SINGAPORE: Investors were met with some calm on Friday after a turbulent week besieged by U.S. trade policy confusion and a global rise in borrowing costs, as a steep selloff in bonds abated and currencies steadied, though stocks tracked Wall Street lower.
Overnight the Nasdaq confirmed it has been in a correction since peaking last December, as U.S. stocks face headwinds from a darkening growth outlook in the world’s largest economy and uncertainty over U.S. President Donald Trump’s tariff policies.
Trump on Thursday suspended the 25% tariffs he imposed this week on most goods from Canada and Mexico until April 2 - the day he has threatened to impose a global regime of reciprocal tariffs on all U.S. trading partners.
Trump’s fast-changing trade policy has sent markets into a tailspin, though currencies like the yen and the Swiss franc, as well as gold, have been among the few assets investors have flocked to as they seek out safety.
The Japanese currency was perched near its strongest level in five months at 147.95 on Friday, on track for a 1.8% weekly gain, while the Swissie scaled a three-month top of 0.8822 per dollar.
Gold prices eased slightly, but at $2,904.62 an ounce, were still not far from a record high.
“The rapidly shifting sands of U.S. tariffs are turning into quicksand for businesses in the U.S., Canada and Mexico to drown in,” said Tony Sycamore, a market analyst at IG.
“I’m not particularly confident at this point in time committing money to the market because there is just so much uncertainty out there. It’s a horrible, horrible backdrop for investors to be operating in.”
A sharp selloff in European bond markets triggered by Germany’s plans for a huge spending package showed some signs of tapering on Friday, with bund futures jumping more than 0.8% and French OAT futures up 0.7%. Bond yields move inversely to prices.
In Japan, government bonds extended their selloff, though to a smaller degree than in the previous session.
The 10-year Japanese government bond (JGB) yield rose 1.5 basis points to 1.53%, its highest level since June 2009, while the 20-year yield added 2 bps to a more than 16-year high of 2.22%.
The surge in European borrowing costs this week has in turn sent the euro on a tear, with the common currency headed for its largest weekly gain in nearly five years on Friday at more than 4%. It last traded 0.07% higher at $1.0794.
The European Central Bank (ECB) on Thursday cut interest rates again but warned of “phenomenal uncertainty”, including the risk that trade wars and more defence spending could fuel inflation, raising the prospect of a pause in its policy easing next month.
Stocks rise as tariff reprieve lifts sentiment
“The ECB finds itself in a challenging position between the threat of U.S. tariffs in the near-term that could warrant further policy rate cuts - and a move into stimulative territory - and the growing commitment to higher defence spending over the next several years,” said Mark Wall, chief European economist at Deutsche Bank.
“This environment requires a deft hand on the monetary policy lever and the preservation of policy optionality.”
Asia stocks upbeat
MSCI’s broadest index of Asia-Pacific shares outside Japan last traded 0.5% lower, though was on track for a weekly gain of more than 2.5%, which would mark its largest increase in nearly six months.
The rise was helped by a rally in its Chinese counterparts as investors continued to pile into artificial intelligence shares and welcomed new policy support from Beijing.
China’s CSI300 blue-chip index fell 0.2%, but was set to rise 1.5% for the week, while the Shanghai Composite Index was similarly on track for a 1.85% weekly gain.
Hong Kong’s Hang Seng Index rose 0.3% and was headed for a more than 6% surge for the week.
“We expect significant fiscal easing this year, with increased priorities on consumption and high-tech manufacturing, but acknowledge this is different from a ‘bazooka’,” Goldman Sachs analysts said in a note.
Elsewhere, Japan’s Nikkei slid 1.85%.
Trade tensions aside, the focus for investors on Friday will also be on February’s U.S. nonfarm payrolls report, which will provide further clues on the health of the world’s largest economy.
Expectations are for 160,000 jobs to have been added last month, following January’s 143,000 rise.
Investors have ramped up bets of further Federal Reserve rate cuts this year following a slew of weaker-than-expected U.S. economic data and worries about the impact of Trump’s tariffs, with Fed funds futures now showing just over 77 bps worth of easing priced in this year.
That has in turn sent the dollar on the decline, with the greenback set for a weekly drop of more than 3% against a basket of currencies.
In commodities, Brent futures rose 0.27% to $69.65 a barrel, while U.S. West Texas Intermediate crude futures ticked up 0.2% to $66.49 per barrel.
