Futures for US and European stocks dropped on Wednesday, overshadowing gains in Asian markets. Investors remain cautious amid ongoing trade tensions and earnings reports from major US tech companies.
Euro Stoxx 50 futures fell by 0.4%, and S&P 500 futures declined 0.5%. This followed losses in the extended trading of Google’s parent Alphabet Inc. and Advanced Micro Devices Inc. While Asian shares posted their second consecutive gain, Chinese equities fell after reopening for the first time since the Lunar New Year holidays. The yen strengthened against the dollar, and gold hit a record high due to increased demand for safe-haven assets.
US-China Trade War Weighs on Investor Sentiment
Asian tech shares tracked the rise of their US counterparts, but the mood soured as tensions between the US and China continued to escalate. The US recently imposed a 10% tariff on all Chinese imports, prompting retaliatory actions from Beijing. While China’s President Xi Jinping is taking a more cautious approach compared to former President Donald Trump, the trade war remains a significant risk to global markets.
The yield on 10-year US Treasuries and the dollar index both extended losses following disappointing US job data. December job openings fell more than expected, hitting a three-month low.
Manish Bhargava, CEO of Straits Investment Management, noted, “The weaker jobs data eased concerns about aggressive Fed rate hikes, which led to a weaker dollar, benefiting Asian markets. Investors seem to be adopting a ‘wait-and-see’ approach, shifting their focus to broader economic indicators.”
US Economic Data and Fed Rate Outlook
Traders are now looking to the upcoming US ISM services data for further clues on the Federal Reserve’s next moves. Despite winter storms and wildfires affecting the country in January, the services sector is expected to have grown at a slower pace. High-frequency payroll data suggests hiring remained steady on a seasonally adjusted basis, according to Bloomberg Economics.
US-China Trade Uncertainty Continues
In response to rising trade tensions, the US Postal Service announced it would temporarily suspend inbound international packages from China and Hong Kong. Although the reason behind this decision is unclear, it follows President Trump’s revocation of a “de minimis” rule that allowed small packages under $800 to enter the US without duties.
Kenny Wen, head of investment strategy at KGI Asia Ltd., commented, “If the US tariffs and China’s retaliatory measures are postponed, it would be positive for the market. However, the risk of escalation remains.”
President Trump has stated that there is no urgency in speaking with Chinese President Xi Jinping, adding that talks will happen at the “appropriate time.”
Marvin Chen, an analyst at Bloomberg Intelligence, noted that while delays in US-China trade negotiations could lead to short-term volatility in Chinese markets, Trump’s willingness to engage in negotiations provides hope for a resolution.
Chinese Market Reactions to Trade and Economic Data
China’s measured response to the US tariffs has been seen by some investors as an attempt to avoid a full-scale trade war. However, concerns persist about weaker-than-expected manufacturing data and the depreciation of the yuan, which could weigh on Chinese stocks.
On a positive note, Chinese software developer stocks surged following the release of a new, lower-cost large language model by DeepSeek, boosting sentiment around the potential growth of AI applications. Taiwan Semiconductor Manufacturing Co. saw gains, helping lift the MSCI Asia Pacific Index.
Japanese Stocks and Currency Movements
In Japan, stocks saw a partial rebound. Shares of Toyota Motor Corp. rose after the company raised its annual operating profit forecast. In contrast, Honda Motor Co. surged while Nissan Motor Co. slumped after reports indicated a failure to reach an agreement on a potential merger.
The yen strengthened as expectations grew that the Bank of Japan would continue its rate hikes. Strong wage data and government comments on inflation have reinforced these expectations.
Oil Prices and Global Growth Concerns
In commodities, oil prices edged lower as concerns about the impact of the US-China trade war on global growth outweighed the announcement of renewed sanctions on Iran.
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