Asian Shares Reflect US Market Decline Amidst Tariff Concerns

Asian equity markets experienced a downturn on Friday, mirroring the significant sell-off seen on Wall Street. The decline was driven by disappointing results from Nvidia Corp., fresh information regarding US tariffs, and mixed economic data.

Market Overview

In particular, shares in Australia and Japan saw a decrease following the S&P 500's drop of 1.6% on Thursday, which wiped out the index's gains for the year. The Nasdaq 100 faced a larger decline of 2.8%, while an index tracking a group of major tech companies, dubbed the Magnificent Seven, slipped by 3%, marking the steepest drop since December. Nvidia's shares fell sharply by 8.5%, indicating that its earnings report did not meet market expectations.

Impact of Tariffs

The US dollar maintained some of its Thursday gains, bolstered by comments from President Donald Trump regarding the impending implementation of 25% tariffs on goods from Canada and Mexico, set to begin on March 4. Additionally, a further 10% tariff on certain Chinese imports is expected to follow. Economists warn that these tariffs could hinder US economic growth, exacerbate inflation, and potentially lead to recessions in Mexico and Canada. If these tariffs are enforced, it could impose additional taxes on over $1 trillion worth of imports.

Chris Weston, head of research at Pepperstone Group, noted, “Tariffs are back in the crosshairs, and a market that had reduced its sensitivity to recent tariff headlines has had to reconsider that reaction function.”

US Economic Data

US Treasury yields were steady on Friday after a slight sell-off on the long end of the curve the previous day, with short-term government debt showing some gains. Fresh economic data released on Thursday indicated that the US economy grew at a robust pace, and inflation was more persistent than earlier estimates suggested at the close of 2024. The gross domestic product (GDP) rose at an annualized rate of 2.3% in the fourth quarter, driven largely by consumer spending growth at a rate of 4.2%.

Bret Kenwell at eToro remarked, “Investors want lower rates from the Fed, but they don’t want to get there by seeing a notable deterioration in the underlying economy.” He added that if there is a slowdown, investors would prefer to see a corresponding decline in inflation.

Reactions in Commodity Markets

News regarding the upcoming tariffs on Canada and Mexico, who are the largest suppliers of crude oil to the US, prompted a rise in oil prices; West Texas Intermediate crude increased by 2.2% on Thursday, surpassing $70 per barrel. However, gold was on track for its first weekly loss of the year.

Japanese Yen and Central Bank Policies

The Japanese yen weakened slightly against the dollar on Friday, influenced by consumer inflation in Tokyo slowing more than anticipated. Despite this, it is unlikely to dissuade the Bank of Japan from considering further interest rate hikes. Governor Kazuo Ueda reiterated the bank's commitment to intervene in the debt market should there be rapid increases in bond yields, a statement made during a gathering of economic policymakers in Cape Town.

Asian Economic Measures

In Asia, India is exploring potential tariff reductions on a variety of imports including automobiles and chemicals, as a strategic response to the threat of reciprocal tariffs from the US. These proposed reductions would extend beyond prior cuts on select luxury items.

Upcoming Economic Data Releases

Key economic data will soon be released, including India’s fourth-quarter GDP and trade figures for Sri Lanka.

Inflation Metrics

Discussion around inflation continues, with Federal Reserve Bank of Cleveland President Beth Hammack stating that current interest rates are not “meaningfully restrictive” and should remain steady until there is proof that inflation is moving back toward the targeted 2%. The core Personal Consumption Expenditures (PCE) price index is projected to show a rise of 2.6% year-over-year as per the latest data, while overall annual PCE inflation is also expected to have eased. Jim Baird from Plante Moran Financial Advisors highlighted the importance of considering new inflation pressures in light of potential tariffs.

Major Market Movements

As of 9:44 AM Tokyo time, futures for the S&P 500 showed minimal changes. While Hang Seng futures increased by 0.2%, Japan’s Topix experienced a decline of 1.7% along with a 0.9% drop in Australia’s S&P/ASX 200. Euro Stoxx 50 futures also decreased by 0.8%. The Bloomberg Dollar Spot Index was relatively unchanged, with the euro steady at $1.0400 and the Japanese yen witnessing a slight rise of 0.2% to 149.52 per dollar.

Cryptocurrency and Bond Market Insights

In the cryptocurrency market, Bitcoin saw a minor increase of 0.1% to a value of $84,392.4, while Ether climbed by 1.1% to $2,305.19. On the bond front, the yield on 10-year Treasuries decreased by two basis points to 4.24%, mirroring a similar decline in Japan’s 10-year yield, which also fell by two basis points to 1.380%. Additionally, Australia's 10-year yield saw a reduction of two basis points to 4.31%.

Commodities Update

West Texas Intermediate crude experienced a slight decrease of 0.3%, now sitting at $70.13 per barrel, while spot gold prices were reported as relatively unchanged.

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