Stocks across Asia extended the downturn seen on Wall Street on Wednesday, driven by President Donald Trump’s announcement of a 104% tariff on Chinese imports. This move sent shockwaves through global markets, pushing oil prices to four-year lows and intensifying recession fears worldwide.
The U.S. dollar weakened against safe-haven currencies, with the offshore yuan falling to a record low of 7.4287 per dollar. Meanwhile, expectations of more aggressive interest rate cuts from the Federal Reserve surged, with futures indicating a potential reduction of 115 basis points this year, up from 92 basis points earlier in the week.
The tariff announcement was confirmed by Washington late on Tuesday, with the new duties set to take effect after midnight Wednesday. This decision, coupled with the ongoing uncertainty surrounding the U.S.-China trade war, led to sharp volatility across financial markets.
In the U.S., the S&P 500 experienced one of its most dramatic reversals in decades, losing 4.2% after starting the day in positive territory. This marked a staggering $5.8 trillion loss in stock market value, the deepest four-day loss since the index’s inception in the 1950s.
As trading began in Asia, the negative sentiment spread. S&P 500 futures were down 1.5%, while Nasdaq futures lost 1.7%. European markets also suffered, with EUROSTOXX 50 futures declining by 4.5%, and FTSE futures falling 2.5%. In Asia, China’s blue-chip stocks dropped 1.2%, and Hong Kong’s Hang Seng index plunged 3.1%. MSCI’s broad index of Asia-Pacific shares outside Japan fell 1.7%.
On Tuesday, President Trump accused China of manipulating its currency to mitigate the impact of U.S. tariffs, though he suggested a deal could still be possible. Ting Lu, chief China economist at Nomura, warned that the ongoing trade dispute could have unpredictable and severe consequences for China’s economy.
The Chinese yuan, already weakened to its lowest point since 2023, hovered around a mid-point fixing of 7.2066 per dollar, the weakest level since September 2023. Analysts at JPMorgan cautioned that the escalating trade tensions could drive the global economy into recession, estimating that U.S. tariffs on Chinese goods could impose a $400 billion tax on U.S. households and businesses.
Stock markets across Asia were deep in the red, with Japan’s Nikkei dropping 3.5%, reversing a 6% rally earlier in the week that was fueled by hopes of a U.S.-Japan trade deal. Taiwanese stocks fell 1.7%, despite the government activating a $15 billion stabilization fund.
In the bond market, longer-dated Treasury yields rose as investors sold off safe-haven assets to cover losses in riskier markets. The 10-year Treasury yield climbed another 5 basis points to 4.335%, marking a 34-basis-point rise over the past three days. However, short-term bond yields fell as traders bet on further interest rate cuts from the Federal Reserve, with the two-year yield dropping 6 basis points to 3.665%.
Currency markets saw further moves into safe-haven assets, with the yen and Swiss franc gaining ground. The U.S. dollar weakened by 0.6% against the yen, settling at 145.36, and by 0.5% against the Swiss franc to 0.8430.
In commodity markets, oil prices tumbled over 4% amid concerns over weakened demand from China. Brent crude futures dropped 3.9% to $60.36 per barrel, while U.S. crude futures slid 4.4% to $56.96 per barrel. Meanwhile, gold struggled to maintain upward momentum, dipping 0.2% to $2,039.76 per ounce, the lowest level in a month.
As the trade war between the U.S. and China continues to unfold, global financial markets remain on edge, with uncertainty over the economic impact growing by the day.
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