Tariffs On ‘All Countries’, Stock Slump Deepens & FX Turmoil Fears
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This is the Bloomberg Daybreak Hewitt podcast, available every morning on Apple, Spotify or wherever you listen. It's Monday the 31st of March in London. I'm Caroline Hepke. And I'm Stephen Carroll. Coming up today, Donald Trump says his plan for so-called reciprocal tariffs will be universal. Stocks drop and bonds rally as the prospect of a full-blown trade war drives Goldman Sachs to predict more rate cuts.

Plus, fearing a liquidity mirage, foreign exchange markets worry a system-wide crisis could be far more likely than many would like to believe. Let's start with a roundup of our top stories.

President Donald Trump says no countries will be exempt from his so-called reciprocal tariffs plan that are due to be announced on Wednesday. Earlier this month, aides and allies of the president had insisted the levies would be more targeted, with some nations receiving exclusions. However, speaking on board Air Force One on Sunday night, the president pushed back on the idea. You'd start with all countries, so let's see what happens. There are many countries involved.

I heard a rumor about 15 countries, 10 or 15. So you're starting with all countries? Essentially, all of the countries that we're talking about would be talking about all countries. It's not a cutoff.

President Trump has indicated that the plan will go beyond just looking at the levies other countries set for the U.S. to include things like domestic value-added taxes and regulations the administration deems as being unfair. Research from Bloomberg Economics finds that if Trump were to adopt this approach with America's 15 largest trading partners, U.S. tariffs could add up to 28 percentage points to average U.S. tariff rates.

that would deliver an estimated hit of 4% to US GDP and lift prices in the United States by close to 2.5%. Maybe

Meanwhile, Trump's decision to double down on sweeping tariffs comes as he also insisted he doesn't care if the cost of imported cars rises. In a phone interview with NBC News, he said, I don't, I couldn't care less if they raise prices because people are going to start buying American cars. And speaking to Fox News Sunday, Trump trade advisor Peter Navarro said the auto tariffs would raise significant revenue.

We're going to raise about $100 billion with the auto tariffs alone. What we're going to do is in the new tax bill that has to pass, it absolutely has to pass, we're going to provide tax benefits, tax credits to the people who buy American cars. This is a genius thing that President Trump promised on the campaign trail.

Despite Navarro's upbeat assessment, auto prices are broadly expected to increase by thousands of dollars as a result of the levies. JP Morgan analysts estimate prices in the US will jump 11% on average. The UK's Prime Minister Keir Starmer spoke with Donald Trump as Britain tries to escape the looming global tariffs. A statement from Downing Street says the two leaders held, quote, "...productive discussions and that they will stay in touch in the coming days."

Home Secretary Yvette Cooper was asked if the UK would retaliate if it didn't get a deal. The Prime Minister has said that no option is off the table and we will continue to approach this in the UK national interest. That's the important thing.

The UK government has been working for months on strengthening trade relations with the White House and is considering cutting digital taxes to secure special treatment. So far, the UK has been hit by the same levies on steel and autos as the rest of the world.

Goldman Sachs economists are forecasting more interest rate cuts this year as President Trump's import levies threaten to impact global economic growth. Bloomberg's Tiwa Adebayo has more. Economists at Goldman Sachs now see the Fed cutting in July, September,

and November. That's compared to earlier bets on two cuts this year and one in 2026. In Europe, a separate note said lower growth forecasts reinforce expectations that the ECB will lower rates in April and June, with a further quarter percentage point reduction now seen for July. The news comes as researchers at the bank increased their tariff assumptions for the second time in less than a month.

meaning they now expect the average levy to rise 15 percentage points in 2025. Higher consumer prices and lower GDP growth in both the US and EU are also in the firm's forecasts. In London, Tiwa Adebayo, Bloomberg Radio.

Global stocks are selling off for a fourth day ahead of the expected announcements on tariffs. The Nikkei in Tokyo fell as much as 4% to its lowest level in six months, while Taiwan's benchmark index is on course for a correction, having dropped by nearly 10% from its recent peak.

US and European equity futures are also pointing to a lower open after a quarter where Europe's stock 600 registered a record outperformance against the S&P 500. Bonds are rallying, meanwhile, with the 10-year Treasury yield dropping by as much as five basis points.

President Trump has threatened to punish buyers of Russian oil if Vladimir Putin refuses a ceasefire with Ukraine. In comments reported by NBC News, Trump was, quote, very angry and peed off and threatened curbs on all oil coming out of Russia. Speaking to journalists on Air Force One, the US president was more moderate. I was disappointed in a certain way. Some of the things that were said over the last day or two having to do with...

Zelensky because when he considers Zelensky not credible, he's supposed to be making a deal with him, whether you like him or you don't like him. So I wasn't happy with that. The threats mark a significant change of tone for President Trump and reflect a growing frustration in the US administration. Russia is one of the world's three largest oil producers, meaning that any attempt to punish buyers could have a far-reaching effect on both the oil market and inflation.

During his interview with NBC, Trump also refused to rule out running for a third term as president. Despite the Constitution barring him from doing so, he referred to, quote, methods that would allow him to run again. When asked about those comments on Air Force One yesterday, the president had this to say. I'm just telling you, I have had more people say, please run again. They said we have a long way to go before we even think about it.

The 22nd Amendment to the U.S. Constitution, enacted after Franklin D. Roosevelt was elected to a fourth term in 1944, prohibits U.S. presidents from serving more than two terms. Those are our top stories for you this morning. In terms of the markets, a deeply risk-off sentiment continuing today. We're set up for a very difficult day. In terms of stock futures, we're down 0.8% for the U.S. stocks, 50 futures, 0.6% lower for the S&P 500.

Remember that we did see the S&P 500 dropping close to 2% on Friday. Treasuries and gold are rallying. Yields are lower this morning by almost five basis points after Friday's 11 basis point rally. Gold, in terms of the gains, they're eight-tenths of 1% higher, trading now above 3,100, so $3,109 a troy ounce.

The Japanese yen has jumped sharply. In terms of Asian markets, they're following Wall Street's Friday slump. The Nikkei 225 is now down 3.9%. The Hang Seng Index is also significantly lower, 1.5% this morning. Mainland Chinese markets, though, faring slightly better after solid PMI data out of China. Those are the markets.

In a moment, we'll bring you more on how markets are gearing up for this week's tariff announcements, plus why there are liquidity fears creeping into the $7.5 trillion foreign exchange market. But first, another story that caught our eye this morning. Our colleague from Bloomberg, Hennie and Lara Williams, has been writing about the future of champagne, a subject that I feel very invested in, Caroline. Absolutely. You know, that glass of bubbly, it's all changing because of climate change.

It's an existential crisis for the region and for this wine enjoyed for centuries. Some summers are so hot now that the grapes are ripening a month early and the harvest is starting 20 days earlier than they were only 30 years ago. And so that means a major rethink, as Lara has been writing about. Does it mean the return of sweet champagne, which used to be popular years ago? Absolutely.

Look, part of what's fascinating about this is obviously it's a high value product, which means that these houses that produce champagne actually have the means to be able to adapt their production methods in a way that is environmentally sensitive, but also can sustain the quality of the product as well. So actually, in terms of innovation, and that's the detail of what Laura goes into because she visits several of the champagne producers and she talks to them. And these are not

always big houses as well. Some of them are quite small operations. So the idea that actually they're in some ways at the forefront of trying to come up with methods that allow them to sustain through either, because high temperatures is one problem. The other one is frost and frost occurring at the wrong times of the year that can damage the crop too. Yeah, beautiful photographs. And Lara admits, you know, in her piece that maybe looking at this sort of most frothy, most kind of delightful of products might not be

sort of spring to mind immediately when you think about the kind of devastation of extreme weather. But she says that it's kind of about the planet's culture, history, humanity, all in that bottle of champagne. You can read the full thing, bluebird.com forward slash opinion.

Well, let's turn to the markets. After a quarter that has seen European shares soaring and the stock 600 outperforming the S&P 500 by 17 percentage points in dollar terms. That's, of course, on the back of concerns about tariffs, but also Germany's fiscal plans supercharging the euro and more. Let's bring in our FX and rates reporter, Alice Gledhill.

for more on this. Alice, first of all, let's reflect on the quarter that we're finishing today. Very unusual to see this outperformance of, you know, stocks, bonds and the euro. Talk us through what drove that. For the last month or two, European markets have just gone on this major high.

As you mentioned, it's all off the back of this German spending package. They're planning to unleash billions of euros of spending over the next decade or so to boost investment in defence and infrastructure that's much overdue. Now, that seems a game changer for Europe as a whole. Of course, Germany is the biggest economy. And the idea is it's going to help the EU generate the growth it's craved for years.

And that's really what's triggered the huge repricing in markets over the past quarter. So kind of just a few months ago, you had the euro kind of toying with parity against the dollar. But once this package had been announced, it kind of bounced back to the highest since October, kind of around one spot ten. You know, we've had stocks surge. I think they're on a historic outperformance of the US.

And then on the flip side, you've seen German government bonds put in this sort of seismic sell-off. And that's a reflection of the higher bond supply that we're going to be seeing over the next decade or so to kind of fuel this growth. But of course, we're thinking about this major week ahead, the impact of more U.S. tariffs this week.

Yeah, exactly. So I think what's kind of interesting about Europe at this juncture is this kind of pivot from the euphoria we've been seeing to this much more sober backdrop, at least in the short term. And of course, the fear is that Trump slaps the bloc with punitive tariffs. That knocks

this sort of fragile kind of nascent growth and sentiment. And I think because European assets have moved so much recently on the back of the news, that probably makes them a bit more vulnerable now. So I think the idea is, you know, the long-term outlook probably hasn't changed all too much, but we have kind of seen a cooling of these animal spirits. And of course, it all sort of depends on kind of the shape and size of what the final tariffs look like. What about the, I suppose,

or the research that we've had from the likes of Goldman Sachs talking about this affecting the rate path going forward from here as well as we think about the impact of tariffs? This is exactly it. I think the immediate outlook is very unclear. And as I said, it all sort of depends on how punitive, how severe these tariffs are. I think, you know, if Trump goes in hard, I think we're going to see a continuation of recent moves. So kind of government bonds, which are some of the safest assets, are going to jump.

the euro will drop further. Stocks will, I think, cut short that amazing rally they've been having, probably see credit spreads widen. And I think in a worst-case scenario, you might have to see the ECB step in and cut interest rates more than might otherwise have been the case

this year. Of course, if Trump waters down the tariffs on the EU, I think we'll probably see a big bounce back in terms of risk assets and the euro as well. Alice, thank you so much for being with us this morning. Bloomberg's FX and Rates reporter, Alice Gledhill, is setting us up for what could be a major week ahead.

When you have bars in the sky, onboard showers and award-winning in-flight entertainment, it's no surprise that Emirates was recently named the best airline in the world. We fly you to over 140 destinations and with partners across the globe, we connect you to another 1,700 cities across six continents. So when we say we're also the largest international airline, what we really mean is...

If you're going there, so are we. Book now on emirates.com. Fly Emirates. Fly better.

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where money means more. Now to the giant foreign exchange market where traders fear the global market may be less liquid than it appears. Currency heavyweights are warning the fragmented, tech-driven modern market could be storing up trouble. We've got another member of our FX and Rates team, Alex Atkins, with us this morning for more on this.

Alice, great to have you on as well. Talk to us first about why are people worried about FX liquidity? Morning, Stephen. We've got lots of Alice's in the FX rates team at Bloomberg. Well, FX is the largest financial market in the world, but it's also probably the most complicated. There's no central exchange and trading activity is fragmented and scattered across lots and lots of different platforms and venues worldwide.

And on an everyday basis, everything works fine. Electronic trading has increased the speed with which things turn over and crushed the cost of trading. But during stress market conditions, players like XCX and Citi, they're

warning that liquidity is becoming increasingly fragile. And it's for a number of reasons. It's partly because regulation has meant that banks can't warehouse risk in the same way that they used to. They've also moved to internalize a lot more of their flow. So, these primary markets, EBS and LSEG, formerly Refinitiv, the volumes have fallen quite dramatically. So, they're much less liquid than they used to be.

And this all means that when you get very directional market moves, like last year when we saw yen carry trades blow up, small trades can cause oversized moves. And that's what they're saying that they're seeing happen more often. And so has this got the attention of regulators then?

So, FX is not as regulated as other asset classes and that's because, partly because of this decentralised trading system and because it crosses time zones and lots of jurisdictions. But it is very closely monitored by the central banks in each nation and they help put together a set of best practice principles known as the FX Global Code.

And lots of supervisors have been more closely tracking the increasingly complicated system recently. So, the New York Fed hosted its first ever conference on FX market structure just a few months ago. And they acknowledged that sudden pullbacks in liquidity may be becoming more frequent. And they said that they're particularly watching the growth of non-bank players in the market.

And others like the Bank of England have been pushing for there to be a bit more transparency in the market for quite some time as well. This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond. Look for us on your podcast feed every morning on Apple, Spotify and anywhere else you get your podcasts. You can also listen live each morning on London DAB Radio, the Bloomberg Business App and Bloomberg.com.

Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa, play Bloomberg 1130. I'm Caroline Hepke. And I'm Stephen Carroll. Join us again tomorrow morning for all the news you need to start your day, right here on Bloomberg Daybreak Europe.

Thank you.

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