ORLANDO, Florida, April 7 (Reuters) -

TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Trade tensions, recession fears rise

U.S. President Donald Trump's tariff 'wrecking ball' swung

through financial markets again on Monday, sending investors

scuttling for cover and wiping hundreds of billions of dollars

more off the value of global stocks.

With Trump doubling down on his protectionist agenda and

threatening further levies on China, the likelihood of U.S. and

global recession is increasing by the day. Despite the scale of

the market rout, however, recession still isn't 'in the price'.

More on that below, but first a round-up of another

extraordinary and volatile day on world markets.

I'd love to hear from you, so please reach out to me with

comments at . You can also follow me at @ReutersJamie and

@reutersjamie.bsky.social.

Today's Key Market Moves

* Hong Kong's Hang Seng tumbles 13.3%, its biggest loss

since the

Asian FX crisis of 1997 and second-largest in 35 years.

* Japan's benchmark Nikkei 225 falls 7.8%, dragging the

index down

almost 20% in less than two weeks.

* Taiwan stocks plummet 10%, the biggest one-day drop on

record.

Official sector buying limits the slide in Chinese shares.

* The MSCI's Asia ex-Japan index's 8.4% fall is its steepest

since

October 2008. It was the same for the MSCI emerging index, which

fell 8%.

* Wall Street ends mostly in the red after a

volatile

session that saw losses of up to 5% and the VIX volatility index

soaring as high as 60.

* Treasury yields surge as much as 25 basis points across

the

curve at the long end, delivering a sharp "bear steepening".

* U.S. high yield credit spreads widen to 445 bps, blowing

out

more than 100 bps since Trump's April 2 "Liberation Day".

* Gold falls more than 2% for a second day in a row,

something not seen in almost four years.

* The dollar rallies, especially against emerging

currencies. Brazil's real has halved its year-to-date gains in

recent days to 5%, South Africa's rand is down nearly 4% this

year.

Trump's tariff wrecking ball still swinging

When does a market slide become a slump, and when does that

morph into a meltdown? And when does that crater into a crash?

There may not be any definitive demarcation lines, but if

they do exist they have rarely been more blurred, as the stock

market rout deepens on fears over the global economic damage

being inflicted by Trump's tariffs.

Hong Kong's Hang Seng index plunged 13% for its worst day

since 1997 and Japan's Nikkei and the Nasdaq extended their bear

market declines. Trading in several markets and stocks across

Asia was suspended as losses triggered circuit breakers.

Wall Street held up better than most on Monday, but few

observers would be confident it marks a turning point. The fog

of tariff uncertainty is too thick to give investors, businesses

and households any visibility much beyond the end of their

noses.

That fog isn't helped by the blizzard of headlines - from

Trump himself, policymakers, officials and business leaders

around the world - which is intensifying. Not only that, it is

increasingly filled with confusion and contradiction.

Trump on Monday said tariffs are here to stay and he could

increase them on China if Beijing doesn't withdraw its

retaliatory levies on U.S. imports. Tariffs could be permanent,

and there could also be talks, he added.

Europe, meanwhile, proposed counter-tariffs of 25% on a

range of U.S. goods including soybeans, nuts and sausages,

though other potential items like bourbon whiskey were left off

the list, according to a document seen by Reuters.

There could well be a number of bilateral negotiations

opening up soon between Washington and major trading partners

which could see deals eventually be reached. But volatility and

uncertainty are unlikely to ease up much in the interim.

Among the myriad policymakers' voices fighting to be heard

right now, the most important one remains Trump's. Fed Chair

Jerome Powell spoke on Friday but was non-committal, and unless

markets or the economic data take a severe turn for the worse,

he may prefer to maintain a "wait and see" approach.

U.S. rates traders are now almost fully pricing in four rate

cuts this year as growth forecasts get slashed and the oil price

slump helps soften the inflationary push from tariffs. Brent

crude is at its lowest in nearly four years and is down almost

30% from a year ago.

Wall Street isn't even close to pricing in recession

If a proper bear market is unfolding on Wall Street, then it

still has a long way to go, especially if the U.S. economy tips

into recession.

While the S&P 500 on Monday narrowly avoided what would have

been the worst three-day selloff since the Great Depression,

that doesn't mean we have reached a turning point. Stock

valuations and earnings forecasts have fallen, but they still

appear far too high when considering both previous market

downturns and the immense economic turmoil being unleashed by

U.S. President Donald Trump's protectionist trade agenda.

A U.S. recession this year isn't yet the consensus view -

with only two big banks, JPMorgan and Barclays, officially

calling one - but it almost certainly will be if Trump's tariffs

stay in place and the rest of the world retaliates.

The consensus U.S. earnings outlook certainly hasn't

adjusted for what JPMorgan equity analysts say would be the

"waterfall event" of a U.S. recession. They have lowered their

2025 earnings per share forecast to $250 from $270, adding that

the risks are still skewed to the downside.

That essentially implies zero earnings growth this year

compared to the consensus view of around 10%. The latter is

optimistic, to say the least, in a world where the U.S. is

hurtling towards stagnation or contraction, China is struggling

to head off deflation, and Europe and other major economies are

likely already tipping into recession.

Meanwhile, the 2026 consensus earnings growth forecast for

the S&P 500 is 14%. It's difficult to see double-digit earnings

growth this year and next when companies barely have any

visibility about what will happen in the next few months.

THE $9 TRILLION SLUMP

The same applies to valuations. With the broader index

flirting with bear market territory, it's worth considering how

today's valuations stack up against those seen in recent decades

when the market fell by 20% or more.

According to David Marlin of Marlin Capital, the S&P 500's

median decline over 10 major downturns going back to the early

1980s is 22.7%, and the median trough in the forward

price-to-earnings ratio is 13.0. The lowest of those P/E ratios

was 8.0 during the stagflation period in 1982 and the highest

was 16.0 in 1998.

The equivalent ratio today, with the index down around 17%

from its peak, is still over 20.0. Not only is that above the

historical median highlighted by Marlin, but also the general

average over the past 30 years of around 17.0.

It's worth remembering just how much prices, valuations and

earnings forecasts exploded in the last two years on the back of

the 'Magnificent 7'-led boom. Logically, the higher you rise,

the more downside there is when the turn comes, right?

Big Tech certainly is correcting. Nvidia's forward 12-month

PE ratio is down to a six-year low of 20.0, and the broad S&P

500 tech sector's 12-month forward PE ratio has declined to

25.0, its lowest since November 2023. They were around 35.0 and

30.0, respectively, earlier this year.

But are these corrections enough to reflect the rising

likelihood of recession? The answer is clearly "no", especially

when considering that more than half of this year's total

earnings growth is expected to come from tariff-sensitive

sectors like tech and communications, as JPMorgan analysts point

out.

Market panic wiped $5 trillion off the value of U.S. stocks

in just two days last week and some $9 trillion since the market

peak in February, much of that in Big Tech. So it is sobering to

think that - if recession hits - there is likely far more damage

to come.

What could move markets tomorrow?

* Japan trade, current account (February)

* Indonesia, Taiwan inflation (March)

* U.S. 3-year Treasury note auction

* San Francisco Fed President Mary Daly speaks

If you have more time to read today, here are a few articles

I recommend to help you make sense of what happened in markets

today.

1. No Fed 'put' when it's unclear which way the

economy may

pivot

2. US Tech may learn tough tariff history lesson:

Mike

Dolan

3. Trump leaves emerging market central banks with

no clean

choices

4. ECB rates could fall faster as recession risk

mounts

5. BlackRock's Fink says stocks could extend fall by

20% as

CEOs see recession

Opinions expressed are those of the author. They do not

reflect the views of Reuters News, which, under the Trust

Principles, is committed to integrity, independence, and freedom

from bias.

Trading Day is also sent by email every weekday morning.

Think your friend or colleague should know about us? Forward

this newsletter to them. They can also sign up here.