NEW YORK: A selloff in equities spread to Asia after President Donald Trump’s pledge to impose tariffs on trading partners raised the spectre of a trade war hitting global economic growth. Bonds advanced.
Equity gauges in Sydney, Tokyo and Hong Kong fell Tuesday (March 4) after the S&P 500 saw its worst selloff this year, slumping almost two per cent as the US president said Mexico and Canada couldn’t negotiate a reprieve from tariffs set to take effect Tuesday. Trump also signed an order doubling a levy on China to 20 per cent. Treasury yields declined.
Investors are increasingly becoming wary about rising geopolitical tensions and the prospect of tit-for-tat tariffs worsening the global trade spat. China’s Ministry of Commerce reiterated countermeasures against US tariffs on Tuesday. The moves come ahead of the annual National People’s Congress meeting, which starts in Beijing Wednesday, amid expectations China will spell out measures to stimulate the economy.
“Market anxiety levels have been dialed up, and we see traders having to react aggressively and dynamically,” wrote Chris Weston, head of research at Pepperstone Group Ltd., in a note. “Either way, volatility in markets is on the rise and we need to be prepared for headlines to break at any moment.”
The S&P 500 fell 1.8 per cent on Monday, and a gauge of the Magnificent Seven megacaps sank 3.1 per cent.
Trump also said Monday that the US would impose tariffs on “external” agricultural products starting on April 2, adding another layer of threats to impose trade barriers on imported goods. He didn’t detail which products would be affected, or if there would be any exceptions.
That drove prices of Chinese soymeal – used in food and animal feed – to close 2.6 per cent higher on Monday, the most in more than three weeks. A disruption to US soybean shipments could tighten the market further.
Communist Party-backed news outlet Global Times reported Monday that Beijing is considering retaliatory measures on US agriculture and food products in response to the president’s latest actions.
The Bloomberg Dollar Spot Index dropped slightly. The Canadian dollar and Mexican peso slipped. The outlook for emerging Asian currencies is worsening again after the new tariffs on China. Regional currencies have tumbled over the past week, with the Thai baht and South Korean won both sliding about two per cent. Trump said Monday that Japan and China are putting the US at an unfair disadvantage when they weaken their currencies.
Investors are looking to China’s National People’s Congress for clues on how the country will boost economic growth. Policymakers are expected to push its official budget deficit target to the highest in over three decades, pumping trillions of yuan into a system battling deflation, a property crash and now a trade war with the US.
Taiwan Semiconductor Manufacturing Co., the world’s top producer of AI chips, said it plans to invest an additional US$100 billion in US plants that will boost its chip output on American soil and support Trump’s goal of increasing domestic manufacturing.
In economic data, Monday’s manufacturing reading was the latest in a slew of disappointing US economic reports in the last two weeks, showing weaker housing, rising unemployment claims and a drop in personal spending.
There is a “very small” chance that the US economy tips into a recession, despite the uncertainty surrounding global trade policy, according to Goldman Sachs Group Inc. Chief Executive Officer David Solomon at the Australian Financial Review Business Summit in Sydney on Tuesday.
Crypto remained volatile after Trump stepped up calls for a digital-asset stockpile. Bitcoin declined for a second day after sinking more than nine per cent on Monday.
In geopolitics, Trump ordered a pause to all military aid to Ukraine, turning up the heat on Volodymyr Zelenskiy just days after an Oval Office blowup with the Ukrainian president left the support of his country’s most important ally in doubt.
In commodities, oil sank as OPEC+ said it will proceed with plans to revive halted production. Gold steadies after having advanced the previous day. – Bloomberg