Asian Stocks Decline, Dollar Softens as Trade Tensions Resurface
SYDNEY: Asian financial markets came under pressure on Monday as renewed trade tensions weighed on investor sentiment after U.S. President Donald Trump threatened additional tariffs on several European countries. The move unsettled global markets, pushing equities lower and weakening the U.S. dollar against traditional safe-haven currencies.
Trump said the United States would impose an extra 10% import tariff from February 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Britain, with duties set to rise to 25% from June 1 if negotiations fail. The announcement sparked fears of an escalating transatlantic trade conflict.
Asian equities slid broadly, while the dollar retreated against the Japanese yen and Swiss franc, reflecting increased risk aversion. Gold and silver surged to record highs, as investors sought safety, while oil prices remained largely unchanged amid concerns over the impact of a potential full-scale U.S.–Europe trade war on global growth.
Trading volumes were thin due to a holiday in U.S. equity and bond markets. S&P 500 futures fell 0.8%, while Nasdaq futures declined 1.1%.
European markets were also poised for a weak open, with EUROSTOXX 50 and DAX futures down 1.3%, and FTSE futures lower by 0.6%. In Asia, Japan’s Nikkei dropped 1.4%, while MSCI’s Asia-Pacific index excluding Japan slipped 0.3%.
European leaders strongly criticised Washington’s tariff threats, describing them as economic coercion. France proposed a broad range of potential countermeasures, including the reactivation of suspended EU tariffs worth 93 billion euros ($108 billion) on U.S. imports and possible action under the bloc’s Anti-Coercion Instrument, which could target U.S. services and investments.
Analysts at Deutsche Bank warned that financial markets could face greater disruption if Europe responds by repatriating capital. European investors currently hold nearly $8 trillion in U.S. bonds and equities, almost double the holdings of the rest of the world combined.
“With the U.S. net international investment position at record negative levels, financial interdependence between Europe and the U.S. has never been higher,” said George Saravelos, Deutsche Bank’s global head of foreign exchange research. “A weaponisation of capital flows would be far more destabilising than trade measures.”
The escalating tensions are expected to dominate discussions at the World Economic Forum in Davos, where global leaders, including President Trump, are set to convene this week.
Chinese markets defied the broader regional trend, with blue-chip stocks rising 0.4% after data showed economic growth slowed to 4.5% in the December quarter, still exceeding market expectations. Industrial output surprised on the upside due to strong exports, though weaker retail sales highlighted persistent softness in domestic demand.
Attention now turns to the Bank of Japan’s policy meeting on Friday. While a rate hike is not expected immediately, policymakers may signal a move toward tightening as early as April. Political uncertainty also looms, with Prime Minister Sanae Takaichi expected to dissolve parliament ahead of a February election.
In the United States, delayed data on core inflation and consumer spending for November, due on Thursday, could shape expectations for future Federal Reserve rate cuts. Strong recent economic indicators have pushed market expectations for easing further out, with investors largely ruling out a cut before June.
In currency trading, the euro recovered to $1.1620, while sterling rose to $1.3387. The dollar weakened 0.4% against the Swiss franc and 0.2% against the yen, reflecting demand for safe havens.
The U.S. cash Treasury market was closed, though 10-year futures edged higher, while 30-year futures fell, amid concerns that European investors could reduce exposure to U.S. debt.
Precious metals rallied sharply, with gold climbing 1.7% to $4,673 an ounce and silver surging 3% to $94.00, both reaching record levels.
Oil prices were steady, as geopolitical concerns balanced demand fears. Brent crude hovered at $64.19 per barrel, while U.S. crude edged up 0.1% to $59.52, amid speculation over potential U.S. military action involving Iran as a U.S. Navy carrier group heads toward the Persian Gulf.
