Asian equities are set for a weak start as global markets react to growing concerns about the U.S. economy. Treasury yields and the U.S. dollar both slipped on Monday as risk sentiment soured. U.S. equity futures for the S&P 500 and the Nasdaq 100 fell sharply, with the former dropping as much as 1.1%. Investors sought safe-haven assets, pushing Treasury yields down across all maturities.
As a result, the Japanese yen and Swiss franc gained, while the U.S. dollar declined for the sixth consecutive day, marking its longest losing streak in a year. Gold saw a modest uptick, while oil prices fell to their lowest levels since September, as weak economic data from China dampened the outlook for global demand.
Concerns about the U.S. economy’s health are intensifying, fueled by rising tariffs on major trading partners, a higher unemployment rate, and cuts to the federal workforce. These factors have led bond traders to signal an increasing risk that the U.S. economy could stall. President Donald Trump, however, referred to the economy as being in a “period of transition,” offering little reassurance to investors.
Ed Yardeni, president of Yardeni Research, highlighted the uncertainty in the market: “It’s getting harder to make out the shape of the economy through the fog of Trump 2.0’s firings and tariffs.” As a result, the stock market has taken a “risk-off” position, with equities correcting. Traders are flocking to short-term Treasuries, pushing yields on two-year bonds lower since mid-February. This shift suggests that the Federal Reserve may resume cutting interest rates to prevent economic deterioration, potentially as soon as May.
While the Federal Reserve’s Mary Daly noted that uncertainty among businesses could slow U.S. demand, she argued that it doesn’t warrant a change in interest rates. Fed Chair Jerome Powell echoed this sentiment, acknowledging a rise in uncertainty but suggesting that inflationary pressures from tariffs might be temporary.
JPMorgan Chase analysts, led by Fabio Bassi, turned tactically cautious on risk assets, citing increased policy uncertainty and volatility related to the Russia/Ukraine situation and European fiscal plans. The analysts noted that this volatility has led to a swift re-adjustment of market positions.
There has been much debate on Wall Street about whether Trump will adjust his tariff policies if stock market declines continue. Some believe that Trump’s attachment to the performance of the stock market could push him to soften his stance if stocks fall sharply. The notion of a “Trump put,” or the idea that Trump will intervene to support the stock market if it suffers, is being reconsidered as his policies weigh heavily on investor sentiment.
Kyle Rodda, a senior analyst at Capital.com in Melbourne, emphasized that Trump’s approach to economic policy, which focuses on long-term structural changes even at the expense of short-term growth, is unsettling the markets. This challenges the widely held belief that Trump would always act to support the stock market.
In Europe, however, markets have found some support from Germany’s shift away from fiscal austerity and the region’s ramped-up military defenses. Euro Stoxx 50 futures pointed to a higher open on Monday.
On the jobs front, U.S. job growth steadied in February with nonfarm payrolls increasing by 151,000, though the unemployment rate climbed to 4.1%. The report raised concerns, particularly since it didn’t account for recent government job cuts.
In Asia, China’s consumer inflation dropped unexpectedly, falling below zero for the first time in 13 months, reflecting persistent deflationary pressures. Investors are now looking for signs that the Chinese government’s stimulus efforts are having a positive effect on domestic demand.
Tim Waterer, chief market analyst at KCM Trade, suggested that the poor inflation data from China would not boost market confidence, but markets may take solace in the hope of further stimulus from the Chinese central bank.
In a separate development, China announced it would impose retaliatory tariffs on imports of rapeseed oil, pork, and seafood from Canada, escalating the trade conflict. This news led to a sharp drop in canola prices, which slid by the exchange limit.
As market sentiment weakens, traders will continue to monitor developments in U.S. economic policy, geopolitical risks, and inflationary pressures from global trade tensions.
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