Synopsis
Markets reacted negatively when US President Donald Trump proposed new tariffs on eight European countries. The move reignited concerns over tariffs, leading to a decline in risky assets and stronger demand for safe havens. Gold and silver prices have reached record highs. Stock futures collapsed and the dollar weakened.
TIL CreationsIn Asia, early focus will also be on Chinese data, which could show the economy remained upbeat in the fourth quarter and likely closed 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, a slower gain than the previous quarter’s 4.8%, according to a Bloomberg survey.
Risk assets fell and demand for safe haven assets strengthened after U.S. President Donald Trump proposed new levies on eight European countries, reigniting concerns over tariffs in markets. The dollar fell.
U.S. stock index futures fell in early trading Monday, with contracts on the Nasdaq 100 falling as much as 1%. Gold hit a record high of more than $4,680 an ounce and silver jumped about 4% to a record high. Brent crude fell almost 1%. Treasury futures advanced, while the dollar weakened against all of its Group of 10 peers, losing the most against the Swiss franc and Japanese yen.
Stocks in Australia and Japan fell, with cryptocurrencies, such as Bitcoin, also down.
The return of pricing concerns comes as risk appetite has been supported by strong earnings and massive investments linked to artificial intelligence. It represents a new test for stock markets, which hit record highs during the AI-led rally after rebounding from the sell-off triggered by Trump’s century-old levies.
“The immediate market reaction will likely be a classic uncertainty shock,” said Shoki Omori, chief strategist at Mizuho Securities Co. in Tokyo. “This is a clear signal that tariffs are being redefined as a geopolitical weapon rather than an economic negotiating tool. The problem is not the initial 10%. The fact is that nothing is ringfenced anymore.”
Trump said over the weekend he would impose 10% tariffs on goods from eight European countries starting February 1, rising to 25% in June unless a deal is reached to “buy Greenland.”
The move drew sharp rebukes from EU leaders, who are now prepared to withhold approval of the trade deal struck last year. Bloomberg reported that French President Emmanuel Macron could request the activation of the EU’s Anti-Coercion Instrument – the bloc’s most powerful retaliatory tool.
“The outcome of these new trade tensions is unclear, but what has long been evident is that there is no longer any trade or pricing certainty,” analysts including Carsten Brzeski, global head of macro at ING Bank, wrote in a note to clients. “What is clear is that a full-scale trade war between the EU and the US would only leave losers. »
Asian assets were already under pressure after U.S. stocks gave up an earlier gain on Friday to close 0.1% lower, after Trump suggested he would nominate someone other than Kevin Hassett to succeed Federal Reserve Chairman Jerome Powell. Treasuries slipped across the curve as traders lowered their expectations for rate cuts, with an increased likelihood that former Fed Governor Kevin Warsh will be named to lead the Fed.
In Asia, the first focus will also be on Chinese data, which could show that the economy has remained stable. blood in the fourth quarter and likely closed 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, a slower gain than the previous quarter’s 4.8%, according to a Bloomberg survey.
All eyes will then turn to the European opening, with stocks in the region likely to bear the brunt of a possible sell-off, according to strategists.
Deutsche Bank predicts the impact on the euro may ultimately be limited given that the United States depends on Europe for capital, while others see Trump’s salvo purely as a negotiating tactic to gain leverage ahead of the World Economic Forum in Davos this week.
“My working hypothesis is that a ‘way out’ from these threats will soon be found, and that this will turn into another ‘TACO moment,'” Michael Brown, a strategist at Pepperstone Group in London, wrote in a note to clients. “With the bullish fundamental case for risk still resilient, and provided any European fightback remains largely rhetorical, I would view declines in stocks as buying opportunities at the moment and would not be surprised to see the week’s initial currency moves fade relatively quickly.”
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