Asian markets mirrored the recent decline in US stocks, as fears of escalating tariffs and disappointing earnings from Nvidia Corp. led to a pullback in riskier investments. The US dollar also saw gains following President Donald Trump’s tariff announcements.
Tariffs Weigh on Market Sentiment
Equity benchmarks across Asia-Pacific dropped after a sharp sell-off on Wall Street. The S&P 500 fell by 1.6%, erasing its gains for the year. Meanwhile, the Nasdaq 100 dropped 2.8%, and Nvidia’s shares plummeted 8.5%, weighed down by underwhelming earnings. Bitcoin also took a hit, falling 25% from its all-time high just six weeks ago.
President Trump’s announcement that 25% tariffs on Canadian and Mexican goods would take effect on March 4, alongside a 10% tariff on Chinese imports, added to market concerns. Economists predict these tariffs could harm US growth, escalate inflation, and push Mexico and Canada into recessions. If these tariffs proceed, taxes on over $1 trillion worth of imports will rise.
Impact on Treasuries and Commodities
In response to these developments, US Treasuries extended their gains in Asian trading. The yield on 10-year US government bonds dropped to 4.24%, the lowest since December. Oil prices also spiked, with West Texas Intermediate rising 2.2% to surpass $70 per barrel, following news of the tariffs on Canada and Mexico—two of the US’s largest oil suppliers. Meanwhile, gold is set for its first weekly loss of the year.
Inflation Concerns and Fed Policy
Data from the US revealed that the economy grew at a healthy pace, with GDP increasing by 2.3% in the fourth quarter, and consumer spending rising by 4.2%. However, inflation was more persistent than expected, fueling concerns about the Fed’s future interest rate decisions. While investors are hoping for lower rates, they are also cautious about any major downturn in the economy.
“The economy should slow without inflation worsening,” said Bret Kenwell of eToro. “If the economy is going to slow, inflation must slow as well.”
Japan’s Response to Economic Pressures
In Asia, the Japanese yen strengthened slightly against the US dollar after Tokyo’s inflation data came in lower than expected. However, the Bank of Japan is still likely to consider further rate hikes. Governor Kazuo Ueda reaffirmed the bank’s policy to intervene in the bond market if necessary to stabilize yields.
Indian Tariff Adjustments
In India, officials are exploring ways to reduce tariffs on a range of imports, including cars and chemicals, to avoid retaliatory tariffs from the US. The proposed cuts are more extensive than previous reductions, which included items like high-end motorcycles and bourbon whiskey.
Upcoming Economic Data
Investors are anticipating data releases, including India’s fourth-quarter GDP figures and trade data from Sri Lanka. The Federal Reserve is also expected to release its preferred inflation metric, which is anticipated to show a slowdown in inflation to the lowest rate since June.
PCE Inflation: A Key Indicator
Federal Reserve Bank of Cleveland President Beth Hammack emphasized that interest rates should remain steady until inflation shows clear signs of returning to the 2% target. The core personal consumption expenditures (PCE) price index, excluding food and energy, is expected to show a 2.6% increase for the year ending in January.
“Inflation may have a second wind, especially with the potential impact of additional tariffs,” said Jim Baird of Plante Moran Financial Advisors, warning that inflationary pressures could persist.
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