Asian stocks collapsed and US futures fell as Donald Trump announced new tariffs on Chinese goods. The yen extended its profits after the biggest jump in the last two years.
Japanese indices lost about 2.5%. Stocks in South Korea hit their lowest levels for the session after Japan struck its trade-restricting move against Korea. Assets in China and Hong Kong have also collapsed, although Australian stocks have seen a modest decline. Yields on 10-year government securities have fallen further since the S&P 500 made its biggest two-day decline since May. The yuan has been at its lowest levels since November.
Of course, this heavy and somber sentiment is transmitted in Europe as well, with the risk-off attitude continuing in full force. Safe haven currencies are leading the way with gold as stocks bear heavy blows around the world.
The question for investors here is whether this is just the first step in a series of escalations that will force China to succumb and the Fed to continue its interest rate cuts. If the president manages to achieve this, it will be "one bullet two rabbits" from his perspective.
Traders raised their expectations that the Fed would drop to -0.5% this year. It comes just a day after the disappointment when Jerome Powell expressed doubts about the future of monetary policy and sent bond yields north.
Today, we expect a statement from Trump on US-Europe trade relations. We remain vigilant, because where things are going is not surprising that Europe will become the next victim of the US president. This will panic investors, with stock market crashes becoming inevitable.
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