Will Trump’s Tariff War Crush U.S. Stocks, or Will Cooling Inflation Save the Market?

Will Trade Tensions Override Cooling U.S. Inflation?

Asian markets slid Thursday as optimism over slowing U.S. inflation gave way to renewed concerns over President Donald Trump’s aggressive tariff policies. While February’s inflation data initially buoyed sentiment, escalating trade tensions reversed early gains, underscoring the fragile confidence in global financial markets.

How Are Asian Markets Reacting to Tariff Uncertainty?

Equity markets across Asia tumbled as investors assessed the potential economic fallout of Trump’s tariff measures. Hong Kong’s Hang Seng Index dropped 1.4%, while China’s CSI 300 slipped 0.7%. Japan’s Nikkei 225 erased early gains to close flat, and Taiwan’s benchmark index fell 1.1%. South Korea’s KOSPI lost 0.4%, while Australia’s ASX 200 declined 0.5%, officially entering correction territory after falling 10% from its February peak.

“This strikes me as a market that simply cannot hold onto any gains at the moment,” warned Michael Brown, senior research strategist at Pepperstone, highlighting the deepening risk-off sentiment among traders.

Will Trump’s Tariffs Trigger a Broader Trade War?

Trump’s tariffs on all U.S. steel and aluminum imports took effect Wednesday, escalating trade tensions with Canada, Europe, and China. The retaliatory measures announced by major economies have stoked fears of a prolonged trade conflict that could weigh on global growth.

Analysts at TD Securities cautioned that “uncertainty remains in the air,” particularly as the inflation outlook is now clouded by these trade policy shifts. While February’s U.S. consumer price index showed a modest 0.2% monthly increase and a 2.8% annual rise—the slowest since October—economists warn that tariffs could push prices higher in the coming months.

Are Safe-Haven Assets Signaling More Market Stress?

As equity markets faltered, investors sought refuge in traditional safe-haven assets. Gold climbed 0.5% to $2,947.06 per ounce, nearing its February 24 record high. The Japanese yen strengthened 0.4% against the U.S. dollar to 147.70, while U.S. Treasury yields fell, with the two-year yield easing to 3.977%. These movements reflect increasing caution, particularly regarding the U.S. economic outlook.

Can Tech Stocks Sustain Wall Street’s Momentum?

Despite broader market weakness, the Nasdaq Composite rallied 1.22% Wednesday, driven by a strong rebound in tech stocks. Nvidia surged 6.4%, AMD gained over 4%, Meta rose 2%, and Tesla jumped more than 7%. However, futures trading suggests this momentum may not carry forward, with S&P 500 futures down 0.5% and Nasdaq futures off 0.8%.

Market Outlook: Will Volatility Persist?

With global markets facing the dual forces of slowing inflation and escalating trade tensions, volatility remains the dominant theme. While cooling U.S. inflation initially provided relief, the potential inflationary impact of tariffs could complicate monetary policy expectations. European markets are bracing for a weaker open, while investors will be closely watching whether Wall Street’s tech resilience can counter broader economic concerns. Given the current backdrop, a cautious, defensive stance may be warranted in the near term.

More Information in our Economic Calendar.