(Jan 19): Asian markets were set to come under pressure early Monday after US President Donald Trump proposed new tariffs on eight European countries, denting risk appetite and boosting demand for haven assets.
Futures for the S&P 500 fell 0.7% and those for the Nasdaq 100 Index fell almost 1% as trading started. Gold and silver rose, while Brent crude declined at the open. Treasury futures also rose. The pound and euro were among the Group-of-10 currencies that declined against the dollar in early trading, while the yen and Swiss franc edged higher.
Equity-index futures pointed to declines in Japan and Hong Kong when markets reopen, after US shares inched lower on Friday. Australian stocks opened lower.
Futures for the S&P 500 fell 0.7% and those for the Nasdaq 100 Index fell almost 1% as trading started. Gold and silver rose, while Brent crude declined at the open. Treasury futures also rose.
Trump said over the weekend he’d impose a 10% tariff on goods from eight European countries starting Feb 1, rising to 25% in June unless there’s a deal for a “purchase of Greenland.” The move drew quick rebukes from European leaders, who are now poised to halt the approval of the trade agreement struck last year. Bloomberg reported that French President Emmanuel Macron may request the activation of the EU’s anti-coercion instrument — the bloc’s most powerful retaliation tool.
“The outcome of these new trade tensions is unclear, but what has long been evident is that there is no such thing as trade or tariff certainty anymore,” analysts including Carsten Brzeski, global head of macro at ING Bank, wrote in a note to clients. “What is clear is that a full-blown trade war between the EU and the US would leave only losers.”
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Asian assets were already facing pressure after US stocks on Friday gave up an earlier gain to close 0.1% lower, after Trump suggested he’d nominate someone other than Kevin Hassett to succeed Federal Reserve Chair Jerome Powell. Treasuries slid across the curve as traders dialed back expectations for rate cuts, with odds lifted that former Fed Governor Kevin Warsh will be nominated to lead the Fed.
Early focus in Asia will also be on Chinese data, which may show the economy remained sanguine in the fourth quarter and likely capped 2025 with its weakest quarterly growth in three years. Gross domestic product is expected to gain 4.5% year-on-year in the three months to Dec 31, slower than the 4.8% in the prior quarter, according to a Bloomberg survey.
Eyes will then shift to the European open, with the region’s equities likely to bare the brunt of any selloff, according to strategists.
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Deutsche Bank anticipates the fallout on the euro may ultimately be limited given the US relies on Europe for capital, while others see Trump’s salvo purely as a negotiating tactic to gain leverage ahead of the World Economic Forum at Davos this week.
“My working assumption is that an ‘off ramp’ from these threats will soon be found, and that this turns into yet another ‘TACO moment’,” Michael Brown, a strategist at Pepperstone Group in London, wrote in a note to clients. “With the fundamental bull case for risk still a resilient one, and providing that any European retaliation remains largely rhetorical, I would view equity dips as buying opportunities for now and wouldn’t be surprised to see the week’s initial FX moves fade relatively rapidly.”
Uploaded by Isabelle Francis
