(Jan 21): Asian stocks looked set to decline Wednesday, tracking Wall Street losses as fears of an escalating US trade conflict with Europe and turmoil in Japanese bond markets rattled global investors.
Equity index futures for Australia, Japan and Hong Kong all dropped after the S&P 500 posted its steepest loss since October, wiping out year-to-date gains. The Nasdaq 100 slid 2.1%, while the VIX volatility gauge surged above 20 for the first time since November. Gold rallied to a record as demand for havens intensified.
Long-term US yields hit a four-month high with the 30-year gaining eight basis points as investors reacted to a rout in Japanese bonds and news that a Danish pension fund was planning to exit Treasuries. The dollar saw its worst two-day run in about a month.
The moves underscored mounting investor unease over erratic US foreign policy, with global funds pulling back from American assets. President Donald Trump’s threat to impose tariffs on European nations that rejected his proposal to purchase Greenland has helped inject fresh volatility into markets, and forced investors to reassess US stability as a safe haven.
“This is ‘Sell America’ again within a much broader global risk off,” said Krishna Guha at Evercore. “Global investors at the margin are looking to reduce or hedge their exposure to a volatile and unreliable US. What remains to be determined is the magnitude and duration of these dynamics.”
The global market selloff was first triggered by domestic issues in Japan, where yields on 30-year debt surged over a quarter percentage point on concerns about Prime Minister Sanae Takaichi’s plans to cut taxes and boost spending. The jump threatened to unravel so-called carry trades — which involve buying global assets with low-interest loans in Japan — and helped push up bond yields elsewhere.
See also: Asian stocks to gain after US data, BOJ in focus
Japanese Finance Minister Satsuki Katayama called on market participants to calm down, pointing to the nation’s lowest reliance on debt issuance in 30 years, rising tax revenue and the smallest fiscal deficit among Group of Seven economies as evidence to support the government’s view that its fiscal policy is responsible and sustainable.
Elsewhere, Danish pension fund AkademikerPension said it will exit US Treasuries by the end of the month amid concerns that the Trump administration has created credit risks too big to ignore.
“The US is basically not a good credit and long-term the US government finances are not sustainable,” Anders Schelde, chief investment officer at AkademikerPension, told Bloomberg on Tuesday.
See also: Asian stocks to gain as Trump touts greenland deal
Treasury Secretary Scott Bessent urged calm, comparing the uproar over Greenland to what he called the “hysteria” that followed Trump’s announcement in April of sweeping tariffs. Trump is expected to arrive in Davos for the World Economic Forum on Wednesday.
While traders have been able to get past a whirlwind of other unexpected developments this year — including the White House’s capture of Venezuela’s leader and its renewed attacks on the Federal Reserve — the size of the moves suggests that investors’ willingness to shrug off earlier shocks is beginning to erode.
“Tariff War 2.0, or Territory War 1.0 if you prefer, is in full swing and has potential to cause significant near-term market disruptions,” said Victoria Greene at G Squared Private Wealth. “A lot depends on how the next few weeks play out. So, we are not ‘panic selling,’ but watching carefully and ready for volatility.”
Meanwhile, South Korea will hold off on fulfilling a pledge to invest as much as US$20 billion in the US this year given the pressure on the nation’s currency, according to a person familiar with the matter.
In corporate news, Netflix Inc’s shares fell after warning of higher program spending and the cost of closing its deal with Warner Bros.
Uploaded by Isabelle Francis
