Asian Markets Extend Losses Amid Fears of US-EU Trade War
Asian markets continued to decline on Tuesday, while precious metals reached new highs due to concerns over a potential US-EU trade war sparked by Donald Trump’s tariff threats. The US president’s demands for Greenland, a Danish autonomous territory, have led to a rift with European capitals, including Copenhagen, which has pushed back against the move.
Trump’s announcement on Saturday to impose 10% tariffs on eight countries, including Denmark, France, Germany, and the UK, starting from February 1, has raised questions about the outlook for the US-EU trade deal. The tariffs are set to increase to 25% by June 1. French President Emmanuel Macron has called for the deployment of a powerful instrument to deter economic coercion, while US Treasury chief Scott Bessent warned that any retaliatory EU tariffs would be “unwise.”
The situation escalated further on Tuesday, with Trump threatening to impose 200% tariffs on French wine and champagne over France’s decision not to join his “Board of Peace” for the rebuilding of Gaza. The prospect of another trade standoff between the US and the EU has led to a rush to safety, dealing a blow to risk assets.
Asian equities extended their losses, with Tokyo, Hong Kong, Sydney, Seoul, Singapore, Mumbai, Manila, and Wellington all experiencing declines. London, Paris, and Frankfurt also saw significant drops for the second consecutive day. Gold and silver prices reached new records, with gold hitting $4,722.76 and silver touching $94.73.
The uncertainty sparked by Trump’s latest move has led to a rise in Treasury yields, with Japanese government bond yields also increasing. The 40-year note yield reached its highest level since its launch in 2007, following the announcement of snap elections by Japanese Prime Minister Sanae Takaichi and her pledge to cut food taxes for two years.
The developments have raised concerns about the Japanese government’s finances, with a record 122.3-trillion-yen budget approved for the fiscal year starting in April 2026. All eyes are now on the World Economic Forum in Davos, Switzerland, where Trump is expected to give a speech. According to Stephen Innes of SPI Asset Management, the event could be a turning point, with the potential for volatility to increase if the situation escalates further.
Key figures at 0815 GMT included the Tokyo Nikkei 225 down 1.1% at 52,991.10, the Hong Kong Hang Seng Index down 0.3% at 26,487.51, and the London FTSE 100 down 0.8% at 10,116.01. The euro/dollar exchange rate was up at $1.1691, while the pound/dollar rate was up at $1.3477. West Texas Intermediate crude oil was up 0.2% at $59.58 per barrel, and Brent North Sea crude was down 0.3% at $63.76 per barrel.
