The downturn was precipitated by President Trump's announcement of a 25% tariff on imports from China, intensifying fears of a protracted trade war. This move sent shockwaves through global markets, with the MSCI Asia ex-Japan index plummeting 7.6% and Japan’s Nikkei 225 dropping 7%.
Investor sentiment in India was further dampened by the volatility index surging 57%, reflecting heightened market anxiety. All 13 major sectors on the Indian exchanges recorded declines, with information technology, metals, and financials bearing the brunt of the sell-off.
The automotive sector was notably impacted, as shares of Tata Motors plummeted 10%, the most significant single-day decline in over three years. This followed the decision by its subsidiary, Jaguar Land Rover , to halt exports of UK-manufactured vehicles to the U.S. in response to the newly imposed tariffs. The U.S. market accounts for over a quarter of JLR's global sales, making this development particularly concerning for the company's financial outlook.
Currency markets also felt the strain, with the Indian rupee projected to open significantly weaker against the U.S. dollar. One-month non-deliverable forwards indicated an opening at 85.75-85.80 per dollar, down from the previous session's 85.2350. This depreciation is attributed to global risk aversion stemming from the escalating trade tensions.
In response to the market turmoil, President Trump, speaking aboard Air Force One, stated that any market downturns were unintended and emphasized the necessity of corrective actions for long-term improvements. He reiterated his stance on addressing trade imbalances, particularly with China, as a prerequisite for any potential agreements.
The broader implications of these developments have led to increased bets on the Federal Reserve implementing multiple interest rate cuts in 2025, as fears of a U.S. recession mount. Safe-haven assets, including U.S. Treasuries and the Japanese yen, saw increased demand, while oil prices declined nearly 3% to $63.7 per barrel.