On April 7th, global financial markets experienced the most severe systemic shock in recent years. Triggered by the new round of tariff policies from the Trump administration in the U.S., stock markets in the Asia-Pacific region, Europe, and emerging markets all saw sharp declines. Stock indices in multiple countries or regions activated circuit breakers, and panic spread to commodities and foreign exchange markets. The demand for safe-haven assets surged, and global capital markets faced a “Black Monday”.
The direct trigger of this crisis was the “reciprocal tariffs” executive order signed by U.S. President Trump on April 2. The policy mandates a 10% minimum baseline tariff on all trade partners starting from April 9, with higher tax rates imposed on specific countries. Although Trump claimed that he was not deliberately manipulating the market, U.S. Secretary of Commerce Howard Lutnick’s strong statement on April 6, firmly rejecting any delay in the tariff implementation, completely shattered market expectations of a policy easing. JPMorgan’s Chief Economist Bruce Kasman believes that this is the largest tariff increase imposed by the U.S. on global goods since 1968, and it is expected to raise the probability of a global recession to 60%.
On that day, Chinese A-shares were hit by a wave of sell-offs right from the opening. The Shanghai Composite Index opened 4.46% lower, while the Shenzhen Component Index and the ChiNext Index opened 5.96% and 6.77% lower, respectively. The losses deepened further in the morning session, reaching 7.24%, 9%, and 11.07%, with more than 3,700 stocks across the market falling by over 9%. By the close, the Shanghai Composite Index had fallen 7.34%, the Shenzhen Component Index dropped 9.66%, and the ChiNext Index declined by 12.50%. Other markets in the Asia-Pacific region fared even worse. The Nikkei 225 index plummeted by 8% during intraday trading, and the Tokyo Stock Exchange (TSE) Financials Index saw a sharp decline of 12%. The Korea Composite Stock Price Index fell nearly 5%, triggering a pause in program trading. The Hong Kong Hang Seng Index opened with a 9.28% drop, with the technology sector losing as much as 11.15%. Meanwhile, U.S. and European stock index futures collapsed in tandem, with S&P 500 futures falling more than 4%, Nasdaq futures down 5.1%, and the European Stoxx 50 futures dropping 3.8%. The market volatility index (VIX) surged by 45%.
Specifically, the Asia-Pacific market was the first to be impacted. The Nikkei 225 index plunged 8.3% at the opening, and the TSE index futures hit the 13% circuit breaker threshold at 9:15 in the morning, marking the largest single-day fluctuation since the 2008 financial crisis. Before the opening of the Japanese stock market, both the Singapore Exchange Nikkei 225 index and TSE index futures were suspended due to reaching their daily limit down. After trading resumed, the Japanese stock market opened lower and quickly expanded its losses. In just about half an hour, the Nikkei 225 index had dropped more than 8%, hitting a new low since October 2023. Sony, Mitsubishi Corporation, and Keyence fell more than 10%, Toyota dropped over 7%, and SoftBank Group’s stock price plunged more than 13%. The TSE Financial Sector Index dropped over 12%, with the Bank of the North Pacific, Yamanashi Chuo Bank falling over 13%, and Nagoya Bank dropping over 12%. Goldman Sachs downgraded its target for the TSE index, citing that the uncertainty of trade policies was higher than previously expected, and concerns about the economic outlook were intensifying. Goldman Sachs analysts lowered their 3-month target for the TSE index to 2500 points, and their 12-month estimate to 2775 points, down from a previous 3-month target of 3000 points and a 12-month forecast of 3100 points. Goldman Sachs stated that volatility may remain high in the short term, and the market could decline. However, if the U.S. avoids a recession, the TSE index may rebound in the medium term. Japanese Prime Minister Shigeru Ishiba stated that Japan would continue to urge the U.S. to reduce tariffs on Japan, but results may not come overnight.
The South Korean KOSPI index plunged by 5%, triggering the “sidecar” mechanism, which suspended program trading. Leading semiconductor stocks such as Samsung Electronics and SK Hynix saw losses of over 12%. The Taiwan Weighted Index triggered a circuit breaker after a 9.7% drop at 9:07 AM, with liquidity in key stocks such as TSMC and Foxconn evaporating instantly. The Australian S&P/ASX 200 index plummeted by 6.3%, with mining giant BHP’s stock falling by 11%, reflecting deep concerns about demand for commodities. The Singapore Straits Times Index also dropped by 5.9%, with indiscriminate sell-offs in the financial and shipping sectors.
The European market continued its downward trend in early trading. The pan-European STOXX 600 index futures fell by 4.2%, with 23 stocks in the German DAX index triggering the 15% individual stock circuit breaker at the opening. Export-oriented companies like BASF and Siemens were among the biggest losers. The French CAC 40 index dropped by 5.1%, with luxury goods giant LVMH’s stock plunging by 13%, highlighting market fears of a global consumption contraction. Although the UK FTSE 100 index benefited from the depreciation of the British pound, it still recorded a 3.8% drop, with HSBC Holdings seeing its market value evaporate by £8.9 billion in a single day. By the time European markets opened, the EURO STOXX 50 index was down by 6.2%, the German DAX index dropped by 7.1%, the UK FTSE 100 index fell by 4.1%, the Italian FTSE MIB index declined by 7.4%, and the Spanish IBEX 35 index dropped by 4.9%. As of now, the German DAX 30 index has expanded its losses to 10%.
Emerging markets are also showing a downward trend under the pressure of capital outflows. The MSCI Emerging Markets Index dropped by 6.9%, driven by the sharp decline in Asian markets. The index has reversed all of its gains for the year, now down by 5.8%. The MSCI Emerging Markets Currency Index fell by 0.4%. India’s Sensex index dropped by 4.7%, and the Indian rupee fell below the 84 mark against the U.S. dollar, forcing the Reserve Bank of India to urgently sell USD 5 billion in foreign exchange reserves. The Brazilian IBOVESPA index declined by 6.9%, dragged down by the sharp fall in iron ore prices, with Vale’s stock hitting a new low since 2020. The South African rand plunged by 5.2% against the US dollar.
In addition, the commodities market also experienced a sell-off. WTI crude oil futures plummeted by 3%, copper prices dropped by 4.2%, and gold fell below the key support level of USD 3,000 per ounce. The foreign exchange market showed typical risk-aversion characteristics, with the Japanese yen appreciating by 1.2% against the U.S. dollar, and the Swiss franc hitting a three-month high. On the other hand, emerging market currencies were generally under pressure, with the offshore RMB exchange rate experiencing increased volatility. The bond market showed signs of divergence, with the yield on the U.S. two-year Treasury note falling to a two-year low of 3.445%, and the German bond yield curve inversion deepening, reflecting concerns in European markets about current policy uncertainty.
It is worth mentioning that in the afternoon of April 7, the A-shares saw an increased decline, with the Shanghai Composite Index briefly falling by 300 points. Soon after, a major announcement was made. Authoritative sources stated that the Central Huijin Investment was actively conducting market stabilization operations, and announced that it had once again increased its holdings in exchange-traded index funds (ETFs) and would continue to do so in the future to firmly maintain the stable operation of the capital markets. In fact, in the afternoon, the trading volume of several broad-based ETFs surged. The Huatai-PineBridge CSI 300 ETF saw a turnover of over RMB 15 billion, while other CSI 300 ETFs such as the E Fund, Hua Xia, and Jiashi CSI 300 ETFs each saw turnover exceeding 3.5 billion yuan. The combined trading volume of these four CSI 300 ETFs exceeded RMB 30 billion. Meanwhile, southbound funds continued to flow in, with net inflows reaching as high as HKD 16 billion at one point.
A senior scholar at ANBOUND has pointed out that the Trump administration’s implementation of aggressive and fluctuating tariff policies has intensified the process of changes in market expectations, leading to increased concerns about a potential U.S. economic recession. In fact, while Trump had previously discussed the “transition period” of the economy, the trade war with Canada was escalating. After Canada decided to impose a 25% fee on electricity supplied to the U.S., the U.S. government overnight reversed its decision to impose an additional 50% tariff on Canadian energy products, which had been announced the day before. This policy flip-flop left investors confused and further exacerbated expectations of policy uncertainty. Some financial institutions, including JPMorgan Chase and Goldman Sachs, have predicted that due to Trump’s tariff policies, the likelihood of a U.S. economic recession will increase in the coming year.
In terms of economic development, the U.S. is currently facing a series of internal issues, such as a massive trade deficit, deindustrialization, economic recession, and an expanding wealth gap. The root causes of these problems lie domestically, not externally. Americans have overconsumed and saved insufficiently which is driven by excessive borrowing for premature consumption and massive government fiscal deficits. On top of this, outdated infrastructure, high labor costs, and incomplete industrial chains have led to a gradual loss of international competitiveness in manufacturing. Meanwhile, multinational corporations and Wall Street have profited enormously from economic globalization and international capital markets, often engaging in tax avoidance. All these problems are like the elephant in the room that everyone knows about, but none willing to confront.
As pointed out by researchers at ANBOUND, although Trump’s policies may seem unreliable, his determination to bring manufacturing back is essentially aimed at addressing the structural contradictions in the U.S. economy, and he is willing to bear the moderate cost of slower economic growth to achieve this. From this perspective, the true intention behind Trump’s frequent use of tariffs is not only to reduce the trade deficit but also to promote the prosperity of the U.S. economy, thus fulfilling his grand vision of “Make America Great Again”. However, the unpredictability of Trump’s policies indicates that his tariff and economic strategies are still immature, lacking systematic planning, and will be constrained by multiple factors.
On April 7, global capital markets experienced a “Black Monday”. The Trump administration’s “reciprocal tariff” policy triggered panic in the markets. Stock markets in the Asia-Pacific, Europe, and emerging markets saw significant declines, with several national indices triggering circuit breakers. Safe-haven funds flowed into commodities and foreign exchange markets. It should be noted that Trump’s push to bring manufacturing back is intended both to reduce the trade deficit and to address underlying structural economic contradictions. However, his policies are inconsistent and lack a systematic approach, which may ultimately come at the cost of slower economic growth.
