📆 Tuesday, March 4
► European markets dropped sharply as Trump’s new tariffs on Mexico, Canada, and China (now 20% instead of 10%) took effect, raising fears that Europe could be next. The Stoxx 600 fell about 1.5%, with auto stocks plunging as concerns over US-EU trade relations intensified. BMW, Stellantis, Mercedes-Benz, Volkswagen and other auto stocks / export oriented companies all declined sharply, while French and German bond yields fell amid uncertainty over economic growth. European defense stocks continued to perform well, with BAE Systems, Rheinmetall, and Saab rallying after the EU proposed €150 billion in military loans, signaling a shift toward greater defense spending as Trump suspends aid to Ukraine. Investors now await Trump’s address to Congress later today, hoping for clarity on future tariff policies and geopolitical strategy.
► US markets remain volatile, with futures pointing to further losses after Monday’s worst selloff of the year, as investors digest the latest round of tariffs and their potential economic impact. Trump confirmed that agricultural tariffs will be imposed on “external” products from April 2, though he did not specify (…as so often) which goods would be affected. Meanwhile, Canada and China announced countermeasures, with Canada imposing sweeping tariffs and China retaliating with 10%-15% levies on key US exports like soybeans, wheat, beef, and corn. Treasury yields slipped, with the 10-year note down to 4.14% (down 4 bps), as markets increased bets on Federal Reserve rate cuts later this year given the negative impact of tariffs or tariffs threats on the US / global economy. Investors are also awaiting Friday’s nonfarm payrolls report, which will provide further insight into the US labor market. Recent data suggested a cooling of the US economy after very strong years under Biden.
► Asian markets declined, tracking Wall Street’s sharp selloff, as China announced its response to Trump’s trade moves. Japan’s Nikkei 225 (-1.34%) erased Monday’s gains, as the JPY strengthened toward 149/USD. Japan’s unemployment rate rose slightly to 2.5%, while capital spending fell 0.2% in Q4, missing expectations. China’s Shanghai Composite (+0.22%) managed gains, as investors viewed Beijing’s retaliation as measured, avoiding broader tech and auto tariffs that could escalate the trade war further. However, Hong Kong’s Hang Seng Index (-0.28%) and India’s Sensex (-0.19%) slipped, while Australia’s ASX 200 (-0.58%) neared a two-month low, pressured by a weak retail sales report and despite dovish RBA minutes. The focus now shifts to China’s National People’s Congress meeting tomorrow, where stimulus measures could be announced to support growth.
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