Stocks Extend Drop As Trump Dials Up Tariff Threat: Markets Wrap

A global equities selloff extended into Asia, while the dollar strengthened and Treasury yields edged lower after President Donald Trump's tariff announcements prompted investors to trim risky bets.

A benchmark of Asian shares fell to the lowest in more than two weeks after the S&P 500 slid 1.6% Thursday and erased its gains for the year. The Nasdaq 100 declined 2.8% while Nvidia Corp. shares slumped 8.5% after its latest earnings weighed on the ‘Magnificent Seven' group. The rout in Bitcoin worsened, sending it down 25% from the all-time high it set less than six weeks ago.

The greenback advanced after Trump said the 25% tariffs on Canada and Mexico would come into force from March 4, while Chinese imports would face a further 10% levy. Economists say tariffs may hurt US growth, worsen inflation and possibly spark recessions in Mexico and Canada. If there's no last-minute reprieve, the plan will see taxes ramped up on well over $1 trillion of imports.

The announcements “have prompted market participants to reassess their expectations of tariff risks,” said Jun Rong Yeap, market strategist at IG Asia Pte. “Whether this is still a negotiation tactic or a definite move remains up for debate, but markets are unwilling to take chances.”

Treasuries advanced Friday in Asian trading, extending gains for short-dated US government debt from the prior session. US 10-year yields dropped to around 4.23%, a level not seen since December.

Trump unveiling additional tariffs on Chinese imports raises the risk Beijing will ramp up its retaliation and a spiraling of tensions between the world's two largest economies.

The additional 10% tariff on China “is frustrating because it keeps uncertainty alive and reinforces the risk that this becomes a pattern,” said Billy Leung, an investment strategist at Global X ETFs. “Markets were already fatigued and tired by tariff talk, and now investors are being forced to reassess.”

While tariffs introduce near-term risks, they don't significantly alter the current narrative around Chinese markets, which have been supported by enthusiasm over artificial intelligence, said Charu Chanana, chief investment strategist at Saxo Markets. Focus will now be on the National People's Congress meeting next week, which will play a crucial role in sustaining the current momentum in China, she said.

Chinese shares in Hong Kong fell Friday, trimming their gains this month to 15%. The onshore benchmark CSI 300 Index headed for its first weekly loss in a month.

“The combination of heightened tariff risks and a stronger dollar could be a near-term headwind, but there could be an offset from expectations that tariffs could be a negotiating tool, and China's administration has the stimulus tools to respond,” Chanana said.

The yen strengthened against the greenback Friday as inflation in Tokyo slowed more than expected, although it is unlikely to deter the central bank from considering more hikes to its benchmark interest rate.

In Indonesia, the rupiah dropped to its lowest level since April 2020 as Trump's tariff threats reverberated across Asian currencies. The country's main stock index fell Friday, extending a slump from a September high to 20%.

PCE Inflation

The Fed's preferred inflation metric is due later Friday and is expected to cool to the slowest pace since June. The core personal consumption expenditures price index — which excludes often-volatile food and energy costs — probably rose 2.6% in the year through January. Overall PCE inflation likely eased on an annual basis as well, according to the median estimate in a Bloomberg survey of economists.

In other commodities, oil headed for a monthly loss and gold was set for its first weekly loss of the year.

Key events this week:

• India GDP, Friday

• Japan Tokyo CPI, industrial production, retail sales, Friday

• US PCE inflation, income and spending, Friday

• Fed's Austan Goolsbee speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.2% as of 12:41 p.m. Tokyo time

• Japan's Topix fell 2.2%

• Australia's S&P/ASX 200 fell 1.3%

• Hong Kong's Hang Seng fell 2.5%

• The Shanghai Composite fell 0.9%

• Euro Stoxx 50 futures fell 1.2%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro fell 0.1% to $1.0387

• The Japanese yen rose 0.1% to 149.60 per dollar

• The offshore yuan rose 0.1% to 7.2918 per dollar

Cryptocurrencies

• Bitcoin fell 4.5% to $80,475.73

• Ether fell 5.4% to $2,156.55

Bonds

• The yield on 10-year Treasuries declined three basis points to 4.23%

• Australia's 10-year yield declined four basis points to 4.30%

Commodities

• West Texas Intermediate crude fell 0.5% to $70.03 a barrel

• Spot gold fell 0.3% to $2,868.08 an ounce