Stock markets in the United States were plunged again, with the Nasdaq index recording a -4.8% WoW decline, the S&P 500 down -3.6% WoW, and the DJIA shrank -2.6% WoW as of Tuesday, March 11. This decline continues a bad trend that has been going on since the last two weeks. What is it that really makes investors anxious for a long time? Apparently, many are worried about the potential for a recession in the US due to the increasingly unclear trade war.
Chief Economist at Moody’s Analytics, Mark Zandi, also revealed in an interview with ABC News, that indeed the risk of a recession in the US has now increased to 35%. Yikes!
The U.S. Government’s Reaction to the Market Downturn
How does the US President, Donald Trump, respond to this situation? In a statement on the same day, Trump reminded that people cannot just focus on the capital market. A statement that is quite interesting, considering that he often uses market performance as a barometer of the success of his policies.
He also warned of potential turmoil that could ensue during his administration’s transition period, declaring his intention to do “something big” to return wealth to the US. However, tariff policy measures that often go back and forth create uncertainty in the global market.
Interestingly, on the same day, Trump threatened to double tariffs on steel and aluminum imports from Canada by up to 50% after Ontario decided to impose additional fees on electricity shipments to the US. However, shortly after that, his plan was canceled. Political and economic drama, yes!
Impact on the European Union and the Global Economy
In the midst of this complexity, the European Union spoke up. On Wednesday, March 12, it announced that it would apply countervailing tariffs on U.S. imports worth $28 billion. This follows the US move to impose a 25% steel and aluminum tariff. The European Union’s plan to end the suspension of import tariffs on the US in the 2018–2020 period starting April 1, 2025, is a signal that all parties are starting to prepare a movement strategy.
The risk of a US economic recession now has the potential to put pressure on the global economy. For us in Indonesia, this can have a negative impact on the trade balance due to the possibility of a decline in exports. However, on the other hand, this condition can also be an opportunity for the Fed to lower US interest rates, which could lead to a cut in the BI Rate by Bank Indonesia. Who doesn’t want lower interest rates?
Future Prospects
Recently, the probability of the Fed’s interest rate cuts has increased. According to an analysis from the CME FedWatch Tool, the likelihood that the Fed will cut interest rates by more than 50 bps until the end of 2025 now stands at 65.8%. This proves that economic conditions are not only local but also reverberate around the world.
We can only wait and see how this situation develops. Will the predicted recession really happen? Or will there be strategic steps taken to create growth? One thing is for sure, whatever it is, we must be prepared for the changes that are coming.
In the financial world, keeping up with the latest news and analyzing the situation is key to survival. So, stay updated!