Asian equities reversed early losses, and US equity-index futures advanced on Friday after signals emerged that the US government would avoid a shutdown. Shares in Japan, Australia, and Hong Kong saw gains, while futures contracts for US stocks also moved upward. This improvement came as a stopgap funding bill appeared set to pass, preventing a potential government shutdown.
The S&P 500 had fallen 1.4% on Thursday, marking its lowest point in six months and extending its three-week decline to over 10%. Similarly, the Nasdaq 100 also entered correction territory, dropping 1.9%.
Treasuries and Dollar React to Market Sentiment
US Treasuries remained steady on Friday after a surge in the previous session. This rally was driven by a flight to safe-haven assets, which also supported gold prices reaching a record high. Meanwhile, the US dollar gained for a third consecutive day.
Avoiding a government shutdown has reduced market uncertainty, which had been compounded by concerns about the US economy, particularly due to the trade war under President Trump. The ongoing tariff conflict had caused Wall Street to shift from optimism to caution, resulting in a $5 trillion loss in US equity benchmarks as investors pulled back.
Analyst Comments on Short-Term Market Outlook
Bo Pei, an analyst at US Tiger Securities, suggested a short-term market rebound is possible. “Extreme market moves are often followed by reversions,” Pei explained, pointing to potential recovery after significant downturns.
Political Negotiations Help Avoid Shutdown
The US government shutdown risk diminished after negotiations in Congress. Democrats and Republicans had been locked in a fierce standoff, with Democrats insisting on certain spending restrictions tied to Elon Musk’s cost-cutting initiatives. Republicans had rejected these conditions, creating a standoff. However, Senate Democratic leader Chuck Schumer backed down from blocking a Republican spending bill, clearing the way to avert the shutdown.
Treasury and Dollar Movements
On Thursday, Treasuries saw a rally, with the US 10-year yield dropping by four basis points to 4.27%. Meanwhile, the US dollar index edged higher as investors sought safe assets. Wholesale inflation in the US remained flat in February, with a sharp decline in trade margins contributing to this outcome.
Volatility and Market Outlook
Thomas Taw, head of APAC investment strategy for BlackRock, highlighted the volatile environment, stating that this trend is expected to continue. On Bloomberg Television, Taw noted that equity markets in Europe and China present more compelling opportunities as US stocks have faced significant losses from record highs.
US-China Trade Tensions Escalate
Trade tensions between the US and Europe further intensified when President Trump threatened to impose a 200% tariff on European wines, champagne, and other alcoholic beverages. Additionally, Trump confirmed that tariffs on steel and aluminum, which took effect this week, would remain, and that reciprocal tariffs on global trading partners would begin on April 2.
US Equities and Recession Risk
Former Treasury Secretary Steven Mnuchin dismissed the risk of a US recession, downplaying the current selloff in equities. Speaking to Bloomberg, Mnuchin advised investors not to overreact to Trump’s aggressive trade policies, suggesting that a 5% to 10% correction in major indices like the S&P 500 or Nasdaq made sense given the market’s pricing.
Treasury-Based Recession Model Signals Risk
Bloomberg Intelligence analysts Gina Martin Adams and Michael Casper noted that the Federal Reserve’s Treasury-based recession model had flagged recession risks a year ago, which could be validated if tariff uncertainty persists. Historically, when the model exceeds a 30% probability, it accurately predicts a recession within a year. Currently, the model indicates a 29.76% chance.
Despite this, US equities appear to be pricing in a larger recession risk than the credit markets. This discrepancy may present opportunities for positive surprises, according to JPMorgan Chase strategists Nikolaos Panigirtzoglou and Mika Inkinen.
Oil and Other Markets
Oil prices pared their weekly losses, partly due to US sanctions. In another development, an $8 billion exchange-traded fund tracking junk bonds saw one of its largest losses in 2025. Bitcoin rebounded on Friday following a decline the previous day.
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