Hang Seng Index and Nikkei 225 Drop as US Tariff Tensions Escalate; Beijing in Focus

US Markets Tumble Amid Tariff Developments

On Monday, March 3, US equity markets reversed Friday’s gains as investors reacted to President Trump’s tariff announcements. The Nasdaq Composite Index plunged 2.64%, while the Dow and the S&P 500 dropped 1.48% and 1.76%, respectively.

In the bond markets, 10-year US Treasury yields fell below 4.15% for the first time since December 9, weighed by tariff concerns.

President Trump signed an Executive Order raising tariffs on Chinese goods to 20%, effective March 4. He also reaffirmed 25% tariffs on Canadian and Mexican goods, stating:

“No room left for Mexico or for Canada. No. The tariffs you know, they’re all set. They go into effect tomorrow.”

Economists warn higher tariffs could impact the economy, while pushing up US import prices and fueling inflationary pressures. A higher inflation outlook may delay Fed rate cut bets, increasing financing expenses. This could impact company earnings and dampen demand for risk assets.

US Manufacturing PMI Signals Waning Demand

On March 3, the ISM Manufacturing PMI fell to 50.3 in February, down from 50.9 in January. Significantly, the New Orders Index dropped from 55.1 in January to 48.6% in February, signaling a fall in demand. Manufacturers responded to weaker new orders, cutting staffing levels. Firms highlighted tariff uncertainties in the February survey.

The softer Manufacturing PMI reading raised concerns about the US economy, contributing to Monday’s market sell-off. The tariff and US data-fueled sell-off set the tone for the Asian session on Tuesday, March 4.

Global Trade War Risk Intensifies

On March 4, Canada announced plans for retaliatory tariffs on US imports if US tariffs go into effect. David Scutt, market strategist at StoneX, commented:

“Canada will start with 25% tariffs on US imports worth C$30 billion from Tuesday – statement from Prime Minister’s Office. Canada will impose tariffs on an additional C$125 billion worth of US imports in 21 days. Canada’s tariffs will remain in place until the US trade action is withdrawn. Canada statement: Should US tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures.”

Meanwhile, President Trump reportedly warned China and Japan against devaluing their currencies, claiming such actions would put US manufacturers at a disadvantage. He suggested additional tariffs as a potential countermeasure.

Hang Seng Index Slips as Trump Targets Chinese Goods

In Asia, the Hang Seng Index fell 0.50% on Tuesday morning. Investors reacted to Trump’s tariff increases on Chinese, Canadian, and Mexican goods.

Losses were mixed, with the Hang Seng Mainland Properties Index and Technology Index falling 1.17% and 0.20%, respectively.

Tech giants Alibaba (9988) and Tencent (0700) dropped by 1.92% and 4.25%, respectively.

Meanwhile, Mainland China’s equity markets also recorded modest losses. The CSI 300 and the Shanghai Composite Index declined by 0.25% and 0.01% in the morning session.

However, expectations of fresh stimulus measures from Beijing helped limit downside risks. The third session of the 14th National People’s Congress began on Tuesday, March 5. Markets anticipate stimulus measures to counter the economic impact of a US-China trade war.

Nikkei Index Slides Amid Tariff Concerns

Japan’s Nikkei Index tumbled 1.82% on Tuesday morning, weighed by Trump’s warnings against currency devaluation. Threats of sweeping tariffs on autos, pharmaceuticals, and semiconductor chips contributed to the pullback. A weaker USD/JPY added to the gloomy mood, as a stronger Japanese Yen may impact corporate earnings.

Softbank Group (9984) led the losses, sliding 5.16%, while Nissan Motor Corp. (7201) dropped 2.07%.

ASX 200 Slides as Mining, Oil, and Tech Stocks Stumble

Australia’s ASX 200 Index erased Monday’s gains, falling 0.64%, with mining, oil, and tech stocks reacting to tariff developments and OPEC news.

• Fortescue Ltd. (FMG) slid by 3.68%, while BHP Group Ltd (BHP) lost 0.35%, as iron ore spot prices face an eight-day losing streak.
• The S&P/ASX All Technology Index declined by 1.05%, tracking the Nasdaq’s overnight declines.
• Woodside Energy Group Ltd. (WDS) fell 2.34% after OPEC+ agreed to increase production in April.

Outlook: Key Risks and Opportunities

Looking ahead, market sentiment will hinge on tariff developments, US labor market data, China’s National People’s Congress, and central bank guidance. Additionally, regulatory uncertainty surrounding AI partnerships may introduce new risks for investors.

In Asia, escalating US-China trade tensions could pressure regional stocks. However, potential stimulus measures from Beijing may cushion the economic impact.

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