US equity markets tumbled on Thursday, March 14, amid escalating trade tensions between the US and the EU. The EU retaliated against President Trump’s 25% tariffs on aluminum and steel, imposing 50% levies on US whiskey. Trump reacted with threats of 200% tariffs on European wine and spirits.
The prospect of a full-blown US-EU trade war fueled safe-haven demand, sending risk assets sharply lower. The Nasdaq Composite Index slid by 1.96%, while the Dow and the S&P 500 dropped 1.30% and 1.39%, respectively.
On March 13, softer US producer price data reinforced hopes for a June Fed rate cut. Producer prices rose 3.2% year-on-year in February, down from 3.7% in January. Producers lower prices as demand weakens, passing cost savings on to customers, potentially easing inflationary pressures. A softer inflation outlook could support a more dovish Fed rate path.
Jobless claims also bolstered Fed rate-cut expectations. The 4-week average climbed from 224.5k (week ending March 1) to 226k (week ending March 8). A softer labor market may curb wage growth, dampening consumer spending and demand-driven inflation.
The CME FedWatch Tool reflected rising bets on a Fed move in June. The chances of a June rate cut increased from 76.9% on March 12 to 81% on March 13.
Asian Market Implications: Trump’s latest tariffs and shift in focus to the EU could boost demand for Asian stocks as investors eye China’s policy moves to mitigate US tariff risks.
In Asia, the Hang Seng Index rallied 1.96% on Friday morning. Expectations that Beijing’s stimulus efforts would boost economic activity, along with China’s AI developments, fueled demand for Hong Kong (HK) and Mainland China-listed stocks. While the US faces an increasing risk of a tariff-induced recession, stock valuations across the HK and China markets look more attractive as US markets recoil.
Mainland China’s equity markets also rallied in the morning session. The CSI 300 and Shanghai Composite Index advanced by 1.76% and 1.13%, respectively.
On March 13, the People’s Bank of China (PBoC) pledged fresh policy measures, including:
The Nikkei Index rose 0.35% on Friday morning as the USD/JPY pair reversed its losses from Thursday. The USD/JPY rose 0.31% to 148.261 in Friday morning’s session, supporting demand for export-linked Japanese stocks. A weaker Yen and rising bets on a Fed rate cut could boost corporate earnings.
Notable movers included Nissan Motor Corp. (7201) and Tokyo Electron (8035), which gained 0.35% and 0.61%, respectively.
Australia’s ASX 200 advanced by 0.46% on Friday morning, brushing aside Wall Street’s overnight losses. Optimism surrounding Beijing’s stimulus goals drove demand for mining stocks. Meanwhile, fears of a US recession boosted gold-related assets.
Global markets remain sensitive to shifting economic risks and policy moves:
Despite near-term risks, China’s economic stimulus efforts and focus on innovation could help stabilize regional markets.
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With over 28 years of experience in the financial industry, Bob has worked with various global rating agencies and multinational banks. Currently he is covering currencies, commodities, alternative asset classes and global equities, focusing mostly on European and Asian markets.