Asian stocks, US treasuries fall on tariff angst

Stocks edged lower in Australia and Japan. On Monday, European shares fell the most since November, while the US was shut for a public holiday. Contracts for the S&P 500 fell 0.9%. Treasuries declined at the open with the yield on the benchmark 10-year bond gaining three basis points to 4.26%. Gold and silver were a touch lower after closing at record highs.

The yen was steady in early trading Tuesday after Japanese Prime Minister Sanae Takaichi officially called an early election next month. Investors are on tenterhooks ahead of an auction of 20-year Japanese sovereign bonds Tuesday.

Trump’s threat to tariff countries opposing his bid to control Greenland has reignited the market volatility seen early in his second term. European resistance and talk of retaliation deepened the selloff, while investors have sought refuge in precious metals amid rising tensions and renewed attacks on the Federal Reserve’s independence.

“The nervousness is palpable,” said Alexandre Baradez, chief market analyst at IG in Paris. “All in all, you have so many issues piling up — from credit cards to the independence of the Fed and tariffs — that I really don’t see the case for stock markets to keep on breaching new records.”

The standoff comes as resilient earnings and ongoing investment in artificial intelligence have underpinned risk appetite. Market direction now partly depends on the European Union’s response, with the bloc considering tariffs on €93 billion ($108 billion) worth of US goods.French President Emmanuel Macron intended to request the activation of the EU’s so-called anti-coercion instrument, Bloomberg reported over the weekend. German leader Friedrich Merz, however, said Monday that his country’s heavier dependence on exports means it’s less willing to unleash the countermeasure.“With Wall Street closed, the markets haven’t had a complete opportunity to discount the fall-out from the latest escalation in geopolitical risk,” Kyle Rodda, a senior analyst at Capital.com, wrote in a note. “There’ll be an eagle eye on Davos and what the US does and US President Donald Trump says about its bid to acquire Greenland.”

Trump is scheduled to address the World Economic Forum in Davos on Wednesday.

In Asia, investors will be monitoring Japanese sovereign debt on Tuesday following the election announcement. Bond yields had jumped on Monday as reports of a tax cut proposal renewed concerns about Takaichi’s stance on fiscal policy.

The yield on 30-year debt climbed 10 basis points to 3.61%, its highest level since its debut, while rates on 10- and 20-year notes rose to their highest levels since 1999.

The prime minister also said the vote would provide a mandate for fundamental changes to strengthen both economic and defense policy, adding that no one will help a country that can’t help itself.

Elsewhere, in more signs of geopolitical tension, China sent a military drone into Taiwanese airspace for the first time, underscoring Beijing’s efforts to test the self-run democracy’s defenses. China’s military said on social media the aircraft conducted “legitimate and lawful” training.