Treasuries fell and stocks pulled back as Greenland-related tariff threats reignited trade tensions, testing market confidence after a rally fueled by investments in
Longer-maturity US yields climbed as Trump’s unpredictable policies revived the sell America trade and fuelled concern about the country’s fiscal position.
As trade tensions dialled up, Asian equities fell 0.6 per cent, following the worst day for European shares since November. Futures contracts indicated losses for US equities when Wall Street reopens Tuesday.
Attention in Asia was on Japan, where the country’s 40-year bond yield rose to 4 per cent on Tuesday, the highest since its debut in 2007, while investors awaited an auction of 20-year debt. Japanese stocks fell after Prime Minister Sanae Takaichi officially called an early election next month.
Trump’s threat to impose tariffs on countries opposing his bid to control Greenland, and pushback from Europe, has reignited volatility and driven investors toward haven assets such as gold and silver.
The renewed trade tensions come against a backdrop of concerns over the Federal Reserve’s independence and Trump’s push to cap credit-card rates in the US.
“The nervousness is palpable,” said Alexandre Baradez, chief market analyst at IG in Paris. “All in all, you have so many issues piling up — from credit cards to the independence of the Fed and tariffs — that I really don’t see the case for stock markets to keep on breaching new records.”
The US-Europe standoff comes as resilient earnings and ongoing investment in AI have underpinned risk appetite. Market direction now partly depends on the European Union’s response, with the bloc considering tariffs on €93 billion ($108 billion) of US goods.
French President Emmanuel Macron intended to request the activation of the EU’s so-called anti-coercion instrument. German leader Friedrich Merz, however, said Monday that his country’s heavier dependence on exports means it’s less willing to unleash the countermeasure.
The tariffs will apply to Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands and Finland.
What Bloomberg’s Strategists Say
The negativity from President Trump’s disruptive policies looks to be generating at the very least a reluctance to add to US assets among investors. There are clear signs traders are positioning for a revival of last year’s “Sell America” theme.
— Garfield Reynolds, MLIV Asia Team Leader
In other corners of the market, the dollar edged higher against almost all major currencies. Gold and silver were a touch lower after closing at record highs. Cryptocurrencies also declined, with Bitcoin trading close to $92,500.
Treasuries joined the global bond selloff as trading of the securities resumed in Asia following a US holiday on Monday.
“The long end of the global sovereign curves feels fragile,” said Andrew Ticehurst, senior rates strategist at Nomura Australia Ltd. in Sydney. There are lingering uncertainty around threats to Fed’s independence, growing speculation that Rick Rieder may be the next Fed Chair, and a possible Supreme Court ruling against some of Trump’s tariffs that could add to concerns around the budget position, he said.
With Wall Street closed on Monday, the markets haven’t had a complete opportunity to discount the fall-out from the latest escalation in geopolitical risk, Kyle Rodda, a senior analyst at Capital.com, wrote in a note. Trump is scheduled to address the World Economic Forum in Davos on Wednesday.
“There’ll be an eagle eye on Davos and what the US does and US President Donald Trump says about its bid to acquire Greenland,” he wrote.
In Asia, investors are monitoring Japanese sovereign debt on Tuesday following the election announcement. Bond yields extended their gains after jumping on Monday as reports of a tax cut proposal renewed concerns about Takaichi’s stance on fiscal policy.
The prime minister also said the vote would provide a mandate for fundamental changes to strengthen both economic and defense policy, adding that no one will help a country that can’t help itself.
“We now see a significant risk that expansionary fiscal policies will appear across party platforms for the lower house election,” said Barclays Securities’ strategists Ayao Ehara and Shinichiro Kadota in a note.
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