Hang Seng Index Drops as Trump’s Latest Tariff Threat Rattle Markets

US Futures Advance on Fed Rate Cut Expectations

US equity markets closed higher on Tuesday, February 18. However, gains were limited as investors assessed US manufacturing data ahead of Wednesday’s FOMC Meeting Minutes release. The S&P 500 rose 0.24%, while the Nasdaq Composite Index and the Dow gained 0.07% and 0.02%, respectively.

In the bond markets, 10-year Treasury yields snapped a two-day losing streak as concerns over the Fed’s rate path resurfaced.

US Manufacturing Sector Dampens Fed Rate Cut Expectations

The NY Empire State Manufacturing Index rebounded from -12.6 in January to +5.7 in February, signaling a recovery in the manufacturing sector. However, a pickup in inflationary pressures across the sector could challenge expectations for an H1 2025 Fed rate cut. Rising input costs reflected higher prices paid, contributing to the uptick in 10-year Treasury yields.

Trump Threatens Tariffs on Autos, Chips, and Pharma

While US equity markets set the tone for Wednesday’s Asian session, US tariff developments impacted risk sentiment.

According to CN Wire:

“President Donald Trump has signaled that as soon as April 2, the US could impose a 25% tariff on imported automobiles, along with similar duties on pharmaceuticals and semiconductor chips. These new tariffs are part of Trump’s broader strategy to reshape global trade and boost US manufacturing.”

CN Asia added that the tariffs would target the EU and Asia’s auto sectors while aiming to pressure chip and pharma into shifting production to the US.

The latest tariff threat could raise fears of a full-blown global trade war, potentially undoing central bank efforts to tame inflation. Major central banks may adopt a more hawkish stance if tariff-driven inflation accelerates, impacting corporate earnings and consumer demand.

Hang Seng Index Drops as Tariff Concerns Mount

Asian markets reacted swiftly to Trump’s latest tariff threats. The Hang Seng Index fell 0.48% on Wednesday morning, with tech stocks leading the sell-off. Alibaba (9988) and Baidu (9888) slid by 1.35% and 2.44%, respectively.

Meanwhile, the Hang Seng Mainland Properties Index rallied 1.36% after housing sector data from China signaled a potential recovery.

Brian Tycangco, editor and analyst at Stansberry Research, commented:

“China property recovery appears to be on track. First tier cities leading price recovery.”

China’s House Price Index fell 5% year-over-year in January after a 5.3% decline in December. CN Wire reported that house prices in China’s first-tier cities increased while declines were modest across second and third-tier cities.

Meanwhile, Mainland China’s equity markets bucked the broader market trend. The CSI 300 and the Shanghai Composite Index advanced by 0.46% and 0.57%, respectively.

The latest house price data and optimism surrounding Monday’s symposium on private enterprises boosted investor confidence.

Nikkei Dips as Yen Strengthens and Trade Fears Grow

Japan’s Nikkei Index fell 0.41% on Wednesday morning. Trade data from Japan fueled expectations for a Bank of Japan rate hike. Imports surged 16.7% year-on-year in January, up from 1.7% in December, signaling a potential surge in domestic demand.

The USD/JPY pair extended Tuesday’s losses, declining by 0.07% to 151.950, indicating Yen strength. A stronger Yen could weigh on overseas earnings, pressuring export-driven stocks. Trump’s latest tariff threat contributed to the Japanese equities market pullback, particularly in export-heavy sectors.

Softbank Group Ltd. (9984) slid by 2.06%, while Nissan Motor Corp. (7201) fell by 1.80%.

ASX 200 Declines as Banking Stocks Weigh on Sentiment

Australia’s ASX 200 Index was down 0.69% on Wednesday morning. Banking sector earnings dragged the Index into the red, offsetting gold, mining, and tech sector gains.

National Australia Bank (NAB) plunged 6.68% after posting weaker-than-expected profits. The bank attributed weaker profits to higher funding costs and intense competition for deposits and loans. Commonwealth Bank of Australia (CBA) and ANZ (ANZ) posted morning losses of 2.43% and 1.50%, respectively.

Outlook: Key Risks and Opportunities

Looking ahead, corporate earnings, central bank policy signals, and US tariff developments will remain key drivers.

AI strategic partnerships and technological advancements could support tech sector growth. However, US tariff threats may continue stoking market volatility.

Discover key strategies to navigate these market risks here.