Asian stock markets followed Wall Street’s lead and fell sharply on Tuesday, as fears about a potential economic slowdown in the U.S. due to escalating trade tensions sparked a global market selloff. This raised concerns about a possible recession, pushing investors towards safe-haven assets like the Japanese yen.
Investor anxiety was fueled after President Donald Trump, in a Fox News interview, spoke about a “period of transition” but refrained from predicting whether his tariffs would lead to a U.S. recession. This uncertainty weighed heavily on market sentiment, causing a significant drop in stocks and a weaker U.S. dollar. The yield on U.S. Treasury bonds also decreased as risk appetite shrank.
The S&P 500 plummeted 2.7% on Monday, marking its biggest one-day drop of the year, while the Nasdaq lost 4.0%, its steepest fall since September 2022. Futures for both indices continued to decline during Asian trading hours.
In Asia, markets experienced significant losses. Japan’s Nikkei and Taiwan’s stock indices both fell by about 3%, reaching their lowest levels since September 2024. MSCI’s broadest index of Asia-Pacific shares, excluding Japan, dropped more than 1%. Chinese stocks, which had been performing well this year, were not spared either, with the blue-chip index falling around 1% and Hong Kong’s Hang Seng Index dropping 1.5%.
European stock futures also pointed to a lower opening, with DAX futures down 0.8% and Eurostoxx futures 0.9% lower, suggesting that the market downturn could continue.
Prashant Newnaha, a senior Asia-Pacific strategist at TD Securities, noted that investors had come to realize the U.S. administration might push through tariffs despite the market turmoil. He referred to this as a “controlled demolition,” where tariffs and a potential recession could be used to curb inflation and lower long-term bond yields.
The yield on U.S. 10-year Treasury notes fell 5 basis points during Asian trading on Tuesday, following a 10-basis point drop the previous day. This marked the largest daily drop in nearly a month. Meanwhile, the two-year Treasury yield, which is more sensitive to Federal Reserve rate expectations, dropped to a five-month low.
Markets are now pricing in the possibility of 88 basis points of easing from the Federal Reserve this year, up from 75 basis points a day earlier.
In response to the market turmoil, safe-haven currencies gained strength. The Japanese yen rose 0.3% against the U.S. dollar, reaching its highest level in five months earlier in the session. The yen has appreciated by 7% against the dollar in 2025. The Swiss franc also strengthened, hovering near a three-month high.
Tony Sycamore, market analyst at IG, pointed out that the market sentiment has rapidly shifted from post-election optimism to serious concerns about recession, fueled by ongoing policy uncertainty and weaker economic data. The situation was further complicated by Trump’s warnings of reciprocal tariffs on Canadian dairy and lumber.
The U.S. dollar index, which tracks the greenback against a basket of six major currencies, dropped to a four-month low. It has fallen over 4% so far in 2025.
Commodities also saw declines, with oil prices falling for a second consecutive day on worries that U.S. tariffs could harm global economic growth and reduce energy demand. Meanwhile, OPEC+ continued to ramp up its oil supply. Brent crude futures fell 0.65%, reaching $68.83 per barrel, and U.S. West Texas Intermediate crude futures dropped 0.82%, settling at $65.49 per barrel.
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