Investors bet on US downturn as Trump triggers ‘red flags'

Telegraph

25-02-2025

Investors are piling their money into safe haven US government bonds amid fears that Donald Trump will trigger an economic downturn.
In a flight to safety, the yield on the 10-year US Treasury bond – a benchmark for global government borrowing costs – plunged below 4.3pc for the first time in more than two months on Tuesday.
The bond market rally, which helped send the UK's 10-year gilt yield briefly below 4.5pc, came as part of a shift away from riskier assets amid fears for the health of the American economy.
Wall Street stocks fell in early trading, with the Nasdaq Composite down more than 1pc as official figures showed US consumer confidence plummeted in February.
The Conference Board research group reported that its consumer confidence index suffered its biggest monthly decline in more than four years, coming in well below market expectations.
Meanwhile, the US president said late on Monday that 25pc tariffs on Canadian and Mexican imports were 'on time and on schedule' for their March 4 deadline, after he decided to postpone their introduction for a month.
Elias Haddad, senior market strategist at Brown Brothers Harriman, said: 'Red flags are emerging for the US economy.
'Another month or two of poor US economic data would deliver a blow to the US exceptionalism narrative.'
The US is already locked in a trade war with China, imposing additional 10pc tariffs earlier this month.
Mr Trump signed an order last week restricting Chinese investments in strategic areas and has mooted tariffs on a range of sectors around the world from car manufacturers to the steel industry.
It came as closely watched PMI data on Friday showed the US services sector contracted for the first time in more than two years.
Chris Williamson, the chief business economist at S&P Global, which compiles the figures, said: 'The upbeat mood seen among US businesses at the start of the year has evaporated, replaced with a darkening picture of heightened uncertainty, stalling business activity and rising prices.'
As a result, traders have begun betting that America's central bank, the Federal Reserve, will cut interest rates further.
A reduction in the Fed rate is priced in by July, with a second drop now expected before the end of the year.
Chris Verrone, at Strategas, said: 'The market still seems more worried about growth than inflation.'
Another factor weighing on markets was Wednesday's impending annual results from AI chip behemoth Nvidia, one of the so-called 'magnificent seven' group of companies that has driven the US stock market higher in recent years.
The semiconductor manufacturer grew rapidly to at one point become the world's most valuable company last year amid the clamour to capitalise on the mania surrounding artificial intelligence.
However, its shares have fallen 15pc since hitting a record high in January, sending its market capitalisation below $3 trillion (£2.4 trillion) amid concerns over an AI bubble and disruption to the market from Chinese chatbot DeepSeek.
Kathleen Brooks, the research director at XTB, said: 'Although a monster earnings report is expected, the market reaction to these results will hinge on the forward outlook.
'The market expects big things, otherwise the magnificent seven could come under even more pressure later this week.'