Japanese bond market jitters weigh on other govt debt; feed negative equity sentiment
All three major Wall Street indexes ended Tuesday with their biggest one-day drops in three months, in a broad selloff triggered by concerns that fresh tariff threats from President Donald Trump against Europe could signal renewed market volatility.
The risk-off trade was pervasive, helping vault gold to fresh record highs, and pushing up debt costs with US Treasuries wobbling under renewed selling pressure. Bitcoin, which can find favor when traditional markets waver, fell more than 3%.
All three US equity benchmarks registered their worst one-day performance since 10 October, with both the S&P 500 and Nasdaq Composite slipping below their 50-day moving averages.
The S&P 500 lost 143.15 points, or 2.06%, to end at 6,796.86 points, while the Nasdaq Composite gave up 561.07 points, or 2.39%, to 22,954.32. The Dow Jones Industrial Average fell 870.74 points, or 1.76%, to 48,488.59.
Uncertainty rises
Tuesday was the first opportunity for US investors to act on Trump’s weekend comments, given the market holiday for Martin Luther King, Jr. Day.
This included Trump saying additional 10% import tariffs would take effect on 1 February on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Great Britain — all already subject to US tariffs.
The tariffs would increase to 25% on 1 June and continue until a deal was reached for the US to purchase Greenland, Trump wrote in a post on Truth Social. Leaders of Greenland, an autonomous territory of Denmark, and Denmark have insisted the island is not for sale.
The reinjection of tariff threats into global markets harkens back to April’s “Liberation Day,” when Trump’s levies on global trade partners pushed the S&P 500 to near bear market territory.
The CBOE Volatility Index, also known as Wall Street’s fear gauge, spiked to 20.09 points, its highest close since 24 November.
Trading volumes were also higher: around 20.6 billion shares changed hands on US exchanges on Tuesday, up from the 17.01 billion average for the last 20 trading days.
While investor sentiment was frayed on Tuesday, the question being asked is whether Greenland represents a knee-jerk selloff, or something that will have longer-term implications for markets.
Jamie Cox, managing partner at Harris Financial Group, said he was not seeing indications investors were fleeing.
“I’m not at the point yet where I’m willing to say what is happening with Greenland, and the resurgence of the tariff threat back and forth, is going to precipitate a correction in the equities markets,” he said, adding he would be surprised if there was a 3% to 5% drop this week.
Bond markets spillover
A potentially more significant action, in Cox’s eyes, would be whether Japanese authorities intervene in financial markets.
Japanese government bonds plunged on Tuesday, sending yields to record highs, while Tokyo stocks and the yen also fell after Prime Minister Sanae Takaichi’s call for a snap election shook confidence in the country’s fiscal health.
The moves helped push the cost of longer-term European government bonds higher, while a selloff in US Treasuries was more pronounced on the long end of the curve.
Despite tariff talk, and notable bond movements, the US economy remains in a strong position.
Investors are due a host of fresh data this week on the state of the US economy, including the third-quarter US GDP update, January PMI readings and the Personal Consumption Expenditures report, which is the Federal Reserve’s preferred inflation gauge.
Earnings season is also kicking into higher gear, with several industry bellwethers set to report their quarterly earnings this week.
Among them was Netflix, which closed 0.8% lower before reporting earnings after the bell.
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