A steep decline in U.S. Treasury yields depressed the dollar, as oil prices grappled with increasing fears over the future of the world's biggest economy. Meanwhile, Asian shares crept higher as investors looked to the earnings report from AI behemoth Nvidia.
Statistics released Tuesday showed U.S. consumer confidence declined at its sharpest pace in more than three years, joining a string of indicators pointing to increasing nervousness among consumers and businesses. The move comes as markets absorb the policies of the Trump administration, such as a new investigation into possible tariffs on copper imports, which drove U.S. copper prices up more than 4%, even as international prices plummeted.
To counter the eroding confidence, traders raised their bets on Federal Reserve rate reductions, with futures markets now pricing almost 60 basis points of easing by year-end from about 40 basis points last week. The increased expectation of rate cuts drove the benchmark 10-year U.S. Treasury yield to a two-month low of 4.283%, while the two-year yield fell to 4.086%.
The declining yields pulled the dollar down, led by the yen, with the greenback declining 0.13% to 148.81 yen, near a four-month low. The euro was near a one-month high at $1.0522, and the pound was near a two-month peak at $1.2675.
"Those low consumer confidence readings are no surprise, but we didn't think they would come this quickly before the tariffs really kick in and have full effect on consumers", said Joseph Capurso, senior international and sustainable economist at Commonwealth Bank of Australia. "The dollar falls on soft economic news, but if conditions deteriorate much further and markets begin to price in a recession, then the dollar could rally as a safe haven".
Apprehensions over slowing down in U.S. growth also had a shadow falling on oil prices. Brent crude went up by 0.34% at $73.27 per barrel, and the U.S. West Texas Intermediate (WTI) crude advanced by 0.36% to $69.18 a barrel, somewhat recouping from Tuesday's 2.5% plunge. Prices for gold also crept up by 0.1% at $2,918.50 an ounce as investors moved into safe assets.
In Asia, equity markets showed resilience. MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.63%, buoyed by a rally in Chinese stocks. Hong Kong’s Hang Seng Index jumped more than 2%, with the Hang Seng Tech Index rising 2.7%. The CSI300 blue-chip index gained 0.54%, while the Shanghai Composite advanced 0.7%.
Chinese markets have been showing a rising trend in recent weeks, driven by AI technology advances from DeepSeek, that have reinvigorated investor hopes for China's technical capabilities. The rally was, however, disrupted when the Trump administration said it would impose stricter semiconductor export controls and cap Chinese investments in strategic sectors of the United States.
"It's hazardously smug to write off American tariff threats as bluffing", said Vishnu Varathan, Asia ex-Japan head of macro research at Mizuho. "America is determined to dismantle China's technological and manufacturing hegemony".
Japan's Nikkei defied the regional trend and dropped 1.15%, while U.S. stock futures indicated a reversal. Nasdaq futures increased by 0.34%, S&P 500 futures increased 0.2%, and Euro Stoxx 50 futures crept up by 0.37%. FTSE futures gained 0.46%.
Investor attention remains fixated on Nvidia, which reports quarterly earnings later in the day. The company, often seen as a bellwether for the AI sector, could provide crucial insights into the sustainability of AI’s rapid growth and justify the sector’s lofty valuations.
"Any softness in Nvidia's performance could reverberate across the whole of the AI market", said Saxo's global head of investment strategy, Jacob Falkencrone. "It's not merely about one entity it's about whether or not the revolution of AI has momentum".
With markets processing a changing economic scene, the cross-pollination between U.S. policy, global growth and technology innovation will remain the backdrop to investor psyche over the next few months.