U.S. stock futures fluctuated, the dollar strengthened, and Hong Kong shares retreated from two-month highs on Tuesday as escalating U.S.-China trade tensions unsettled financial markets.
“The trade war narrative remains very much alive, with further developments expected,” said Shane Oliver, chief economist at AMP in Sydney, as markets reacted sharply to the latest headlines.
S&P 500 futures, which had previously risen on hopes that Mexico and Canada’s agreements would delay U.S. tariffs, reversed course to a 0.2% decline. European futures dipped 0.1%, while the euro slipped below $1.02 amid concerns that Europe could also be impacted.
The Canadian dollar and Mexican peso came under renewed selling pressure. The dollar index climbed 0.2% to 108.78.
Hong Kong’s Hang Seng, which had recently reached 2025 highs on expectations that China might negotiate with U.S. President Donald Trump, pared gains but remained about 2% higher.
At 0501 GMT, a new 10% U.S. tariff on Chinese exports took effect. In response, minutes later, Beijing announced an investigation into Google (NASDAQ:GOOGL) and imposed tariffs on U.S. oil, coal, gas, cars, and farm equipment, set to begin on February 10.
“The situation remains highly uncertain. I anticipate increased volatility, a stronger dollar, and USDCNH rising above 7.40,” said Jeff Ng, head of Asia macro strategy at SMBC in Singapore.
Following the tariff implementation, the offshore yuan weakened to 7.3236 per dollar, while the Australian dollar—often viewed as a proxy for the yuan—fell 0.7% to $0.6180.
Chinese markets remain closed for the Lunar New Year holiday, with investors keenly watching Wednesday’s currency fixing for signals on China’s trade negotiation stance.
White House Press Secretary announced that President Trump will speak with Chinese President Xi Jinping in the coming days. However, unlike the discussions with North American partners, it remains unclear whether the U.S. and China can find common ground.
“This is a completely different scenario because China is both an economic and political rival,” said Naka Matsuzawa, chief macro strategist at Nomura in Tokyo.
“Unless China makes significant economic concessions, I don’t see Trump backing down on tariffs.”
Market Uncertainty Takes Hold
Trump’s unpredictable trade policies have led to a volatile week, coinciding with key corporate earnings reports. The Canadian dollar saw its biggest single-day trading range since the pandemic began, while cryptocurrencies faced turbulence.
Bitcoin dropped 3% to $98,750 amid selling pressure. Investor unease also drove gold near record highs, while bonds saw slight declines, with 10-year U.S. Treasury yields rising 3 basis points to 4.57%.
“The surge in policy uncertainty will be difficult to contain,” said Michael Feroli, J.P. Morgan’s chief U.S. economist.
“For the Fed, recent developments will likely reinforce their preference to remain on the sidelines and stay under the radar.”
Meanwhile, UBS Group surpassed expectations with strong fourth-quarter profits and announced a share buyback. BNP Paribas (OTC:BNPQY) also exceeded earnings forecasts but revised its profit target downward for the year. Google is set to report earnings after U.S. markets close on Tuesday, with attention on its significant AI investments.
Oil prices, which had surged on Monday, retreated, with Brent crude hitting a one-month low of $75.03 per barrel.
