Stocks slide in Asia as recession fears pummel sentiment, oil hits 4-yr lows

The U.S. dollar fell against safe-haven currencies but the offshore yuan hit a record low of 7.4287 per dollar overnight. Fed fund futures jumped in early Asian trade to imply around 115 basis points of interest rate cuts this year, compared to 92 basis points early on Tuesday.

Overnight, Washington confirmed 104-percent duties on imports from China would take effect after midnight on Wednesday.

The shifting headlines on tariffs and the specter of a prolonged trade war between the world's two biggest economies sparked sharp volatility in financial markets.

The S&P 500 was swept up in one of the biggest reversals in at least the last 50 years, with the benchmark index losing 4.2 percentage points from a positive start to a negative finish. The index has lost $5.8 trillion in stock market value, the deepest four-day loss since it was created in the 1950s.

Early in Asia, S&P 500 futures fell 1.5 percent while Nasdaq futures dropped 1.7 percent. The pain likewise spread to Europe, with EUROSTOXX 50 futures down 4.5 percent, while FTSE futures lost 2.5 percent.

China's blue chips (.CSI300) slipped 1.2 percent while Hong Kong's Hang Seng index (.HSI) tumbled 3.1 percent. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1.7 percent.

Late on Tuesday, President Donald Trump said China was manipulating currency to protect against tariffs, but he thought China would make a deal at some point.

"U.S. and China are stuck in an unprecedented, and expensive, game of chicken, and it seems that both sides are unwilling to back down," said Ting Lu, chief China economist at Nomura.

"Given the extraordinarily fluid situation, it is impossible to reasonably estimate the impact of the ongoing U.S.-China trade war on China’s economy."

The onshore Chinese yuan was already down at 2023 lows and much attention was on the mid-point fixing from the People's Bank of China on Wednesday, which was set at 7.2066 per dollar, the weakest level since September 2023.

Analysts at JPMorgan believed the rapid escalation with U.S. tariffs on China were disruptive enough to push the global economy into recession.

"Given the import bill from China, the China tariff alone amounts to a whopping $400bn tax hike on U.S. households and businesses," they said in a note to clients. "The currency is likely to be a release valve for China policymakers."

Other stock markets in Asia were also deep in the red. Japan's Nikkei (.N225) tumbled 3.5 percent, after rallying six percent on Wednesday on hopes that Tokyo may get some trade deal with the U.S. Taiwanese stocks (.TWII) also fell 1.7 percent even though the government activated a $15 billion stabilisation fund.

In the Treasuries market, longer-dated bond yields jumped in part due to investors selling the safe-haven asset to cover losses elsewhere. Short-end bonds, however, rallied as investors priced in more easing from the Federal Reserve.

The benchmark 10-year yield rose another five basis points to 4.335 percent, bringing the total rise over the past three days to a whopping 34 bps.

Two-year yields fell six bps to 3.665 percent.

In currency markets, safe-haven currencies like the yen and Swiss franc found some more love, with the dollar skidding 0.6 percent to 145.36 yen and down 0.5 percent to 0.8430 Swiss franc .

The kiwi rose 0.3 percent to $0.5550 after the Reserve Bank of New Zealand cut interest rates by 25 bps to 3.5 percent, although it cautioned about downside risks to the local economy from global trade barriers.

Oil prices dived over four percent on Wednesday on concerns about demand from China. Brent futures plunged 3.9 percent to $60.36 a barrel, while U.S. crude futures also tumbled 4.4 percent to $56.96 per barrel.

Gold struggled to regain its upward momentum and was last down 0.2 percent at $2,03976 per ounce, about the lowest in a month.