Treasuries fell across the curve and stocks retreated as President Donald Trump's tariff threats over Greenland reignited trade tensions.
The yield on the benchmark US 10-year bond gained three basis points to 4.26% in a catchup move as cash trading resumed on Tuesday after a holiday. Yields on the 30-year gained almost four basis points. Asian equities dropped 0.5%, while contracts for the S&P 500 fell 1.1%. On Monday, European shares fell the most since November.
In other corners of the market, the dollar edged higher against almost all major currencies. Gold and silver were a touch lower after closing at record highs. Cryptocurrencies also declined, with Bitcoin trading close to $92,500.
The yen was steady in early trading on Tuesday after Japanese Prime Minister Sanae Takaichi officially called an early election next month. The nation's 40-year bond yield rose to 4% on Tuesday, the highest since its debut in 2007, while investors awaited an auction of 20-year debt.
Trump's threat to impose tariffs on countries opposing his bid to control Greenland and the pushback from Europe, have reignited the market volatility seen early in his second term. The move comes against a backdrop of renewed concerns over the Federal Reserve's independence and Trump's push to cap credit-card rates.
“The nervousness is palpable,” said Alexandre Baradez, chief market analyst at IG in Paris. “All in all, you have so many issues piling up — from credit cards to the independence of the Fed and tariffs — that I really don't see the case for stock markets to keep on breaching new records.”
The US-Europe standoff comes as resilient earnings and ongoing investment in artificial intelligence have underpinned risk appetite. Market direction now partly depends on the European Union's response, with the bloc considering tariffs on €93 billion ($108 billion) worth of US goods.
French President Emmanuel Macron intended to request the activation of the EU's so-called anti-coercion instrument. German leader Friedrich Merz, however, said Monday that his country's heavier dependence on exports means it's less willing to unleash the countermeasure.
What Bloomberg's Strategists Say...
The negativity from President Trump's disruptive policies looks to be generating at the very least a reluctance to add to US assets among investors. There are clear signs traders are positioning for a revival of last year's “Sell America” theme.
— Garfield Reynolds, MLIV Asia Team Leader. Click here for the full analysis.
With Wall Street closed, the markets haven't had a complete opportunity to discount the fall-out from the latest escalation in geopolitical risk, Kyle Rodda, a senior analyst at Capital.com, wrote in a note.
“There'll be an eagle eye on Davos and what the US does, and US President Donald Trump says about its bid to acquire Greenland,” he wrote.
Trump is scheduled to address the World Economic Forum in Davos on Wednesday.
In Asia, investors are monitoring Japanese sovereign debt on Tuesday following the election announcement. Bond yields extended their gains after jumping on Monday as reports of a tax cut proposal renewed concerns about Takaichi's stance on fiscal policy.
The prime minister also said the vote would provide a mandate for fundamental changes to strengthen both economic and defense policy, adding that no one will help a country that can't help itself.
“We now see a significant risk that expansionary fiscal policies will appear across party platforms for the lower house election,” said Barclays Securities' strategists Ayao Ehara and Shinichiro Kadota in a note.
Key Events This Week:
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 1% as of 9:56 a.m. Tokyo time
- Hang Seng futures rose 0.2%
- Nikkei 225 futures (OSE) fell 0.9%
- Japan's Topix fell 0.6%
- Australia's S&P/ASX 200 fell 0.5%
- Euro Stoxx 50 futures fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.1637
- The Japanese yen was little changed at 158.07 per dollar
- The offshore yuan was little changed at 6.9566 per dollar
- The Australian dollar was little changed at $0.6710
Cryptocurrencies
- Bitcoin fell 0.4% to $92,606.46
- Ether fell 0.9% to $3,182.37
Bonds
- The yield on 10-year Treasuries advanced three basis points to 4.26%
- Japan's 10-year yield advanced six basis points to 2.320%
- Australia's 10-year yield advanced four basis points to 4.78%
Commodities
- West Texas Intermediate crude rose 0.4% to $59.69 a barrel
- Spot gold fell 0.2% to $4,663.88 an ounce
Also Read: Oil Steadies With Greenland Crisis And Surplus Concerns In Focus
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