Asian Stock Markets Plunge Amid U.S.-China Trade Tensions

Major stock indexes plunged in Asia on Monday, April 7, 2025, as investors reacted to the latest developments in U.S.-China trade relations and the looming threat of recession. With White House officials showing no signs of retreating from their aggressive tariff plans, the financial markets experienced a significant downturn.

Futures markets quickly adjusted to reflect the growing likelihood of interest rate cuts in the U.S., pricing in nearly five quarter-point reductions this year. This shift in expectations pulled Treasury yields down sharply and weakened the dollar. President Donald Trump, speaking to reporters, reiterated his stance that he would not negotiate with China until the U.S. trade deficit was addressed. “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 had hoped that the staggering losses, amounting to trillions of dollars in wealth, might prompt Trump to reconsider his trade policies. However, Bruce Kasman, head of economics at JPMorgan, warned that the size and disruptive impact of U.S. trade policies, if sustained, could tip both the U.S. and global economies into recession. He put the risk of a downturn at 60% and indicated that the Federal Reserve is likely to begin easing rates in June 2025. “However, we now think the Committee cuts at every meeting through January 2026, bringing the top of the funds rate target range down to 3.0%,” Kasman added.

The S&P 500 futures slid 3.1% in volatile trading, while Nasdaq futures dived 4.0%, contributing to last week’s nearly $6 trillion in market losses. The turmoil extended to Europe, with EUROSTOXX 50 futures down 3.0%, FTSE futures losing 2.7%, and DAX futures dropping 3.5%. In Asia, Japan's Nikkei index fell 6%, hitting lows not seen since late 2023, while South Korea’s market dropped 5%. MSCI's broadest index of Asia-Pacific shares outside Japan fell 3.6%, and Chinese blue chips lost 4.4% as investors awaited potential stimulus measures from Beijing.

Meanwhile, Taiwan's main index, which had been closed on Thursday and Friday, tumbled nearly 10%, prompting policymakers to implement measures to curb short selling. The overall gloomy outlook for global growth kept oil prices under pressure, with Brent crude falling $1.35 to $64.23 a barrel, and U.S. crude diving $1.395 to $60.60 per barrel.

As investors flocked to safe havens, 10-year Treasury yields dropped 8 basis points to 3.916%. Market sentiment shifted to imply around a 56% chance that the Fed could cut rates as soon as May, despite Chair Jerome Powell's recent remarks indicating no rush to change rates. The dollar slipped another 0.4% against the safe-haven Japanese yen, trading at 146.26 yen, while the euro held firm at $1.0961. The dollar also shed 0.6% against the Swiss franc, and the trade-exposed Australian dollar dropped a further 0.4%.

In the wake of these developments, analysts are closely monitoring U.S. consumer price figures expected to be released later this week, which are anticipated to show a rise of 0.3% for March 2025. This comes at a time when around 87% of U.S. companies are set to report earnings between April 11 and May 9, 2025. Analysts at Goldman Sachs noted, “We expect during upcoming quarterly earnings calls, fewer companies than usual will provide forward guidance for both 2Q and full-year 2025.” They warned that rising tariff rates will force many companies to either increase prices or accept lower profit margins, anticipating negative revisions to consensus profit margin estimates in the coming quarters.

Even gold, traditionally viewed as a safe-haven asset, was not spared from the selloff, easing 0.3% to $3,026 an ounce. The market turmoil left dealers speculating whether investors were liquidating positions to cover losses and margin calls on other assets, potentially leading to a self-feeding fire sale.

As the situation unfolds, the global financial landscape remains precarious, with traders and investors alike bracing for further volatility in the coming days. The interplay between U.S. economic policy and international trade relations will be crucial in determining market direction and investor sentiment.