[ASIA] Major stock indexes fell in Asia on Monday as White House officials showed no signs of backing down from their sweeping tariff plans, and investors speculated that the rising risk of a recession may lead to interest rate cuts in the United States as early as May.
Futures markets rushed quickly to price in over five quarter-point cuts in US interest rates this year, causing Treasury yields to fall substantially and weighing on the currency.
The aggressive repricing of Fed rate expectations reflects growing fears that the White House’s hardline trade stance could derail what had been a resilient U.S. economy. Analysts note that the latest tariff threats—targeting an additional $300 billion in Chinese goods—would cover nearly all remaining imports, effectively decoupling critical supply chains. The move has drawn rare public criticism from U.S. business groups, with the National Retail Federation warning of “catastrophic consequences” for consumer spending.
The slaughter occurred as President Donald Trump told reporters that investors would have to take their medicine and that he would not negotiate a deal with China until the US trade deficit was resolved. Beijing said that the markets had spoken regarding their retaliatory plans.
"The only real circuit breaker is President Trump's iPhone, and he is showing little sign that the market selloff is bothering him enough to reconsider a policy stance he has believed in for decades," said Sean Callow, a senior FX analyst at ITC Markets in Sydney. Investors expected Trump to alter his ideas after losing trillions of dollars in wealth and facing a potential economic downturn.
Meanwhile, China’s state media has ramped up rhetoric, with editorials in the Global Times accusing the U.S. of “economic bullying” and vowing “necessary countermeasures.” Observers speculate these could include targeted restrictions on U.S. agricultural exports or rare earth minerals, a sector where China dominates global supply. Such moves would further strain trade talks, which had appeared close to a resolution just weeks ago.
"The size and disruptive impact of U.S. trade policies, if sustained, would be sufficient to tip a still healthy U.S. and global expansion into recession," said Bruce Kasman, head of economics at JPMorgan, estimating the chance of a decline at 60%.
"We continue to expect a first Fed easing in June," according to him. "However, we now think the Committee cuts at every meeting through January, bringing the top of the funds rate target range down to 3.0%." S&P 500 futures fell 3.1% in tumultuous activity, while Nasdaq futures fell 4.0%, adding to last week's nearly $6 trillion in market losses.
The selloff has also reignited concerns about leveraged positions in global markets, particularly in China’s shadow banking sector and U.S. corporate debt. Data from the Bank for International Settlements shows non-financial corporate borrowing at record highs, leaving companies vulnerable to tighter financing conditions. “The risk of a credit crunch is rising,” said Nomura strategist Ting Lu, pointing to widening spreads in high-yield bonds.
The agony spread throughout Europe, with EUROSTOXX 50 futures down 3.0%, FTSE futures down 2.7%, and DAX futures down 3.5%. Japan's Nikkei fell 6%, reaching lows not seen since late 2023, while South Korea fell 5%. MSCI's broadest index of Asia-Pacific shares outside Japan dropped 3.6%.
Chinese blue chips fell 4.4% as investors waited to see whether Beijing would respond with additional stimulus. Taiwan's main index, which had been closed on Thursday and Friday, fell about 10%, prompting policymakers to curtail short selling.
In a sign of escalating stress, liquidity in Asian currency markets dried up sharply, with the Korean won and Indonesian rupiah among the hardest hit. Central banks in the region are widely expected to intervene to stabilize currencies, though analysts caution that sustained dollar strength could limit their firepower. “Emerging markets are caught in the crossfire,” said HSBC’s Asian FX strategist Joey Chew.
The bleak prognosis for global growth has kept oil prices under intense pressure, following significant declines last week. Brent sank to 64.23 per barrel, while US crude dipped to 60.60 per barrel.
The flight to safe havens saw 10-year Treasury rates fall 8 basis points to 3.916%, while Fed fund futures rose to price in an additional quarter-point rate cut from the Federal Reserve this year. Markets shifted to suggest a 56% probability the Fed might drop rates as soon as May, despite Chair Jerome Powell's statement on Friday that the central bank was not in a hurry to lower interest rates.
That dovish shift caused the dollar to fall 0.4% against the safe-haven Japanese yen to 146.26 yen, while the euro remained stable at $1.0961. The dollar lost 0.6% against the Swiss franc, while the trade-exposed Australian dollar fell another 0.4%. Investors were also betting that the immediate prospect of a recession would offset the upward push to inflation from tariffs.
The U.S. consumer price index is predicted to rise 0.3% in March, but analysts believe it is only a matter of time until tariffs drive costs considerably higher for everything from groceries to autos.
Rising prices will also put pressure on firm profit margins, just as the earnings season begins, with some of the major banks reporting on Friday. Approximately 87% of US corporations will report between April 11 and May 9.
"During upcoming quarterly earnings calls, we expect fewer companies than usual to provide forward guidance for both 2Q and full-year 2025," Goldman Sachs analysts wrote in a note.
"Rising tariff rates will force many companies to either raise prices or accept lower profit margins," the researchers said. "We expect negative revisions to consensus profit margin estimates in coming quarters."
Even gold was caught up in the selloff, falling 0.3% to $3,026 per ounce.The decrease left traders wondering if investors were taking profits to pay losses and margin calls on other assets, potentially fueling a self-feeding fire sale.
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