Stocks and bond yields slid on Tuesday as investors globally ducked for cover after the United States hit Canada, Mexico and China with steep tariffs, launching new trade conflicts with the top three U.S. trading partners.
European stocks (.STOXX) fell 1.3%, losing ground from their record highs, with tariff-sensitive automakers (.SXAP) losing 4.3% and on track for their worst day since September 2022.
However, aerospace and defence stocks (.SXPARO) hit a record high.
Government bond yields fell. U.S. 10-year Treasury yields dropped to their lowest since October and were last at 4.164%. Yields on German 10-year bonds, a benchmark for the euro zone, also slid.
Other riskier assets lost ground too, with bitcoin slipping under $84,000, erasing a surge at the start of the week. The Australian dollar fell to a one-month low, while the Mexican peso and Canadian dollar also weakened.
MSCI world equity index (.MIWD00000PUS), which tracks shares in 47 countries, fell 0.2%.
U.S. futures (.EScv1) were flat, after gaining in European trading hours almost 0.3%. The S&P 500 (.SPX) is down about 5% from its February 19 all-time closing high as tariffs exacerbate concerns about growth.
Investors were also unnerved by U.S. President Donald Trump pausing military aid to Ukraine following his clash in the Oval Office last Friday with Ukrainian President Volodymyr Zelenskiy.
"Everyone is caught by the onslaught. You have the news on tariffs, the news on Ukraine," said Samy Chaar, chief economist and chief investment officer for Switzerland at Lombard Odier, a private bank in Geneva.
"It means that you create uncertainty, and when you have that on markets, investors get back to base."
In Asia, equities tracked the biggest losses on Wall Street this year from overnight. Japan's Nikkei (.N225) fell 1.2% and Taiwan's benchmark (.TWII) lost 0.7%.
Crude oil settled at the lowest levels since early December amid reports OPEC+ will proceed with a planned oil output increase in April. Brent futures fell 0.9% to $70.72 a barrel.
U.S. FALLOUT?
Market players were concerned about the fallout for the U.S. economy as well, especially given a run of soft data in recent weeks.
Those worries escalated on Monday with figures showing U.S. factory gate prices jumped to a nearly three-year high and materials deliveries were taking longer, suggesting that tariffs on imports could soon hamper production.
Higher China tariffs "will likely hurt the U.S. itself as it needs cheap Chinese products to bring down inflation," said Wang Zhuo, partner of Shanghai Zhuozhu Investment Management.
"Higher tariffs on U.S. agriculture products will also negatively impact China," Wang added.
China's yuan bounced off its lowest level since February 13 in offshore trading, with the People's Bank of China continuing to guide the currency higher via the official fixing.
Some investors were sanguine about the tariffs.
"It's quite clear that China, and frankly all the other governments, are trying to avoid (a trade war), but they can’t be seen to be weak, nor do they want to escalate," said Jason Windsor, CEO of UK asset manager abrdn.
"I suspect concessions will be found and we'll find a way through this."
The U.S. dollar index , which tracks the currency against six peers, was last down 0.2%, around its lowest in three months.
Sterling held close to a 1-1/2-month high and the euro was also firm after a 1% rally on Monday.
Bitcoin fell below $84,000 as optimism about a so-called strategic U.S. cryptocurrency reserve quickly waned.
