Asian Shares Reflect US Market Decline Amid Tariff Concerns

Asian equity markets experienced a decline on Friday, mirroring the significant drop seen on Wall Street, as investors reacted to disappointing earnings from Nvidia Corp., further details on impending US tariffs, and mixed economic data.

Market Reaction

Shares in both Australia and Japan fell following a 1.6% loss in the S&P 500 index on Thursday, effectively wiping out its gains for the year. Notably, the Nasdaq 100 saw a decline of 2.8%, while a prominent index tracking major tech stocks, known as the Magnificent Seven, fell by 3%, marking its largest drop since December. Nvidia's shares plummeted by 8.5%, reflecting investor disappointment with the company's earnings report.

Impact of Tariffs

The US dollar maintained its strength from Thursday after President Trump announced that 25% tariffs on imports from Canada and Mexico would take effect starting March 4. In addition, Chinese imports are set to face an additional 10% tariff. Analysts warn that these tariffs could harm US economic growth, increase inflation, and potentially induce recessions in neighboring economies like Mexico and Canada. If these tariff measures proceed without reprieve, the taxes applied will escalate on over $1 trillion in imports.

Investor Sentiment

Chris Weston, head of research at Pepperstone Group, noted, "Tariffs are back in the crosshairs, and a market that had reduced its sensitivity to recent tariff headlines has had to reconsider that reaction function." Meanwhile, US Treasury bonds showed little fluctuation on Friday after a slight sell-off at the long end of the curve the previous day, with short-term government debt advancing instead.

US Economic Indicators

US economic growth data released on Thursday showed that the economy was expanding at a steady pace, with inflation remaining persistently above targets. The fourth quarter gross domestic product (GDP) growth was reported at a consistent 2.3% annualized rate. Consumer spending, a major driver behind this growth, increased at a pace of 4.2%.

Oil and Commodity Market Response

News around the potential tariffs on major crude suppliers prompted a rise in oil prices, with West Texas Intermediate crude increasing by 2.2%, surpassing $70 a barrel, while gold was on track to post its first weekly loss of the year.

Currency and Bond Movements

The Japanese yen fell slightly against the US dollar as inflation in Tokyo registered a more significant slowdown than expected. However, a deeper dive indicates it wouldn't deter the Bank of Japan from considering additional hikes to its benchmark interest rates. Governor Kazuo Ueda reiterated the central bank's plan to intervene if there are rapid increases in bond yields.

India's Response to Tariffs

In Asia, Indian officials are investigating methods to lower tariffs on various imports, including vehicles and chemicals, as a countermeasure to Trump's threatened reciprocal tariffs. Proposed measures go beyond previous tariff cuts on specialty items like high-end motorcycles.

Key Economic Indicators Ahead

Upcoming data releases are expected to include fourth-quarter GDP figures for India and trade statistics from Sri Lanka.

PCE Inflation Trends

Federal Reserve Bank of Cleveland President Beth Hammack remarked that interest rates are not “meaningfully restrictive” and should remain stable as officials await more data to determine if inflation is trending back to the 2% target. Anticipated reports on the core personal consumption expenditures (PCE) price index, excluding volatile food and energy prices, are likely to show a rise of approximately 2.6% year-over-year.

Important Upcoming Events

• Japan's Tokyo Consumer Price Index, industrial production, and retail sales data set for release.
• The US PCE inflation, income, and spending reports are due.
• Fed's Austan Goolsbee will be speaking on Friday.

Asia, Stocks, Tariffs