The huge plunge in the US sharemarket in response to Donald Trump’s universal and reciprocal tariffs on most of the world’s economies last week grabbed most of the attention. There were shifts in other markets that paint an equally or even more threatening picture of the outlook for the United States and the world.

Confronted with Trump’s unexpectedly high and broad new tariffs and taken aback by the unsophisticated and illogical way they had been calculated (which speaks volumes about the capabilities and credibility of the administration), the gut response of sharemarket investors was a sell-down of their risk exposures that wiped more than $US5.4 trillion ($8.8 trillion) off the value of the US market, with similar waves of selling offshore.

Trump’s tariffs are not having the effects he was after.Credit: AP

The selling  continued in Australasian and Asian markets on Monday, and futures markets activity is signalling that it will restart in the US when its markets reopen.

That the outlook for US and global growth has darkened significantly as a result of the tariffs can be seen, not just in sharemarkets, but in big slumps in the prices of gold and copper, both of which had been on a tear earlier in the year.

Conventionally, when risks in the global economy and financial system rise, investors flee to the perceived haven of the US bond market, with bond prices rising and their yields (which move in the opposite direction to prices) falling.

That’s happened in the past few days. The yield on 10-year Treasury bonds has fallen from 4.21 per cent at the start of last week, on the eve of “Liberation Day”, to 4 per cent. The yields on two-year Treasury notes fell from 3.88 per cent to 3.66 per cent. Bond futures pricing suggests yields will continue to slide.

In past “risk off” environments, the rush into the bond market has also seen the US dollar strengthen as part of the flight to safety in the world’s deepest financial market. It wasn’t just........

© WA Today