Asian markets opened lower on Tuesday, as renewed concerns about a trade war weighed on risk sentiment. Meanwhile, government bond markets in Japan & the United States showed a growing investor unease due to fiscal and geopolitical uncertainties.
Global market volatility was heightened by recent remarks made by US President Donald Trump about Greenland and changes in China’s consumption policies.
Asian markets hit by trade war concerns
Investors reacted to the escalating tensions in trade linked to US policy signals.
The broadest MSCI index of Asia-Pacific stocks outside Japan fell 0.24% and moved further away from record highs set last week.
In early Asian trading, Japan’s Nikkei index fell by 0.9%. Nasdaq futures and S&P 500 futures both dropped by around 1%.
The dollar continued to be under pressure while US Treasury yields rose, with the 10-year rate rising to 4.265% – its highest level since September.
Investors sought out safe-haven assets like the Swiss franc or gold, as concerns about a possible “Sell America” trading, which involves the sale of US stocks, the US dollar, and Treasuries, resurfaced.
The latest bout was triggered by President Trump’s renewed threats related to trade, and his push to seize control of Greenland. This sparked fears of further tensions between Europe and the United States.
Henry Cook, MUFG’s Europe economist, warned against overreaction. He said that last year “taught us to not overreact to Trump’s threats.” However, he added that tariff uncertainty is likely to continue.
Cook said that even if the situation de-escalates, many will doubt the credibility of a deal with Trump and therefore tariff uncertainty will remain elevated.
Citi downgraded European stocks, noting the increased tariff uncertainty weakens near-term investment cases and clouds prospects for earning growth in 2026. European futures indicated a slightly weaker opening.
China plans new measures to boost consumption
China’s state planner stated that the government is preparing policies for the period 2026-2030 aimed at boosting the domestic consumption and addressing “prominent”, supply-demand imbalances, as described by officials.
“The current economic operation has a problem of a strong supply but a weak demand,” Wang Changlin said at a press conference.
Officials did not give specific measures but said that the services sector will be a major focus.
China’s economy grew by 5% last year. This was in line with the government’s target. The growth was largely due to strong exports, which offset weak domestic consumption.
The imbalance is highlighted by the fact that industrial output will grow 5.9% by 2025, while retail sales will only increase 3.7%.
“The services sector is now a key focus for efforts to expand domestic consumption,” said Zhou Chen. An official from the NDRC added that sectors like elderly care, healthcare and leisure offer significant potential for growth.
China has also allocated 62.5 billion yuan (8.98 billion dollars) in special treasury bonds funds to support the consumer trade-in program for appliances and new energy vehicles.
Japan bond yields rise on fiscal concerns
Investors reacted sharply to Prime Minister Sanae Taichi’s proposal that the sales tax be suspended on food for a period of two years.
The plan is estimated at costing about Y=5 trillion (about $31.6 billion) each year, which raises concerns about its funding.
The yield on Japan’s government bonds for 40 years has risen to 4%. This is the highest since 2007. The yield on the 10-year bond has also risen above 2.3%. It is the highest since 1999.
Ataru Okumura is a senior interest rate strategist at SMBC Nikko Securities.
Takuya HOSHINO, chief economist of Dai-ichi Life Research Institute, said that markets are becoming more aware of fiscal expansion.
“They find it harder to purchase when they are worried about the possibility of an acceleration in fiscal policy expansion going forward.”
State Street Investment Management’s Masahiko loo said: “Ultra long JGB yields have been pushed higher by structural supply-demand imbalance, but also a new re-pricing term and risk premium due to the markets absorbing a more expansive fiscal stance and persistent price inflation.”
Trump continues Greenland rhetoric
President Trump has renewed his push to seize control of Greenland. He dismissed opposition from European leaders, and added to geopolitical uncertainty ahead of his visit to the World Economic Forum at Davos.
“We must have it.” They must do this. “They can’t protect” us,” Trump told journalists, adding that he didn’t expect Europeans to be too resistant.
Donald Trump has upset NATO allies after threatening to levy a tariff on several European members if he does not gain control over Greenland.
The remarks were met with harsh criticism from European Union leaders. French President Emmanuel Macron urged the bloc to consider deploying their strongest retaliatory trading mechanism.
Trump also criticised Macron for declining to participate in the proposed “Board of Peace”. He floated the idea of imposing tariffs of as much as 200% on champagnes and wines imported.
This post Morning Brief: Asian markets slide due to trade fears and Japan bonds reach record levels appeared first on The ICD
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