Market report: Flight to cash roils markets as Trump stays firm on tariffs
Susannah Streeter, head of money and markets, Hargreave Lansdown: ‘’The big flight to cash continues as investors seek a shelter for their money amid the tariff storm. Trump has dashed hopes for an easing of policy by calling tariffs ‘medicine’ and investors are absorbing the implications of this bitter pill for the global economy. The FTSE 100 has opened deep in the red, falling more than 5% in early trade, as pessimism spreads about the outlook for world trade. While the biggest fall this century was the pandemic induced 10.8% drop on 12 March 2020, the losses in recent days are steep, an indication of the fear spreading about the implications of the White House approach.
The shocking turn of US policy and China’s determined retaliatory action led to a rout in Asian markets, with Hong Kong’s Hang Seng and Japan’s Nikkei nursing painful losses. Banking shares experienced double digit declines during the session. Banks are seen as barometers for economic health, and given the steep losses, red lights are flashing about a looming global recession. These warnings are also showing up in the bond markets. Falling treasury yields are an indication that the chance of recession is increasingly being priced in. Oil prices are also continuing to slide, as traders assess that demand for energy will drop back sharply, given the ominous signs for global trade.
The tech-stock turmoil looks set to rampage for another day on Wall Street. The bears are already out in force across the Nasdaq, and futures indicate another steep fall for the index. The halcyon days of cheap manufacturing and easy markets appear to be over. With, as yet, no indications of a rolling back of tariffs, investors are reassessing earnings estimates denting valuations. This will have a knock-on effect on US consumer confidence which has already fallen sharply. Given so many Americans invest in the stock market, which acts as a safety blanket for life’s expenses, the stock market rout will dent wealth perceptions, which may make a downturn even deeper.
In times of high economic and geopolitical uncertainty, gold often is seen as a safe haven, but it’s fallen for the third session – away from record highs, as more investors book profits and plough into cash. Margin calls from brokers is likely to have exacerbated some of the market movements. Investors using more risky margin accounts can borrow money to invest, but falls in asset prices are prompting demands they deposit more money, as the value of assets used as collateral falls.
Bitcoin, which did appear to be more insulated from the stock market rout, has now been hit by the turmoil. The cryptocurrency is down more than 9% in a day, back to below $75,000, for the first time since Trump won the election. He may have promised to make the US, the crypto capital of the world, but high risk-off sentiment is cancelling out optimism about a more clement environment for coins and tokens in the financial system.
A sea of red on markets will inevitably be troubling for investors. It is however, important not to panic and look at long-term investment horizons. History has shown that markets do recover from times of crisis and high uncertainty. It is always worth keeping an eye on an investment portfolio and ensure that you are well diversified across a mix of geographies and asset classes to spread the risk. Drip feeding an investment portfolio can also help ride out the volatility.”