Markets spooked by new trade war

Three key things to consider right now: AI fears driving real damage in software and tech stocks, which is spreading across stock and bond markets; macro uncertainty from the tariff mess and possible risks of an escalatory trade war again.

All of that combined means gold is up and stocks are down this morning as investors scramble for safety, much the same as yesterday, amid the blowout from the tariffs mess. 

European stock markets are weaker this morning, US futures are a little firmer, while gold is up around the $5,170 level, close to yesterday’s peak, its best since the end of January. The FTSE 100 opened about 0.2 per cent lower, led by banks amid private credit fears and software/data stocks that are exposed to AI fears: the usual suspects in Relx, London Stock Exchange, Sage, Rightmove. It’s also a busy start to earnings season in London. More on that here

We are seeing some huge damage in certain corners of the market and real strength elsewhere. This is a crazy stock picker’s market as momentum gets crushed. In the US yesterday, financials, tech, software, insurers, asset managers, consumer cyclicals and communication services struggled, while healthcare, energy, materials, consumer defensives and utilities shone. The market can make new highs without its generals, but it’s going to be tough from here. Nvidia could act as a further trigger with its earnings this week.

IBM fell 13 per cent after Anthropic said its Claude Code could speed up COBOL, a programming language. US private capital groups that have been buyers of these software stocks – such as Ares, KKR and Blackstone – were among the big fallers as concerns about exposure to software loans and last week’s announcement from Blue Owl to halt redemptions and sell over $1bn in loans to insurers and large pension funds. This spilt over into the UK with the likes of Pershing Square, ICG and Bridgepoint among the biggest decliners yesterday among the larger caps.

Today we have earnings from Home Depot, Workday, HPQ, Lucid, Cava and AMC. Also, check the US consumer confidence survey for more signs of the economy’s K-shaped nature. See more US results and trading updates here

The Supreme Court ruling on tariffs has produced some second-order effects already that were behind Wall Street’s decline yesterday, which drove selling across European equity markets later in the afternoon. The S&P 500 finished down 1 per cent for the session, while the Stoxx 600 was 0.5 per cent lower. After Trump set his global tariff at 15 per cent, we’ve seen pushback from the EU and UK, among others. The EU postponed ratification of its trade deal with the US agreed last year, while the UK has said it’s not ruling out retaliation should the US renege on the trade deal. Trump warned countries not to “play games” and threatened “a much higher tariff” than they had agreed to…the unintended consequence of the Supreme Court ruling could be an escalatory trade war that markets hadn’t anticipated.

But the backlash from the EU and UK might have had some impact. The second-order effect, or unanticipated consequence, of the Court ruling, combined with the stated intention to impose a 15 per cent flat tariff on all countries, was to punish allies such as the UK, which had an agreed 10 per cent rate, and ease the effective tariff rate for others, such as China. Trump’s global tariff has taken effect at 10 per cent, not the 15 per cent he promised over the weekend, according to a notice from the US customs agency. The White House insists it’s working on a 15 per cent levy at a later date, which gives the president a degree of optionality, but this is evolving into a far messier situation than we had a week ago. The trade situation is now more ambiguous than it was a week ago.

By Neil Wilson, investor strategist at Saxo UK