Futures for US and European stocks dropped on Wednesday, outpaced by the gains in Asian markets. Investors remained cautious due to the ongoing trade dispute between the US and China and earnings results from major tech companies on Wall Street.
Euro Stoxx 50 futures fell by 0.4%, and S&P 500 futures declined by 0.5%. The decline followed a drop in extended trading of Google’s parent Alphabet Inc. and Advanced Micro Devices Inc. While Asian markets saw a second consecutive day of gains, Chinese stocks fell after reopening for the first time since the Lunar New Year holidays. The yen strengthened against the dollar, and gold surged to a record high, driven by heightened demand for safe-haven assets.
US-China Trade Tensions Continue to Affect Market Sentiment
Asian tech stocks mirrored the rise in their US counterparts, but investor sentiment soured as trade tensions between the US and China escalated. The US imposed a 10% tariff on all Chinese imports, triggering retaliatory measures from China. While Chinese President Xi Jinping has adopted a more cautious approach than former President Donald Trump, the ongoing trade war remains a risk to global markets.
The yield on 10-year US Treasury bonds and the dollar index both extended losses after disappointing US jobs data. December job openings fell more than expected, reaching a three-month low.
Manish Bhargava, CEO of Straits Investment Management, said, “The weaker jobs data eased concerns about aggressive Fed rate hikes, leading to a weaker dollar and providing a boost to Asian markets. Investors are adopting a ‘wait-and-see’ approach and shifting focus to broader economic indicators.”
US Economic Data and Federal Reserve Rate Outlook
Traders are awaiting the release of US ISM services data, which could offer more clues on the Federal Reserve’s next steps. Despite challenges from winter storms and wildfires 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.
Ongoing US-China Trade Uncertainty
In response to rising trade tensions, the US Postal Service announced a temporary suspension of inbound international packages from China and Hong Kong. The reasons behind this move are unclear, but it follows President Trump’s revocation of the “de minimis” rule, which previously allowed small packages under $800 to enter the US duty-free.
Kenny Wen, head of investment strategy at KGI Asia Ltd., commented, “If the US tariffs and China’s retaliatory measures are delayed, it would be a positive development for the market. However, the risk of escalation remains.”
President Trump has said there is no rush to speak with Chinese President Xi Jinping, stating talks will take place at the “appropriate time.”
Marvin Chen, an analyst at Bloomberg Intelligence, noted that while delays in US-China trade talks could cause short-term volatility in Chinese markets, Trump’s willingness to engage in negotiations offers hope for a resolution.
China’s Market Reactions to Economic and Trade 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, shares in Chinese software developers surged after the release of DeepSeek’s new lower-cost large language model, which boosted sentiment around the growth potential of AI applications. Taiwan Semiconductor Manufacturing Co. saw gains, contributing to a rise in the MSCI Asia Pacific Index.
Japanese Stocks and Currency Movements
Japanese stocks saw a partial rebound, with shares of Toyota Motor Corp. rising after the company raised its annual operating profit forecast. Meanwhile, Honda Motor Co. surged, while Nissan Motor Co. slumped after reports indicated the companies failed to reach an agreement on a potential merger.
The yen strengthened on expectations that the Bank of Japan would continue raising rates, supported by strong domestic wage data and government comments on inflation.
Oil Prices and Concerns Over Global Growth
In commodities, oil prices edged lower as concerns about the impact of the US-China trade war on global growth outweighed the announcement of reinforced sanctions on Iran.
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