Trump tariffs day 6 as it happened: US stocks soar as Washington pauses most tariffs; China hits US with retaliatory tariff of 50%

JPMorgan said it was “revisiting” its forecast this week, adding that the possibility of a recession was a “closer call”, after US President Donald Trump implemented a 90-day pause on “reciprocal” tariffs on some countries.

“We will be revisiting our forecast this week. The drag from trade policy is likely to be somewhat less than before, and thus the prospect of a recession is a closer call,” JPMorgan analysts said in a note on Wednesday.

They added that a contraction in real activity this year was still “more likely than not” as the increase in tariffs still represented a tax increase of more than $300bn since inauguration day, even with the share of Chinese imports falling to “trivial levels”.

US commerce secretary Howard Lutnick said that Donald Trump became more inclined towards a tariff policy pause as “countries decided it was time to get real with the United States”.

Lutnick told reporters at the White House that at first, foreign governments were reaching out with the “same old” types of trade offers that would not “move the needle” for the US president. 

But then, “they started calling [and] making offers that were the right kind of offers” and “it became very, very clear that we can get there” on deals with trading partners, he added.

Polish Prime Minister Donald Tusk welcomed the US president’s decision to pause “reciprocal” tariffs on some EU goods for 90 days.

“Maintaining close transatlantic relations is a common responsibility of Europeans and Americans, regardless of temporary turbulences,” Tusk wrote on X. “So let’s make the best of the next 90 days.”

Earlier on Wednesday Tusk had held a crisis meeting with executives from Poland’s automotive sector to discuss how to cope with Donald Trump’s tariffs that Warsaw had estimated would likely reduce Poland ’s GDP by 0.4 per cent, equivalent to at least $2.6bn of the Polish economy.

US President Donald Trump said he had been thinking about a pause on tariffs for “the last few days”, with the move coming together “early this morning”.

He added Treasury secretary Scott Bessent and commerce secretary Howard Lutnick were included in pause discussions.

When asked why his aides insisted there would be no negotiations on tariffs, US President Donald Trump said “a lot of times it’s not a negotiation until it is”.

He also warned some countries may not be successful in getting Washington to lower levies on their goods. “It may not be a negotiation, it may not last. Maybe I think they’re not fair to us,” Trump said.

“Everybody wants to make a deal . . . we want to do what’s right for our country,” he added.

“We also want to do what’s right for the world. The world is important.”

Investors reacted to Donald Trump’s decision to pause some tariffs for 90 days with a mix of shock and resignation, expressing doubt that Wednesday’s huge stock rally marks the end of the broader sell-off.

“We are not going over the economic cliff. Will we go over it in 90 days? Who knows? The market doesn’t worry about that right now,” said Mike Zigmont, co-head of trading at Visdom Investment Group.

“Even if the administration decides to de-escalate global trade wars and shift their focus to other policy areas, we’re still not out of the woods,” said Christian Hoffmann, head of fixed income at Thornburg Investment Management.

“Uncertainty remains exceptionally high, and our attention will move away from the president’s tweets and back to economic data to assess the damage that’s been done.”

US stocks surged to their best day in 17 years on Wednesday as Donald Trump’s decision to pause some of his “reciprocal” tariffs sparked a wave of buying.

The blue-chip S&P 500 closed up 9.5 per cent for its best day since 2008. The tech-heavy Nasdaq Composite climbed 12.2 per cent — its best day since 2001 — as traders piled back into risky assets following days of heavy selling.

“I think that this has proven that [Trump] pays attention to markets and that he realises he’s gone too far,” said Dec Mullarkey, managing director at fund manager SLC. “I think that’s a plus for the guardrails: the market still has power and can’t be intimidated.”

Donald Trump said he had authorised a 90-day pause in the additional tariffs he imposed on a range of countries that were willing to negotiate with the US on Wednesday, the first sign the president was pulling back from the brink of a full-blown trade war.

Trump said in a Truth Social post: “Based on the fact that more than 75 countries have called Representatives of the United States, including the Departments of Commerce, Treasury, and the USTR, to negotiate a solution . . . and that these Countries have not, at my strong suggestion, retaliated in any way, shape, or form against the United States, I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately.”

But Trump started the post by adding more levies on China. “Based on the lack of respect that China has shown to the World’s Markets, I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately,” he wrote.

US stocks surged to their best day in 17 years on Wednesday as Donald Trump’s decision to pause some of his “reciprocal” tariffs sparked a wave of buying.

Wall Street’s benchmark S&P 500 closed up 9.5 per cent for its best day since 2008. The tech-heavy Nasdaq Composite rose 12.2 per cent, notching its biggest one day gain since 2001.

While the Nasdaq Composite is on pace to record its best day since 2008, the response in the US Treasury bond market to Donald Trump’s 90-day pause on most tariffs was more muted. 

The 10-year Treasury yield, the benchmark rate against which assets around the world are priced, was up 0.05 percentage points on the day at 4.34 per cent. The 30-year yield was down 0.43 percentage points to 4.73 per cent. Yields move inversely to price. 

While the 10- and 30-year yields had backed off of highs hit earlier in the day, the move did not completely erase this week’s big jump in yields. That, investors said, is because the fixed income market is focused on the inflationary impact of the tariffs that remain in place.  

The two-year yield, which moved with interest rate expectations, jumped to its highest level since late March, as traders focused on inflation pulled back their expectations that the Federal Reserve will cut interest rates this year. It was last up 0.18 percentage points at 3.9 per cent. 

Traders also seemed to be reacting to the publication of the minutes from the Fed’s last meeting, which said a “majority” of participants noted the potential for “inflationary effects”.

Donald Trump said he would consider exempting some US companies that have operations in countries hit by his so-called reciprocal tariffs.

“As time goes by, we’re going to take a look at it,” the US president said. “There are some that have been [hit] hard. There are some that, by the nature of the company, get hit a little bit harder. And we’ll take a look at that.”

Trump said any exemptions would be determined “instinctively”.

“You almost can’t take a pencil to paper. It’s just really more of an instinct I think than anything else,” he said.

When asked to detail his decision to take a 90-day pause in tariffs on some countries, US President Donald Trump said people were starting to get scared.

“Well, I thought that people were jumping a little bit out of line. They were getting yippie, you know, they were getting . . . a little bit afraid.”

“I’ve reversed it for a short period of time,” Trump said. The president added it would be possible to strike deals with the EU and China.

“A deal is going to be made with China,” Trump said. He again said, “China wants to make a deal. They just don’t know how quite to go about it.”

“I just want fair. There will be fair deals,” the president added.

Donald Trump denied the sell-off in the bond market this week factored into his decision to reverse most of his so-called reciprocal tariffs.

When asked if the bond market persuaded him, Trump said: “No, I was watching the bond market. The bond market is very tricky.”

But “the bond market right now is beautiful”, he added.

“I saw last night where people were getting a little queasy,” Trump said.

The “big move” was not his reversal today, but his sweeping tariffs on so-called liberation day last week, he said.

Donald Trump’s pause on reciprocal tariffs with the exception of China “does not mean the US economy has avoided a slowdown in growth and rise in inflation”, Citi economists said after the president’s announcement. 

The 10 per cent baseline tariff and the additional 125 per cent levies that have been applied to most Chinese goods, as well as sector-specific tariffs, mean the average US effective rate is up about 21 percentage points from where it was at the beginning of the year, Citi said on Wednesday afternoon.

“Uncertainty over trade will persist and non-China imports may now surge, damping growth in Q2,” Citi added. 

The economists said they still anticipated the Federal Reserve will cut rates in May or June. 

Ireland’s foreign and trade minister, Simon Harris, welcomed US President Donald Trump’s 90-day tariff pause and called for a “serious, mature, rational debate around trade and tariffs to get this to a good place”.

“We need to stop talking at each other across the Atlantic Ocean and get in a room,” Harris told RTÉ television ahead of a meeting with US commerce secretary Howard Lutnick in Washington.

He said he had spoken to European trade commissioner Maroš Šefčovič this afternoon and said “the European Union stands ready to negotiate . . . right now”.

He added: “This isn’t some sort of abstract political game. This is about people’s jobs, people’s livelihoods.”

Goldman Sachs analysts, in a sharp reversal following Donald Trump’s announcement of a pause on sweeping tariffs, say they no longer expect the US economy is headed into a recession.

The analysts said shortly before 1pm EST Wednesday that they had increased their recession forecast to a 12-month probability of 65 per cent and GDP falling minus 1 per cent. Shortly after 2pm EST, they lowered that target down to 45 per cent, with 0.5 per cent GDP growth, to take into account the president’s order for a 90-day tariff pause on dozens of countries. 

In their updated forecast, the Goldman analysts noted the latest package of tariffs are “likely to sum to something close to our previous expectation of a 15 percentage point increase in the effective tariff rate”.

US stocks rocketed higher after Donald Trump said he would pause tariffs on all non-retaliating countries for 90 days.

Wall Street’s benchmark S&P 500 was up 8 per cent in afternoon trading, putting it on course for its best day since 2020. The tech-heavy Nasdaq Composite soared 10.4 per cent, on track for its best day since 2008.

In government debt markets, the 10-year Treasury yield was initially little changed — up 0.1 percentage point to 4.39 per cent on the day. Yields rise as prices fall.

“This is a clear cut capitulation in response to pressure from markets and Donald Trump’s financial backers. The Trump administration has had its knuckles rapped by financial markets,” said Karl Schamotta, chief market strategist at Corpay.

Traders in the futures market pulled back expectations of interest rate cuts by the Federal Reserve, now expecting between three and four cuts this year, with the first cut not priced in fully until July, versus four cuts prior to the announcement with the first cut in June.

“The markets sent a message and the administration got it. Chaos may be a good negotiating strategy, but there is a lot of collateral damage,” said Robert Tipp, chief investment strategist and head of global bonds at PGIM. “There are some self-inflicted wounds here that were unnecessary.”

The dollar jumped on Wednesday in the wake of Donald Trump's announcement that he had authorised a 90-day pause in additional tariffs on a range of countries willing to negotiate with the US.

That marked a reversal of recent moves, which saw the dollar index, which measures the greenback against a basket of six rivals, hit its lowest point since October 2024. The dollar index was up 0.17 per cent on the day. Against the dollar, the Japanese yen weakened significantly, rising to 147.9, the weakest level since before Trump's announcement of tariffs last week.

The two-year Treasury yield rose dramatically on Wednesday, in the wake of Donald Trump’s capitulation on tariffs and following the release of minutes from the Federal Reserve’s last meeting.

The yield rose to a high of 4.03 per cent, the highest since late March, last up 0.22 percentage points, which would mark the biggest daily increase since October 2024. Two-year Treasury yields typically move with interest rate expectations, which were rising on Wednesday afternoon. 

Traders in the futures market pulled back expectations of interest rate cuts by the Fed, now expecting between two and three cuts this year, with the first cut not priced in fully until July, versus four cuts prior to the announcement with the first cut in June. 

US Treasury secretary Scott Bessent said President Donald Trump would be involved “personally” in the trade negotiations. 

“It is going to take some time, and President Trump wants to be personally involved, so that’s why we’re getting the 90-day pause,” he said.

When asked if the 90-day pause was Trump’s idea, Bessent said, “it was the president’s decision”.

“They had to wait until today . . . no one creates leverage for himself like President Trump.”

US Treasury secretary Scott Bessent said the US wanted to negotiate in “good faith” with trading partners, and those that did not retaliate against President Donald Trump’s so-called liberation day tariffs would be rewarded.

“We want to negotiate in good faith,” Bessent said. 

“As I told everyone a week ago . . . do not retaliate, and you will be rewarded,” he said, adding “every country in the world” wants to come to Washington to negotiate. “We are willing to hear you.”

He added the administration expected trading partners “to come with their best deal”.

Bessent said Mexico and Canada, which had escaped Trump’s so-called reciprocal tariffs last Wednesday, would be included in the universal 10 per cent baseline tariff that will be in place during the 90-day pause.

US Treasury secretary Scott Bessent suggested President Donald Trump’s approach to tariffs was a negotiating strategy all along.

“We saw the successful negotiating strategy that President Trump implemented a week ago today,” he said.

Bessent said he and Trump had a long conversation on Sunday “and this was his strategy all along”.

With respect to Beijing, Bessent said, “You might even say that he goaded China into a bad position. They responded, they have shown themselves to the world to be the bad actor.”

White House press secretary Karoline Leavitt said the media “clearly missed the art of the deal” and “failed to see what President Trump is doing here”.

A key metric of US credit risk plummeted the most its dropped in five years after Donald Trump announced a 90-day pause on tariffs that were set to be imposed on more than 70 countries.

A Markit index of credit default swaps in the high-yield bond market — a measure of hedging against the risk of corporate defaults — fell to 400 basis points after opening at about 473 basis points and rising earlier in the day to nearly 500 basis points.

The drop of roughly 14.2 per cent was the most since the gauge dropped 13.4 per cent on April 9 2020 during the market ructions caused by the Covid-19 pandemic, according to data from Bloomberg.

US corporate credit markets surged to reverse losses from earlier in the day after Donald Trump announced a 90-day pause on tariffs set to be imposed on more than 70 countries, while raising levies on China even higher.

Large exchange traded funds that invest in both investment-grade bonds and riskier high-yield debt were down in morning trading but soared after Trump announced the delay on social media. A State Street high-yield bond ETF rose about 2 per cent, while an iShares high-grade bond ETF rose by about 0.8 per cent.

A Markit index of credit default swaps in the high-yield bond market — a measure of hedging against the risk of corporate defaults — fell below 475 basis points after nearly touching 500 basis points early in the day.

US Treasury secretary Scott Bessent said the White House was giving investors the greater certainty they have been wanting.

“I think now the market understands that everything they saw last Wednesday was a ceiling and now we have a 10 per cent temporary floor,” he said.

Bessent, who ran a hedge fund prior to joining the administration said “in my 35 years in the market, I always wanted certainty, so I think we’ve got more certainty”.

US Treasury secretary Scott Bessent denied the 90-day pause was a result of market volatility over the past week, saying instead it is because the administration has been “overwhelmed” by foreign trading partners reaching out to negotiate.

It is “because of a large number of inbounds. We've had more than 75 countries contact us, and I imagine, after today, there will be more. So it is just a processing problem,” Bessent said after President Donald Trump’s announcement.

“Each one of these solutions is going to be bespoke. It is going to take some time, and President Trump wants to be personally involved, so that’s why we’re getting the 90-day pause.”

Tech stocks surged after Donald Trump signalled he would pause tariffs on all non-retaliating countries for 90 days.

Apple jumped 10 per cent, Nvidia rose 11 per cent and Broadcom rose 11.5 per cent. Intel rose 12.9 per cent and Advanced Micro Devices added 14.7 per cent. On the S&P 500, United Airlines and Delta Air Lines were the biggest winners, both rising more than 17 per cent. Carnival and Norwegian Cruise Line both jumped 13 per cent.

“We got the circuit breaker, the 90-day pause,” said Dec Mullarkey, managing director at SLC Management. "[I] would still expect some level of a policy uncertainty premium to be factored into asset prices . . . After all, this is a transactional president."

Commerce secretary Howard Lutnick said the “world is ready” to work with Donald Trump to “fix global trade” but dismissed China as having “chosen the opposite direction”, as markets soared in response to the US president's announcement that he was rolling back tariffs on non-retaliating countries.

“The world is ready to work with President Trump to fix global trade, and China has chosen the opposite direction,” Lutnick said in a post on X.

The commerce secretary added that he and Treasury secretary Scott Bessent “sat with the President while he wrote one of the most extraordinary Truth posts of his Presidency”. Trump first announced the tariff pause in a post on his social media platform Truth Social.

Treasury yields fell modestly after strong demand at a key auction of $39bn of 10-year US government bonds on Wednesday.

Indirect bidders, a group of buyers that include foreign investors, bought 87.9 per cent of the offering, the largest percentage on record, according to Vail Hartman of BMO Capital Markets.

Yields remained higher on the day.

After an auction for three-year notes on Tuesday was met with weak demand, investors were closely watching Wednesday’s sale for signs that investors were stepping back from the Treasury market in response to President Donald Trump’s tariffs.

Switzerland’s President Karin Keller-Sutter said she spoke with US President Donald Trump on Wednesday and looked forward to an agreement soon after the country was hit by higher tariffs than both the EU and UK. 

“In today’s phone call with President Donald Trump I conveyed both Switzerland’s stance on bilateral trade and ways to address US ambitions,” she said on X. “We agreed to continue talks in the interest of both our countries. Looking forward to working out solutions in the very near future.”

Switzerland abolished industrial tariffs last year and has said it will not retaliate against the US despite receiving a 31 per cent tariff rate. 

Shares in Swiss pharmaceutical companies Novartis and Roche fell on Wednesday after Trump said “major” levies on pharmaceutical imports — currently exempt — were coming. 

US government debt fell sharply for the third day on Wednesday as hedge funds unwound popular trades and investors made a dash for cash. 

The 10-year US Treasury yield, a benchmark for trillions of dollars in assets worldwide, was up 0.12 percentage points in afternoon trading in New York at 4.39 per cent. The rise in yields eased after a $39bn auction of long-term Treasuries pointed to robust demand for foreign buyers.

Still, the yield has soared around 0.4 percentage points this week, a big jump for a “haven” asset that typically moves in small increments. 

The move comes as Trump’s tariffs sent global investors rushing into cash, and as hedge funds unwind popular trades due to the severe bout of volatility.

It also offers a new challenge to the Trump administration, which had previously cited lowering Treasury yields as a policy aim, and could mark a loss of investor confidence in the world’s largest sovereign debt market.

“The sell-off may be signalling a regime shift whereby US Treasuries are no longer the global fixed-income safe haven,” said Ben Wiltshire, a rates strategist at Citi.

The 10-year Treasury auction on Wednesday afternoon provided some solace. Indirect bidders, a group of buyers that include foreign investors, bought the 87.9 per cent of the offering, the largest percentage on record, according to Vail Hartman of BMO Capital Markets. 

“This was a good auction. A necessary sign that things are normalising in the market. People were very well prepared for a weak auction, but this went through very well,” said Thomas Simons, an economist at Jefferies.

US stocks were volatile in midday trading on Wednesday, with the S&P 500 briefly falling 0.4 per cent before recovering to trade roughly flat, as investors contend with the fallout from Donald Trump’s aggressive tariffs.

The initial fall in the S&P marked the fifth consecutive day the index had opened lower since Trump unveiled the levies on dozens of the US’s trading partners, wiping more than $5tn from the S&P.

The Nasdaq Composite was up 0.6 per cent in midday trading in New York.

US Treasuries were hit hard on Wednesday, with the 10-year yield, a global benchmark for borrowing costs, jumping to 4.51 per cent before easing to 4.43 per cent, up 0.13 percentage points on the day and rising from less than 3.9 per cent on Monday.

The market ructions came shortly after China announced an additional retaliatory tariff of 50 per cent on US imports, escalating the trade war between the world’s two biggest economies.

Beijing’s finance ministry said on Wednesday that its new levies would apply on top of its previously announced 34 per cent tariffs on US imports. It added that the duties would take effect on Thursday.

The latest salvo came as market turmoil intensified on Wednesday after Trump’s sweeping “reciprocal” tariffs took effect.

Global markets were also rattled on Wednesday, with the Stoxx Europe 600 down 4 per cent, the FTSE 100 falling 3.4 per cent and Germany’s Dax down 3.5 per cent.

Investors and economists have warned that Trump’s tariffs have increased the risk of a recession in the US, the world’s biggest economy, as well as a new bout of inflation.

Ed Yardeni of Yardeni Associates said the sell-off in Treasuries, typically a haven for investors during periods of market stress, was signalling that the “Trump administration may be playing with liquid nitro”.

Growing concerns over waning foreign demand for US government debt have made Wednesday’s 10-year Treasury auction “the most watched auction in years”, according to Nomura analysts.

Treasuries fell sharply on Tuesday after a $58bn short-term debt auction drew weak demand, with dealers forced to buy 20.7 per cent of the offering — the highest percentage since 2023.

Investor attention is now focused on the $39bn of 10-year notes on offer on Wednesday afternoon.

“Whether we believe it to be true or not, the direct bid is viewed as a representation of overseas demand,” Nomura’s Ryan Plantz said. “If it comes strong, the [Treasury] market will be dancing in the streets.”

Donald Trump’s administration is weighing up a new bailout for American farmers, as escalating tariffs in the US-China trade war threaten agricultural markets. 

Agriculture secretary Brooke Rollins told Bloomberg News on Wednesday that plans were under consideration to offer financial relief to US farmers, potentially through the Commodity Credit Corporation, which was previously used during Trump’s first term.

Jim Sutter, chief executive of the US Soybean Export Council, recently told the FT that American farmers want to be supplying the market, not receiving subsidies. “Farmers want to be building a long-term relationship and having long term-customers,” he said.

According to Bloomberg News, Rollins emphasised that while no final decisions had been made, all options were being reviewed to help farmers navigate the ongoing uncertainty. 

Friedrich Merz has promised that Germany will be at the forefront of a strong European response to Donald Trump’s tariffs.

Merz, who is set to become chancellor next month after striking a coalition deal, said his message to the US president was: “Germany is back on track.”

He vowed that Germany would revive its economy and boost competitiveness after years of stagnation, while fulfilling its obligations on defence spending.

He added that Europe needed a common response to Trump’s tariffs — and to China’s trade policy — and promised that Germany would be a “very strong partner” for the EU and help drive the bloc forward.

Retail investors in particular have been driving “colossal” outflows from high-yield funds since Donald Trump announced a sweeping tariffs package that takes effect today, according to data from Barclays. 

Investors took $6.7bn out of high-yield bond mutual funds and exchange traded funds between April 2 and April 8, Barclays credit analyst Andrew Johnson said on Wednesday in a note. That marks the largest week-long period of outflows for high yield since 2014 and the fifth-largest on record. 

A pair of large ETFs managed by BlackRock and State Street that hold tens of billions of dollars of riskier debt issued by US companies fell again on Wednesday morning amid increasing worries of slowing growth and rising inflation among market participants.

A record $1.962tn changed hands in the cash Treasury market on Tuesday according to Kevin McPartland, head of market structure and technology research at Crisil Coalition Greenwich.

Trading in the Treasury market has been heavy this week as investors have ditched US government bonds, typically a haven in periods of turmoil. The selling came from all corners, with market participants pointing in particular to hedge funds unwinding leveraged positions.

That trading is at record levels suggests liquidity — the ease with which bonds are bought and sold — has held up for now. A dearth of liquidity has exacerbated sell-offs in the past and can prompt large price moves in very short spaces of time.

Ireland’s small, open economic model and public finances face “significant” threat, the country’s premier said, as Donald Trump’s tariffs weigh on orders.

“There is no way to sugar coat it,” Micheál Martin told Ireland’s parliament. “We are already hearing from some who are seeing their orders from the US slowing or even drying up entirely, putting valuable and skilled jobs at risk.”

High uncertainty “could put considerable pressure on the public finances”, Martin added.

Trump vowed on Tuesday to slap additional tariffs on pharmaceuticals, a major industry for Ireland.

Ireland’s foreign and trade minister, Simon Harris, is in Washington on Wednesday for talks with US commerce secretary Howard Lutnick, who has dubbed Ireland his favourite “tax scam”.

JPMorgan Chase chief executive Jamie Dimon has urged Treasury secretary Scott Bessent to show swift progress on US trade talks to soothe concerns in the market over the Trump administration’s plans for sweeping global tariffs. 

“I hope what they really do is let Scott Bessent, and he’s a professional, negotiate. I know Japan’s here. I gather Korea, Vietnam have called. And then eventually Europe. Get those things done quickly,” Dimon told Fox Business on Wednesday. “If you want to calm down the markets, show progress in those things and let Scott take the time.” 

Dimon said he was “taking a calm view” but that “it could get worse if we don’t make some progress here”. 

US Treasury secretary Scott Bessent said the Trump administration’s planned tariffs were a ceiling for countries that do not retaliate and that governments that join China in placing additional levies on US exports would be “cutting your own throat”.

“What a lot of people are missing here is that the levels that were put out last Wednesday are a ceiling. If you don’t retaliate, that is the ceiling,” Bessent said at an event for the American Bankers Association, adding that he would take a lead negotiating role in trade talks.

His call for other countries’ restraint comes despite US President Donald Trump on Tuesday announcing an imminent “major tariff” on pharmaceutical imports.

Bessent said any retaliation to align with Beijing’s response to the US tariffs would be misguided because China will dump products that it cannot sell in the US in other parts of the world.

A top Federal Reserve official has said Donald Trump’s tariffs have raised the bar for cuts to US borrowing costs, warning that the chance of inflation expectations becoming “unanchored” had increased. 

“In my view, the hurdle to change the federal funds rate one way or the other has increased due to the tariffs,” Neel Kashkari, president of the Minneapolis Fed and a non-voting member of the rate-setting Federal Open Market Committee, said on Wednesday. 

He added: “Given the paramount importance of keeping long-run inflation expectations anchored and the likely boost to near-term inflation from tariffs, the bar for cutting rates even in the face of a weakening economy and potentially increased unemployment is higher.”

German government debt has emerged as a rare haven in Wednesday’s global bond market sell-off.

The yield on 10-year Bunds fell to 2.58 per cent in early afternoon trading, down 0.07 percentage points on the day and 0.15 percentage points since April 2. Yields move inversely to prices.

Jason Borbora-Sheen, of Ninety One Asset Management, said that, unlike US Treasuries, Bunds had not been rocked by the unwinding of leveraged hedge fund positions.

He added: “There is less of a sovereign credibility concern with European issuers [compared with the US], and [European Central Bank policymakers] are willing to cut rates” given sluggish growth in the region and the appreciation of the euro, alleviating inflation concerns.

Gold prices surged 2.5 per cent on Wednesday amid an escalating trade war between the US and China, as investors sought haven assets.

Bullion rallied to $3,057 per troy ounce in afternoon trading, while US and European equities both fell amid a broader market sell-off.

The yellow metal has enjoyed a historic rally this year, hitting a fresh record high just hours after US President Donald Trump announced his sweeping global tariffs last week.

While gold has not been completely immune from the market chaos — with prices falling on Friday and Monday as investors fled to cash — it has bounced back in the past two days. Bullion is up 15 per cent so far this year.

Germany’s chancellor-in-waiting promised that he would revitalise the economy of Europe’s largest nation despite global “turbulence” as he unveiled the programme for the next government.

Speaking after striking a coalition deal, Christian Democrat leader Friedrich Merz said that the world was witnessing “in real time” how decisions by the US government had triggered international turmoil.

While he said it was unclear how the situation would develop, he pledged: “The future government, the future coalition, will reform and invest to keep Germany stable, make it safer and make it economically stronger again.”

A closely watched gauge of credit risk in high-grade US corporate debt has soared to levels not seen for more than two years as fears of a recession mount.

A Markit index of credit default swaps in the investment-grade bond market — insurance-like derivative contracts bought to protect against the risk of default — was trading at its highest level since March 2023 on Wednesday morning.

The index leapt to 86 basis points, up from roughly 60 basis points on April 2, the day that Trump unveiled his sweeping tariffs on major US trading partners.

A similar gauge tracking risk in the low-grade US bond market was trading around its highest levels since November 2023 on Wednesday, at almost 500 basis points — up from less than 390 basis points on April 2.

The EU will impose tariffs on about €21bn of US goods in its first retaliation in Donald Trump’s global trade war.

Member states voted to impose levies of between 10 and 25 per cent on goods including soyabeans, chicken and motorbikes. The measures announced on Wednesday will take effect in three stages between April 15 and December 1.

The move is in response to Trump’s 25 per cent levies on €28bn worth of EU steel and aluminium.

The European Commission will propose further measures early next week for US so-called “reciprocal” tariffs, which apply to more than €370bn of EU exports.

US Treasury secretary Scott Bessent has said that the sell-off in the US bond market is “not systemic”, as the tariff-related rout continues.

“I believe there is nothing systemic about this,” he told Fox Business. “It is an uncomfortable but normal deleveraging.” 

Speaking after Beijing announced new retaliatory tariffs on US imports, the Treasury secretary said the US “should not . . . try to devalue their way out of this”.

Asked whether he would go so far as to remove Chinese stocks from US exchanges, Bessent said: “Everything is on the table.”

The index that tracks US fixed income market volatility has leapt to its highest level since October 2023 in a sign of the turbulence engulfing the Treasury market.

The jump in the Ice BofA Move index to 139.88 points from 104.73 just before the Trump administration’s “liberation day” comes amid a sharp sell-off in US Treasuries following the president’s announcement earlier this month of steep tariffs on global trading partners.

Market participants are also watching for signs of weakness in the $39bn auction of 10-year Treasury notes on Wednesday, after the weakest auction for three-year notes since 2023 roiled markets on Tuesday.

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The question facing investors is whether the rout in markets, led by a collapse in Treasury yields, will warrant intervention by the Federal Reserve.

The Fed has stepped in during past crises, buying vast quantities of Treasury bonds or temporarily exempting banks from limits on holding debt, allowing them to buy more Treasuries.

Tom Simons, chief US economist at Jefferies, said liquidity — the ease with which traders can buy or sell bonds — had begun to look like the start of the March 2020 market meltdown. He wrote to clients:

It is not obvious that the Fed needs to step in immediately. Markets are volatile, but so far the sell-off in Treasuries has been orderly. The market could find some footing after we get through the 10-year note reopening this afternoon. That said, we do not think we’re too far away from stabilisers coming in.

The sell-off in European stocks and US equity futures deepened on Wednesday after China announced additional tariffs on US goods, escalating the trade war between the two countries.

Europe’s Stoxx 600 index slumped 4.3 per cent, while the UK’s FTSE 100 lost 3.5 per cent. An hour before the Wall Street open, contracts tracking the S&P 500 were down 1.9 per cent, while those tracking the technology-heavy Nasdaq 100 tumbled 1.6 per cent.

US government debt also sold off sharply, sending the benchmark 10-year yield soaring 0.2 percentage points to 4.46 per cent.

The steep sell-offs come amid mounting fears that Donald Trump’s sweeping tariff blitz will spark a full-blown recession, while simultaneously stoking inflation.