Stocks Decline as Trump’s Tariffs Trigger Risk Selloff: Market Recap
A recent selloff in stock markets around the world has also affected Asia, causing a drop in major Asian share indices. In response to President Donald Trump’s announcement about new tariffs, investors have started to reduce their investments in riskier assets. As a result, the US dollar strengthened, while Treasury yields lowered slightly.
In Asia, stock prices have fallen to their lowest levels in over two weeks. This drop followed a significant decline in the S&P 500 index, which fell by 1.6% on Thursday, erasing its annual gains. The Nasdaq 100 also experienced a sharp drop of 2.8%, with Nvidia’s shares falling by 8.5% after disappointing earnings results impacted the stock. Bitcoin also took a hit, dropping 25% from its high less than six weeks ago.
The dollar gained strength after President Trump announced that a 25% tariff on imports from Canada and Mexico would take effect on March 4, along with a new 10% tariff on imports from China. Many economists believe that these tariffs could negatively impact the US economy, lead to increased inflation, and cause economic slowdowns in both Canada and Mexico. Over $1 trillion in imports would be affected if these tariffs are put into effect.
Market analysts are trying to understand the implications of these tariff announcements. Jun Rong Yeap, a market strategist at IG Asia Pte, stated that investors are reevaluating their views regarding the risks of tariffs. It remains uncertain whether these actions are part of negotiation tactics or if they signal a definite shift in policy, which has made the markets more cautious.
Bond markets in the US responded positively to the news, with Treasury yields falling to 4.24%, which hasn’t been seen since December. However, additional tariffs on Chinese goods have raised concerns that China might retaliate, escalating tensions between the two largest economies in the world.
Billy Leung, an investment strategist at Global X ETFs, expressed frustration over the uncertainty created by the additional tariffs, noting that investors now have to reassess their strategies. Despite the pressures from tariffs, there is still optimism surrounding Chinese markets driven by excitement over artificial intelligence developments.
In Hong Kong, Chinese stocks also fell, reducing their monthly gains. The CSI 300 Index indicated that it was likely to experience its first weekly loss in a month due to the rising tariff risks and stronger dollar, which some analysts believe may hinder economic growth in the short term. However, there are also expectations that China could use economic stimulus to respond to the tariffs.
Meanwhile, the US economy continues to show robust growth, with consumer spending contributing significantly to the GDP’s 2.3% annual pace during the fourth quarter. Investors are hoping for lower interest rates from the Federal Reserve, but they prefer this outcome without causing significant harm to the economy.
News of tariffs on Canadian and Mexican imports has led to an increase in oil prices, with West Texas Intermediate rising by 2.2% to surpass $70 a barrel. In Japan, the yen strengthened against the dollar due to inflation slowing more than expected, although it is anticipated that the central bank will remain vigilant regarding interest rate changes.
In Indonesia, the rupiah fell to its lowest level since April 2020, reflecting the broader impact of the tariff threats on Asian currencies. The main stock index in Indonesia also dropped over 1%, nearing a bear market situation.
Federal Reserve officials emphasized that current interest rates are not overly restrictive and should remain stable as they monitor inflation progress. Recent data indicated that inflation rates may be easing, which could keep policy makers cautious about future interest rate reductions. The core personal consumption expenditures price index, which excludes volatile categories like food and energy, is expected to have risen by 2.6% in the year through January. Overall, PCE inflation is also expected to ease, signaling cautious optimism but urging vigilance regarding price pressures.
As markets continue to adjust, the focus will be on upcoming economic data releases and the ongoing negotiations regarding tariffs, as these factors will significantly influence investment strategies in the coming weeks.
