Global markets appear to have called time on the dangerous game of hardball US president Donald Trump is playing with China, as a plunge in shares, government bond yields, and the price of oil signalled his trade wars could lead to world recession.
The selloff was sparked after growing evidence that Germany was heading into recession later this year as new figures confirmed its key manufacturing exports have slowed dramatically, and data suggested the output of Chinese factories, which make everything from iPhones to car parts for the world’s consumers, was also slowing sharply because of the trade wars.
Stockmarket benchmarks plunged. In the US, the S&P 500 fell 2.9%, with the Dow Jones and Nasdaq down 3%, the Ftse-100 in London fell 1.4%, and the Cac-40 in Paris and the Dax in Frankfurt slid 2%, while the price of Brent crude fell 4.4% to $58.62 a barrel.
Fears were also raised as a so-called inversion of government bond yields around the world also flashed red for impending global recession, or a sharp slowdown in US economic growth, said Irish experts.
Edgar Morgenroth, professor at the DCU Business School, said Mr Trump’s tariff war with China, which was designed to secure his re-election next year, could backfire as he plunges the world into recession after badly miscalculating the strength of the Chinese government to sit it out until US election day, in November 2020.
He could lose the election by putting the world into recession. He thinks he’s got all the cards [with China]. He doesn’t.
Declan Jordan at Cork University Business School said he believes the world will avoid a recession but that the growth of the US economy will nonetheless slow to a “sluggish” rate, undermining Mr Trump’s re-election bid.
“I don’t think he is clever enough to pull the US economy back,” he said.
A wide range of Irish shares, including the banks which have already been hard hit by fears of the harm a crash-out Brexit will inflict on the Irish and British economies, were hammered again, and Irish travel shares lost ground.
AIB lost 5.5% of its value; Permanent TSB shares fell 4.5%; and Bank of Ireland shed 1.25%. Hotels group Dalata fell 4.5%; Ryanair fell 2%; and Irish Ferries-owner ICG lost 1.7%. Irish-owned multinationals, including packaging firm Smurfit Kappa and building materials firm CRH, which would be vulnerable to any world slowdown, fell 1.6% and 2%.
“The market it seems has finally lost patience with the president,” said Chris Beauchamp, chief market analyst at online broker IG.
What had seemed so promising 24 hours ago has been ‘trumped’ by the yield curve inversion and poor economic data from Germany and China. Investors continue to pull money from equity funds, with the move exacerbated by the selling on inversion headlines.
“Perhaps the big worry is that there seems to be no overarching plan behind the president’s actions — if there was a plan, with a definable end-game, then investors might be prepared to be patient, but the Trump administration’s ad-hoc approach suggests the chaos will continue, and points towards an absence of global co-ordination to any sustained downturn, since the US is busily burning its bridges with key trading partners.”
Mr Morgenroth said Mr Trump’s battles with China and Europe have been naive, because China and the EU have responded in the past year by targeting tariff sanctions at US states which he must secure to win in 2020.
Paul Ashworth, chief US economist at Capital Economics, said the inversion of yields on US bond markets and stocks selloff had raised the chance of a US recession.
“With the notable exception of 1980, every recession in the past 50 years was preceded or accompanied by a sizeable selloff in equities.”
However, he added: “We still anticipate a modest economic downturn rather than a recession.”