104% tariffs: Asian stocks sink on fresh Trump levy: Markets wrap

Stocks sank and Treasuries sold off as financial markets were hit by fresh turmoil after US President Donald Trump ratcheted up the pressure on China and pledged to push ahead with sweeping global tariffs.

Benchmark gauges from Australia to Hong Kong and mainland China retreated, while equity-index futures for the S&P 500 dropped more than 1.8%. A gauge of the dollar fell for a second day.

Weak auction demand for Treasuries underlined the cracks in the haven status of US government debt, with 10-year yields surging 35 basis points this week.

Tariff battle escalation The escalating trade war — with Trump raising levies on China to 104% — is raising fears of a global recession. Investors are also gripped by concerns that something may break in the financial plumbing as volatility and stress build across global markets.

That has spurred speculation the Federal Reserve may need to speed up rate cuts even with inflation jitters running rampant.

“The escalation of tariff battle between the US and China is shaking investors’ confidence globally,” said Tomo Kinoshita, Tokyo-based global market strategist at Invesco Asset Management. “Uncertainty over further retaliation by both sides is also creating dark clouds in investors’ mind.”

China ready to "fully offset" external shocks

Trump is pushing ahead with higher duties on roughly 60 trading partners that he dubbed the “worst offenders.” He spent the final hours before his tariffs were set for full implementation lining up negotiations with US allies.

The president’s insistence on pushing forward with sweeping 104% tariffs on many Chinese goods dimmed optimism that a brutal trade war would be avoided.

Chinese Premier Li Qiang said his country has ample policy tools to “fully offset” negative external shocks.

As foreign nations appeal to Washington for negotiations, Treasury Secretary Scott Bessent said there’s the potential for advantageous trade deals. Japan looks set to get priority in US tariff talks while Trump said prospects for a deal with South Korea were “looking good.” 

Still, that hadn’t stopped a selloff in Japanese and Korean equities on Wednesday, with benchmark indexes in Japan down around 3%. South Korea’s stocks are headed for a bear market - trader parlance for a drop of 20% from a recent peak.

Uncertainty

“Until investors reset expectations or those rules and goals are better understood, markets will continue these wild swings between hope and fear,” said Que Nguyen at Research Affiliates LLC. 

On Wednesday, Treasury yield curve steepened with the two-year note outperforming longer-dated debt amid speculation the Fed will cut rates amid escalating trade war. Yields on the benchmark 10-year Treasury have tumbled this year on the barrage of tariffs that economists say raise the risk of a recession.

Adding to signs of concerns about the US economy, an index of the dollar fell for a second day with the currency dropping against all of its Group-of-10 peers.

Wall Street was again lashed by wild swings on Tuesday amid back-and-forth trade threats between the US and China, with the S&P 500 closing down 1.6% — leaving it on the brink of a bear market. The US benchmark had earlier in the session rallied the most since 2022.

Tuesday’s slide extended the S&P 500’s drop since the president detailed worldwide levies last Wednesday to more than 12% and at one point pushed the gauge down 20% since its record close in February, though stocks bounced back at that level. It was also another day of nearly unprecedented volume on US equity markets, with more than 23 billion shares changing hands.

“Although liquidity has deteriorated in many markets, markets have generally remained functional and there are few signs of funding stress,” said Goldman Sachs Group Inc. strategists Dominic Wilson and Vickie Chang, in a note late Tuesday. “But the size of recent asset shifts means that we are monitoring potential areas of financial stress more closely.”

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