Asian stock markets mirrored the downturn in U.S. equities on Friday, as fears of an escalating trade war and disappointing earnings from Nvidia weighed heavily on investor sentiment. The dollar strengthened amid President Donald Trump’s tariff announcements, with his plans to impose new duties on imports from Canada, Mexico, and China adding to concerns over global growth.
Equity markets across the Asia-Pacific region took a hit following Wall Street’s sell-off on Thursday, which saw the S&P 500 fall by 1.6%, erasing its gains for the year. The Nasdaq 100 also lost 2.8%, while Nvidia shares slumped by 8.5% after its earnings report failed to meet expectations, dragging down the broader tech sector, particularly the “Magnificent Seven” stocks.
The bond market saw Treasuries extend their gains, and the cryptocurrency market worsened, with Bitcoin tumbling 25% from its all-time high set just weeks earlier.
The U.S. dollar held onto its gains from the previous day, bolstered by Trump’s announcement that 25% tariffs on goods from Canada and Mexico would take effect on March 4, with an additional 10% duty on Chinese imports. Economists warn that these measures could negatively impact U.S. economic growth, exacerbate inflation, and potentially trigger recessions in Mexico and Canada. If implemented without exception, the tariffs would target over $1 trillion worth of imports.
Chris Weston, head of research at Pepperstone Group, commented, “Tariffs are back in the spotlight, forcing the market to reassess its previous indifference to tariff news.”
In the U.S., Treasury yields dropped further, with the 10-year yield reaching around 4.24%, marking its lowest level since December. This came as recent data showed the U.S. economy grew at a solid pace, with consumer spending increasing by 4.2% in the fourth quarter. However, inflation remains higher than expected, which has fueled calls for lower interest rates from the Federal Reserve.
Bret Kenwell of eToro remarked, “Investors want rate cuts, but not at the expense of a deteriorating economy. If there’s a slowdown, they want inflation to cool as well.”
Oil prices received a boost from the tariff news, as the U.S. looks set to impose tariffs on its top oil suppliers, Canada and Mexico. West Texas Intermediate crude surged 2.2% to over $70 a barrel. Meanwhile, gold was on track to record its first weekly loss of the year.
The yen strengthened slightly against the dollar on Friday, aided by lower-than-expected inflation data from Tokyo. However, analysts believe this won’t sway the Bank of Japan from considering further rate hikes. Bank of Japan Governor Kazuo Ueda reiterated the central bank’s position on intervening in the bond market should bond yields rise too quickly.
In the Asian markets, officials in India are exploring the possibility of reducing tariffs on a broad range of imports, including cars and chemicals, to avoid retaliatory measures from Trump’s threatened levies. India’s proposals go beyond previous tariff cuts, such as those on high-end motorcycles and bourbon whiskey. Economic data from India and Sri Lanka, including GDP and trade figures, are expected in the coming days.
The Federal Reserve is also in focus as its preferred inflation measure, the core personal consumption expenditures (PCE) price index, is set for release later on Friday. Economists expect the PCE index to show a slower rise in January, which could signal a cooling of inflation. The PCE inflation gauge is projected to have risen 2.6% year-on-year, with overall inflation easing.
Beth Hammack, President of the Federal Reserve Bank of Cleveland, noted that interest rates remain “not meaningfully restrictive,” suggesting the central bank will hold rates steady as it awaits clearer signs of inflation returning to its 2% target.
Jim Baird of Plante Moran Financial Advisors added, “Indications that price pressures may resurge even before additional tariffs take effect should serve as a warning about the near-term inflation outlook.”
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