Asian equities are set to open weakly on Monday as deflationary pressures in China and ongoing concerns about the U.S. economy dampen investor sentiment. In China, consumer inflation fell unexpectedly, dropping below zero for the first time in 13 months. This adds to concerns about the persistence of deflationary pressures in the world’s second-largest economy.
Meanwhile, U.S. stock futures also slipped as concerns about the health of the U.S. economy continued to affect risk appetite. A broad sell-off in global markets led equity futures for the S&P 500 to fall by 1.1%, while futures for the tech-heavy Nasdaq 100 dropped even further. Treasury yields also declined across various maturities as investors sought safer assets.
Weak Economic Data and Trade Tensions Drive Global Market Uncertainty
Oil prices fell to near their lowest levels since September, exacerbated by weak economic data from China, which contributed to a dim outlook for global demand. Additionally, the U.S. dollar dropped for the sixth consecutive day, its longest losing streak in a year, as confidence in the U.S. economy faltered. Bitcoin also continued its downward trend, extending its decline to five consecutive sessions.
Trade tensions, particularly tariffs on major trading partners, as well as rising unemployment and cuts to the federal workforce, have raised concerns about a potential slowdown in the U.S. economy. This comes after months of outperforming China and Europe. Bond traders are increasingly signaling the risk of an economic stall in the U.S., and President Donald Trump described the economy as going through “a period of transition.”
Ed Yardeni, president of Yardeni Research, commented on the uncertainty, stating, “It’s getting harder to make out the shape of the economy through the fog of Trump 2.0’s firings and tariffs. No wonder the stock market’s default position is risk-off and stocks have been correcting.”
Fed Expectations and Uncertainty Over U.S. Economic Outlook
Traders have increasingly shifted toward short-dated U.S. Treasuries, pulling down yields, as they expect the Federal Reserve to resume interest rate cuts as soon as May in an effort to support the economy. The move marks a significant change in sentiment for the Treasuries market, which had previously been driven by the resilience of the U.S. economy, even amid weakness abroad.
In a statement, Federal Reserve Bank of San Francisco President Mary Daly warned that growing uncertainty among businesses could slow demand but stated that no change in interest rates is currently needed. Fed Chair Jerome Powell also acknowledged an increase in economic uncertainty on Friday but reiterated that the path to 2% inflation would likely continue, suggesting that tariff-induced price hikes may be temporary.
JPMorgan Chase & Co analysts, led by Fabio Bassi, wrote, “We turn tactically cautious on risk assets. The increase in policy uncertainty over the past couple of weeks, the volatility around a potential Russia/Ukraine ceasefire, and the unprecedented new information around the German/EU fiscal plans triggered an extremely volatile fortnight with abrupt adjustment of positions.”
Debate Over Trump’s Economic Policies and Their Market Impact
Market strategists have been debating whether the Trump administration’s tariff policies will change in response to stock market declines. The notion that President Trump may alter his stance if the stock market drops sharply has led to the creation of a term known as “the Trump put.” This refers to the idea that Trump may back off on tariffs if they negatively affect stock market performance.
Kyle Rodda, senior analyst at Capital.com in Melbourne, commented on Trump’s economic approach, stating, “It’s Trump’s cavalier approach to economic policy that’s rattling sentiment. He is genuinely focused on significant, structural change to the economy — even if it comes at the expense of short-term growth.”
European Markets and Job Reports Provide Mixed Outlook
While European markets received a boost from Germany’s shift away from fiscal austerity and increased military spending, the outlook for U.S. economic growth remains uncertain. U.S. job growth showed signs of stabilizing, with nonfarm payrolls increasing by 151,000 in February, though the unemployment rate rose to 4.1%.
The February jobs report was weaker than expected, which raised concerns, particularly because it did not account for recent job cuts in the government sector.
China’s Economic Struggles Persist
In China, the latest inflation data is unlikely to boost market confidence, with the country experiencing its first deflationary drop in over a year. Investors are looking for signs that the government’s stimulus efforts will lead to stronger domestic demand.
However, some analysts believe there may be hope for a market rebound, as new stimulus measures from China’s central bank could help support economic growth. Tim Waterer, chief market analyst at KCM Trade in Sydney, said, “Markets may take solace from the hope that it will spur new stimulus.”
In addition to economic pressures, China announced retaliatory tariffs on imports of rapeseed oil, pork, and seafood from Canada, escalating trade tensions further.
Gold and Other Commodities
In commodities, gold saw a rise for the week as traders sought safe-haven assets in the midst of market uncertainty.
Meanwhile, Canada is facing its own challenges, with Mark Carney emerging as the country’s new prime minister during a time of growing economic pressure due to global trade tensions.
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