Asian equities plunged to their lowest levels in nearly two months, pressured by growing concerns that US President-elect Donald Trump’s proposed tariffs and appointments to key administration posts could trigger inflationary pressures. Major stock indexes in China, Japan, and Australia all posted declines, with a regional index hitting its lowest point since September 19. Meanwhile, the Bloomberg Dollar Spot Index remained stable ahead of upcoming US consumer inflation data, and the Japanese yen approached the critical level of 155. The MSCI Emerging Markets Currency Index was on the verge of erasing its annual gains.
US Treasury yields saw a retreat after a sharp surge on Tuesday, with the yield on 10-year notes falling back following a 12 basis point rise the previous day. Traders have shifted their expectations, now pricing in roughly two US rate cuts by June, down from nearly four rate cuts anticipated earlier in the week. US stock futures also showed signs of weakness.
Asian markets have been under pressure ever since Trump’s election victory last week, as investors brace for his policies—particularly the proposed tariffs—to potentially drive up inflation and limit future interest rate cuts. US data due on Wednesday is expected to reinforce these concerns, with analysts predicting a 0.2% increase in the consumer price index for the fourth consecutive month.
In China, stocks continued their downward trajectory after reports emerged that Trump was preparing to nominate two individuals with strong anti-China stances for key positions in his administration. These moves have fueled fears that his policies could escalate tensions between the world’s two largest economies.
“The market is increasingly focused on the risk of higher tariffs, which are overshadowing any hopes for tax cuts following Trump’s appointments of China hawks to his cabinet,” said Charu Chanana, Chief Investment Strategist at Saxo Markets.
In a related development, China took steps to curb the weakening of the yuan, which has been under pressure amid concerns about the potential for higher tariffs under Trump’s administration. The People’s Bank of China set a stronger-than-expected reference rate for the yuan, pushing the currency slightly higher in response.
Meanwhile, China made its first US dollar-denominated bond sale since 2021, issuing bonds in Saudi Arabia as part of its broader strategy to manage its debt profile.
Investors are also betting that the bond market will face additional losses, anticipating that Trump’s policies will reignite inflation and keep US interest rates elevated. Data released Tuesday indicated a continued increase in open interest in two-year US Treasury futures, signaling that traders expect further volatility in the bond market.
Federal Reserve officials are closely monitoring inflation trends, with Minneapolis Fed President Neel Kashkari noting that the central bank will be watching the inflation data closely to determine whether another rate cut is warranted at the Fed’s December meeting.
Elsewhere, Bitcoin saw a pullback after a meteoric rally that briefly took the cryptocurrency to nearly $90,000. Meanwhile, Trump appointed tech magnate Elon Musk and entrepreneur Vivek Ramaswamy to lead the newly proposed Department of Government Efficiency.
In commodity markets, oil prices stabilized near their lowest point for the month, as OPEC revised down its demand forecast due to a slowing Chinese economy. Gold, however, saw a slight uptick as investors sought safe-haven assets amid the global uncertainty.
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