Crash! Boom! Baam! Bang! Whaam!

The market reaction to T2 - Trump-tariffs - and Chinese retaliation was fierce on Monday. But it may not have priced in the full impact of a trade war. Countries are in the process of readying their responses to reciprocal US tariffs, and more retaliation is on the cards. It makes sense to retaliate before beginning negotiations, taking a leaf out of Colonel Trump's playbook. The sheer number of actors involved makes for intensely complicated trade talks that will certainly slow world economic growth. Risks of a global recession climb with the length of time the US economy remains isolated. Optics from the White House do not suggest market mayhem will soften Trump's resolve. And no spin will make the mayhem go away.

Panic in global equity markets is gaining momentum, with risk aversion becoming self-fulfilling. The selloff will intensify as global indices tip into bear territory. Contagion will spread to economies not at the forefront of tariff wars. Central bank action, particularly that of the US Fed, will contribute either to inflation or to an economic slowdown. Investors will need to price in heightened growth inflation trade-offs. Black Monday is a trigger for a lengthy market correction, which could amplify stress in the real economy till pain thresholds are breached.

Markets can serve as a deterrent to executive overreach, and the pushback is emerging. Business commentary in the US is turning against Trump, with corporate margins and valuations suffering contractions of historic dimensions. A bigger check to Trump's ambitions can arise in the bond market where the US needs its trading partners to extend credit against access to trade. Bloodbath on Asian stock exchanges will shape the appetite for US treasuries among export-surplus economies. Republicans in the US Congress will have to resolve internal differences over the party's approach to free trade, and condition its response to the White House agenda. These forces will take time to crystallise into corrective action. Market carnage will continue for a while.