Markets Struggle Amid U.S.-China Tensions And Weak Economic Data

Asian markets are facing significant pressure as investors remain unsettled by escalating tensions between the U.S. and China, particularly regarding the intensifying tech war. The U.S. has been moving to tighten restrictions on semiconductor exports to China, with a focus on leading AI chipmaker Nvidia. This move could have far-reaching implications, as the U.S. seeks to strengthen its position with the support of international allies, according to Bloomberg reports.

The Hong Kong Hang Seng Index experienced an early dip of 2.7%, mainly driven by a nearly 8% drop in Alibaba’s stock, which also saw a 10% decline in its American Depository Receipts. However, the sell-off eased as investors opted to buy the dip, bolstered by the stock’s recent strong performance. By the end of the session, the Hang Seng was down 0.6%, with local tech stocks showing some recovery amid speculation about growing demand for affordable AI models from DeepSeek.

In the U.S., Wall Street continues to grapple with doubts over the sustainability of AI investments. Investors are particularly cautious ahead of Nvidia’s upcoming earnings report, with analysts forecasting a remarkable 72% surge in quarterly revenue.

Gold prices surged to new heights, benefiting from heightened uncertainty in the geopolitical landscape, particularly U.S. involvement in Russia’s conflict with Ukraine. The precious metal approached a record-breaking $3,000 per ounce, reflecting increased investor demand for safer assets in times of turmoil.

Meanwhile, soft U.S. economic data continues to weigh on market sentiment. Retail sales, consumer confidence, and surveys of manufacturing and services sectors all showed signs of weakness, contributing to concerns over rising price pressures. This has led investors to recalibrate expectations regarding U.S. economic exceptionalism, as markets now fully price in the likelihood of the Federal Reserve reducing interest rates by 50 basis points later this year—up from the previously anticipated 40 basis point cut.

Treasury yields also hit new lows during Asia’s trading session, with benchmark yields dropping to 4.377%, marking a two-month low. Meanwhile, two-year yields fell to 4.156%, the lowest level since early December.

Looking ahead, attention will turn to key economic indicators and central bank commentary. Analysts are closely watching the Conference Board’s U.S. Consumer Confidence survey, particularly following the recent slump in the University of Michigan’s equivalent report. Additionally, Richmond Fed President Thomas Barkin and Dallas Fed President Lorie Logan are expected to speak, with market participants eager to hear their views on the Fed’s cautious stance regarding interest rate cuts. European Central Bank board member Isabel Schnabel will also address the future of the ECB’s balance sheet in London, offering further insights into the central bank’s monetary policy direction.