The financial landscape is navigating an ever-shifting environment, with risk sentiment holding steady despite significant macroeconomic developments on 11 February 2025.

One of the most notable events in recent days has been President Donald Trump’s decision to impose a 25 per cent tariff on all steel and aluminium imports, a move that includes key trading partners like Mexico and Canada without any exemptions. This policy, enacted under Section 232 of the Trade Expansion Act, has sent shockwaves through global markets, raising fears of potential trade conflicts and their broader economic fallout.

Trump has also hinted at the possibility of further increasing these tariffs and suggested the introduction of reciprocal tariffs, which could be announced as early as today or Wednesday. These developments have heightened market uncertainty as investors and analysts closely monitor whether these threats will materialise and how they might reshape global trade dynamics.

At the same time, the US corporate earnings season has provided a stabilising force, with strong performances from American companies reinforcing confidence in the economy’s underlying health.

However, the interplay between these macroeconomic and microeconomic factors, alongside other global trends such as Japan’s potential reclassification of cryptocurrencies and significant Bitcoin acquisitions by firms like Strategy (formerly MicroStrategy), paints a multifaceted picture of the current financial environment.

In this article, I will explore these developments in detail, analyse their potential impacts, and offer my perspective on how they shape the global risk sentiment.

Tariffs and market reactions

Let’s start with the tariff announcement, which has dominated financial news and market discussions in recent days. President Trump’s decision to impose a 25 per cent tariff on steel and aluminium imports under Section 232—a provision that allows the president to restrict imports deemed a threat to national security—marks a significant escalation in US trade policy.

Unlike previous tariff actions, which often included exemptions for key allies, this move explicitly excludes Mexico and Canada, two of the United States’ largest trading partners. This lack of exemptions has raised concerns, as it signals a more aggressive and unilateral approach to trade policy. Trump’s comments over the weekend and his warning that tariffs could “go higher” have added to the uncertainty, with market participants now bracing for the possibility of reciprocal tariffs.

Reciprocal tariffs, if implemented, would involve matching the tariff rates of other countries on US exports, potentially triggering retaliatory measures from affected nations. The timing of these potential announcements—possibly today or Wednesday—has kept markets on edge, as investors weigh the risks of a broader trade conflict.

From a market perspective, the immediate reaction to the tariff news has been varied. US equity indices, as measured by the MSCI US Index, rose by 0.7 per cent on Monday, with strong performances in the energy sector (+2.2 per cent) and information technology (+1.5 per cent). This resilience suggests that, for now, investors are focusing on the positive fundamentals of American companies rather than the potential negative impacts of tariffs.

The US earnings season has been particularly strong, with many companies surpassing expectations despite what analysts had considered a high bar. This strength in corporate fundamentals has provided a buffer against the macro uncertainties, supporting risk sentiment in the short term.

However, the longer-term implications of tariffs cannot be ignored. Tariffs on steel and aluminium could increase input costs for industries such as manufacturing, construction, and automotive, potentially squeezing profit margins and stoking inflation. If reciprocal tariffs are introduced, US exporters could face higher costs in foreign markets, further complicating the economic outlook.

Turning to the bond market, US Treasury yields ended Monday’s session with mixed results. Shorter-term yields, such as the two year and seven year, edged lower, reflecting some caution among investors about the near-term economic impact of tariffs.

Conversely, longer-term yields, including the 10-year (+0.2 basis points to 4.497 per cent) and 30-year (+1.4 basis points to 4.707 per cent), inched higher, suggesting that investors expect inflationary pressures from tariffs to persist over the longer term. This divergence in yield movements highlights the uncertainty surrounding the Federal Reserve’s next moves. Tariffs, by increasing costs and potentially delaying rate cuts, could complicate the Fed’s efforts to balance inflation and growth.

The US Dollar Index, meanwhile, rose by 0.3 per cent, reflecting safe-haven demand amid the tariff-related uncertainty. Gold, a traditional safe-haven asset, surged by 1.7 per cent to a fresh record high, underscoring investor concerns about geopolitical and economic risks. In the energy market, Brent crude oil prices rose by 1.6 per cent, supported by signs of a tighter market and geopolitical tensions, including Russia’s failure to meet its OPEC+ quota and rising natural gas prices in Europe.

Asian markets and crypto regulations

In Asia, the HSCEI index rose by 2.1 per cent for the third consecutive day, driven by optimism surrounding DeepSeek’s AI model and a perception that tariff tensions might be less severe than feared. However, early trading sessions on Tuesday showed mixed results for Asian equity indices, with US equity futures pointing to a lower open. This divergence highlights the uneven impact of tariff-related developments across regions.

While US markets have been buoyed by strong earnings, Asian markets remain more exposed to trade risks, given their reliance on exports. The resilience of risk sentiment in Asia, particularly in China, can also be attributed to positive developments in the AI sector, with companies like DeepSeek demonstrating resilience despite trade tensions. However, the broader implications of tariffs on global supply chains and economic growth remain a concern, particularly for export-dependent economies.

Shifting focus to other global developments, Japan’s Financial Services Agency (FSA) is considering a significant regulatory change that could reclassify cryptocurrencies as securities. This potential shift, which could take effect by 2026, would have far-reaching implications for retail investors and the broader financial ecosystem. By classifying crypto as securities, Japan aims to strengthen investor protections, lower taxes on crypto investments, and enable domestic funds to invest in tokens.

This move could also pave the way for the approval of crypto exchange-traded funds (ETFs), including spot Bitcoin ETFs, which would attract institutional capital and boost market liquidity. Posts on X have highlighted the FSA’s plans, with some users speculating on the potential for tax cuts and ETF approvals.

However, these reports remain inconclusive, and the FSA’s final decision will depend on a comprehensive review of existing regulations. If implemented, this reclassification could position Japan as a leader in the global crypto market, potentially offsetting some of the negative sentiment surrounding tariffs.

Another notable development in the crypto space is the recent acquisition by Strategy (formerly MicroStrategy) of 7,633 Bitcoin for US$742 million between February 3 and February 9, at an average price of US$97,255 per Bitcoin. The firm now holds 478,740 Bitcoin, worth over US$46 billion, with an average purchase price of US$65,033 per Bitcoin.

This acquisition, representing 2.2 per cent of Bitcoin’s total supply, underscores the growing institutional interest in cryptocurrencies as a store of value and hedge against inflation. Strategy’s aggressive Bitcoin strategy has been closely watched by investors, with some viewing it as a bullish signal for the crypto market.

However, the timing of this acquisition, amid tariff-related uncertainty and rising gold prices, raises questions about the firm’s risk management approach. While Bitcoin has historically been seen as a safe-haven asset, its volatility and correlation with risk assets like equities could complicate its role in a tariff-driven market environment.

Balancing risk and optimism

From my perspective, the current global risk sentiment is a delicate balance between optimism and caution. On one hand, the strength of US corporate earnings and positive developments in sectors like AI and crypto provide a foundation for resilience. The MSCI US Index’s gains, driven by energy and tech, reflect confidence in the underlying fundamentals of the economy.

Similarly, Japan’s potential reclassification of crypto and Strategy’s Bitcoin acquisition signal growing institutional acceptance of digital assets, which could support risk sentiment in the longer term. On the other hand, the tariff announcement and the threat of reciprocal tariffs introduce significant uncertainty.

Tariffs, by increasing costs and disrupting supply chains, could stoke inflation and weigh on economic growth. The mixed performance of US Treasury yields, the surge in gold prices, and the rise in Brent crude oil all point to heightened concerns about the macroeconomic outlook.

In my view, the key question for markets is whether the positive microeconomic factors—such as strong earnings and innovation in AI and crypto—can continue to offset the negative macroeconomic risks posed by tariffs. While US markets have shown resilience so far, the potential for retaliatory measures from trading partners like China, Mexico, and Canada could escalate tensions and disrupt global trade.

For Asia, the optimism surrounding DeepSeek’s AI model and less severe tariff fears may provide temporary relief, but the region’s exposure to trade risks remains a concern. Japan’s potential crypto reclassification, if implemented, could be a game-changer, attracting capital and boosting sentiment. However, the success of this move will depend on the FSA’s ability to balance investor protections with market growth. Strategy’s Bitcoin acquisition, while bullish for crypto, also highlights the challenges of navigating a volatile market environment.

In conclusion, the global risk sentiment is supported by a combination of strong corporate fundamentals and positive developments in AI and crypto, but it remains vulnerable to tariff-related uncertainties. President Trump’s tariff announcement, under Section 232, has introduced significant risks, with the potential for reciprocal tariffs adding to the complexity. While US markets have been buoyed by earnings, the longer-term implications of tariffs on inflation, growth, and trade dynamics cannot be ignored.

In Asia, optimism surrounding AI and crypto provides a counterbalance, but the region’s exposure to trade risks remains a concern. Japan’s potential crypto reclassification and Strategy’s Bitcoin acquisition are positive signals, but their impact will depend on broader market conditions. As markets navigate this busy macro news backdrop, the interplay between microeconomic resilience and macroeconomic risks will shape the trajectory of global risk sentiment in the coming weeks and months.

Source: https://e27.co/global-risk-sentiment-holds-steady-amid-tariffs-ai-optimism-and-crypto-shifts-20250211/