The London Stock Exchange opened today with a dramatic plunge, as the FTSE 100 index dropped by 6%, hitting a low of 7,570—a level not seen in over a year. This marks the most significant decline since the pandemic, driven by fears of a recession sparked by Donald Trump's trade policies.

The recent tit-for-tat tariff exchange between the U.S. and China has set the stage for this market turmoil. China's retaliation against U.S. tariffs has sent shockwaves through global markets, leaving every stock on the FTSE 100 in the red. The hardest-hit stocks include Melrose Industries, which fell by 9%, Antofagasta, down 7.9%, and Barclays, which dropped 7.8%. Sectors such as mining, aerospace, defense, technology, and banking have been particularly affected as investors seek safer investments such as utilities, consumer staples and healthcare.

The lack of progress on U.S. trade tariffs over the weekend has exacerbated the situation. Despite the chaos, Trump remains steadfast, describing the tariffs as necessary "medicine" for the U.S. economy—a bitter pill that investors are struggling to swallow.

The broader FTSE 250 index, focusing more on domestic businesses, also suffered, dropping 4.8%. European markets mirrored this dismal performance, with Germany's DAX and France's CAC 40 both experiencing significant losses. The ripple effect of these tariffs has been felt worldwide, with Asian markets also experiencing severe declines.

The most spectacular fall is in Hong Kong, which collapsed by more than 11.5% during the session, while Taiwan lost 9.5%. Australia (-3.8%), India (-4%) and South Korea (-5%) are also in trouble. In Japan, the Nikkei 225 lost 7%. Western leading indicators continue to fall, with high nervousness as the VIX index has crossed the 45-point mark, an extremely rare level. In the U.S., futures indicate a rocky start for Wall Street.

The oil market also wasn't spared, with prices sliding around 3% to their weakest since 2021. Gold and base metals also felt the heat as investors scrambled to cover losses elsewhere.

Billionaire fund manager Bill Ackman, a former Trump supporter, has called for a "90-day time out" on the trade war, warning of dire consequences for business investment and consumer spending if tensions escalate. “By placing massive and disproportionate tariffs on our friends and our enemies alike and thereby launching a global economic war against the whole world at once, we are in the process of destroying confidence in our country as a trading partner,” he wrote on social media platform X.

According to Barclays, "tariffs aren't going away anytime soon." The bank warn that these new tariffs will dampen the global economic outlook, both globally and in Europe, which bodes poorly for earnings. Its economists believe that recession risks have risen, with policy support from governments and central banks crucial to gauge the extent of downside risks. "No one wins from a trade war, with the U.S. economy set to be adversely impacted as much as, if not more than, Europe and the rest of the world."

However, there are silver linings, as Barclays suggests that the UK might be in a slightly better position, facing only 10% tariffs compared to the EU's 20%. "The UK might benefit from the FTSE 100s defensive tilt, although stronger pound and weaker oil offsets some tailwinds."

A British bond bonanza

So far, Monday's market movements came with a cacophony of interest rate whispers and tariff tantrums. Investors have placed their chips on the Bank of England slashing interest rates, a move that sent short-dated gilt yields tumbling. Interest rate futures are now suggesting a hefty 88 basis points worth of cuts to the BoE's benchmark rate by December. That's more than three quarter-point rate cuts, a significant leap from the 72 basis points anticipated just last Friday. The market is almost 90% certain that a quarter-point cut is on the cards for the BoE's May meeting.

The two-year gilt yields took a nosedive to their lowest since September 2024, landing at 3.814% on Friday, a 12 basis point drop. Meanwhile, 10-year yields dipped to their lowest since December at 4.379%, before staging a recovery. They are now worth 4.513. 

Source: MarketScreener

Citi's market strategists noted, "With Europe grappling with recession and disinflation due to global trade disruptions, we anticipate further downward adjustments in ECB and BoE rate expectations."