Asian stocks saw a significant downturn on Monday, as growing concerns about the potential impact of President Donald Trump’s tariffs on major U.S. trading partners weighed heavily on investor sentiment. The tariff impositions, expected to take effect on Tuesday, sparked fears of an escalating trade war, resulting in a widespread drop in the region’s financial markets.
Japan’s Nikkei Hits 2.4% Loss, Other Markets Follow Suit
Japan’s Nikkei 225 index experienced a sharp decline of 2.4%, dropping to 38,612.96. Australia’s S&P/ASX 200 index slipped 1.8%, closing at 8,376.30, while South Korea’s Kospi fell by 2.9%, ending at 2,443.57. Hong Kong’s Hang Seng and the Shanghai Composite also registered losses, dropping 1.4% and remaining mostly unchanged at 3,250.60, respectively. These declines come amid growing concerns that the trade restrictions could significantly harm global trade flows, leading to supply chain disruptions, inflated costs for businesses, and an uptick in inflation.
Volatility and Uncertainty Ahead
Market analysts are preparing for heightened volatility as a result of potential trade disruptions. Yeap Jun Rong, a market strategist at IG, emphasised the significant consequences of these developments. “The implications of trade restrictions could drastically affect global supply chains, pushing costs higher for businesses and leading to inflationary pressures,” he stated.
Wall Street Experiences Broad Declines
The unease was mirrored on Wall Street, where major indices closed the week in the red. The S&P 500 fell 0.5%, marking its first weekly loss in three weeks. The Nasdaq composite dropped 0.3%, and the Dow Jones Industrial Average recorded a 0.8% decline. This broad-based sell-off was primarily driven by losses in technology and energy sectors, with nearly 75% of S&P 500 stocks ending the day lower.
AI Concerns Trigger Additional Market Instability
An additional shock to the markets came from a report by Chinese startup DeepSeek, which suggested the development of a cheaper large language model capable of competing globally. This news led to concerns about the potential over-investment in AI chips, causing significant drops in technology shares.
Tariff Woes Fuel Bond Yields Surge
The looming tariff increase also contributed to rising long-term bond yields, with the 10-year U.S. Treasury yield rising to 4.54% from 4.52% the previous day. Bond yields have been trending upward since September, reflecting a resilient U.S. economy that has outperformed expectations, further intensifying worries over inflation.
Federal Reserve Takes Cautious Stance
In related news, the U.S. Federal Reserve opted to maintain its benchmark interest rate at its most recent meeting, signaling caution over how Trump’s policies might impact inflation and the broader economy. The central bank’s decision to stay on the sidelines further fueled uncertainties about future economic conditions.
Oil Prices See Modest Gains
Meanwhile, in energy markets, benchmark U.S. crude rose by $1.10 to settle at $73.63 per barrel, while international standard Brent crude gained 40 cents, closing at $76.07 a barrel. These modest increases come as energy markets react to global concerns around trade restrictions and supply chain disruptions.
In currency markets, the U.S. dollar strengthened slightly, rising to 155.55 Japanese yen from 155.18 yen. The euro weakened, trading at $1.0226, down from $1.0363 the previous day.
As the tariffs on U.S. imports from China, Canada, and Mexico are set to take effect on Tuesday, global markets are bracing for further volatility. The imposition of these tariffs could have far-reaching consequences for international trade, supply chains, and inflationary pressures, leaving investors with much uncertainty in the days to come.