output by 138,000 barrels per day in April and the uncertainty surrounding U.S. tariffs. The decision to unwind previous production cuts raises concerns about potential oversupply. With increased output, global crude prices face downward pressure, particularly if demand growth fails to match the rise in supply.
Furthermore, geopolitical factors, such as peace talks in Europe, could lead to an easing of sanctions on Russia and reducing disruption risks, potentially adding more oil to the market. This could weigh on prices over the medium to long term.
U.S. tariffs on Canadian and Mexican imports, including energy products, could further dampen economic activity and reduce fuel demand, exerting additional downward pressure on oil prices. Reduced demand from these key markets coupled with global economic uncertainty could weigh on the outlook for crude.
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European stock markets are also dropping at the start of trading.
France’s CAC: -0.9%
Spain’s IBEX: -0.8%
The pan-European Stoxx 600: -0.7%
FTSE 100 drops away from record high
Britain’s stock market has opened in the red.
The FTSE 100 dropped by 57 points, or 0.65%, at the start of trading to 8813 points, a day after rising over 8,900 points for the first time ever.
Energy companies are leading the fallers, with BP down 4% and Shell losing 2.8%, tracking a drop in the oil price.
Mining companies, such as Anglo American (-2%) and Glencore (-2%) are also in the top fallers, reflecting concerns that a trade war will hit demand for commodities.
Beijing’s foreign ministry has said China will play along to the end if the United States is bent on waging a trade or tariff war, Reuters reports.
China’s countermeasures are to protect its own rights and interests, ministry spokesperson Lin Jian told a regular press conference on Tuesday, urging the U.S. to return to dialogue and cooperation as soon as possible.
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Economists fear that Donald Trump’s new tariffs, and the retaliatory levies imposed by countries on the end of them, will be a drag on growth.
Mohit Kumar of investment bank Jefferies, says:
If Trump goes ahead with the tariff program as proposed, with more tariffs coming in April, we would need to revisit our relatively sanguine view on tariffs and the potential impact on growth in the US, Europe and globally.
Our view remains that tariffs are not an inflation story but a growth story, as the inflationary impact is like an impulse function with fades from year 2 onwards.
Canadian dollar and Mexican peso hit one-month lows
The Canadian dollar and the Mexican peso hit their lowest levels in a month after Donald Trump announced new tariffs are kicking in today.
The Canadian dollar weakened to 1.454 to the US dollar on Monday night, its weakest level since 3 February – the day Trump postponed sweeping new US tariffs on goods from Canada and Mexico.
The Mexican peso has lost 1.5% against the US dollar so far this week, hitting 20.8/$, again the lowest since 3 February.
Introduction: Stocks fall as Donald Trump imposes tariffs
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Fears are growing of a global trade war, after China and Canada retaliated against the US following Donald Trump’s decision to impose sweeping tariffs on their exports to the US.
Hopes that Trump might have produced a last-minute reprieve were sunk yesterday, when the US president declared that the new 25% tariffs on imports from Canada and Mexico, and a new 10% levy on China, would begin today as scheduled.
This rattled Wall Street, where the S&P 500 share index tumbled by 1.7% last night – its biggest daily drop since 18 December – and the tech-focused Nasdaq slumped 2.6%.
What just happened?
— The Kobeissi Letter (@KobeissiLetter) March 3, 2025
The Dow just went from being up +300 points at the open to falling as much as -1,100 points in hours.
Between 10:00 AM and 3:30 PM ET, the S&P 500 erased a whopping $1.5 trillion in market cap.
Here's exactly what you need to know.
(a thread) pic.twitter.com/nQpKOlrihB
Overnight, China and Canada unveiled retaliatory measures against the US.
China will impose fresh tariffs on a range of agricultural imports from the US next week. Its finance ministry said additional 15% tariffs would be imposed on chicken, wheat, corn and cotton, with further 10% tariffs on sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables and dairy products.
Canadian prime minister Justin Trudeau said Ottawa would respond with immediate 25% tariffs on C$30bn ($20.7bn) worth of US imports. He said previously that Canada would target American beer, wine, bourbon, home appliances and Florida orange juice.
Mexico is expected to announce its response Tuesday morning.
It’s a jolt for investors who may have optimistically hoped that Trump might have had a last-minute change of heart.
Chris Weston, analyst at brokerage Pepperstone, says:
Market anxiety levels have been dialled up, and we see traders having to react aggressively and dynamically to the deluge of headlines and social posts confirming that tariffs on China, Mexico and Canada are to be implemented in full and as threatened.
The fact that we received confirmation of tariff implementation a day early and in full will surprise factions of the market, with a broad feeling that Mexico and to a lesser extent Canada could win a reprieve and see another suspension to the 25% tariff implementation date.
Stocks have fallen in some Asia-Pacific markets; in Japan, the Nikkei share index has dropped 1.2%, Australia’s S&P/ASX has lost 0.6%, while India’s main indices are a little lower, -0.2%.
China’s markets are slightly higher, though, perhaps lifted by hopes that policymakers may announce new stimulus measures as policymakers gather this week in Beijing for the annual parliamentary gathering.
European stock markets are set for a lower open, a day after the UK’s FTSE 100 index hit a record high as defence stocks surged on Monday.
The agenda
8am GMT: Kantar’s UK grocery inflation data
9.30am GMT: ONS on Mergers and Acquisitions involving UK companies - October to December 2024
2.25pm GMT: Chancellor Rachel Reeves speaking at Make UK conference
