Asian stocks took a hit on Tuesday as concerns over U.S. investment restrictions on China weighed on investor sentiment. At the same time, enthusiasm surrounding the euro waned as markets awaited clarity on Germany’s new government formation.
Meanwhile, all eyes are on Nvidia’s upcoming earnings report, set to be released on Wednesday, which could lead to an 8% swing in its stock price, depending on the results.
European markets are expected to open flat, with pan-European STOXX 50 futures showing little movement. In the U.S., Nasdaq and S&P 500 futures edged up by 0.1% in Asian trading hours.
In the Asia-Pacific region, MSCI’s broadest index of Asia-Pacific shares outside Japan fell by 1%. Japan’s Nikkei dropped 1.3% following a public holiday, though its five largest trading houses saw a surge due to renewed interest from billionaire investor Warren Buffett.
South Korea’s KOSPI trimmed its losses after the Bank of Korea cut interest rates by a quarter-point as expected. Meanwhile, Hong Kong’s Hang Seng Index initially plunged by 2.7% but later pared losses to 1%, while Chinese blue-chip stocks declined by 0.8%.
Alibaba shares saw a sharp decline, losing 3.2% in Hong Kong after its U.S.-listed stock plummeted 10% overnight—their steepest drop in over two years.
The decline came in response to an executive order from President Donald Trump restricting Chinese investments in key sectors such as semiconductors, artificial intelligence, and aerospace.
Bloomberg also reported that Washington is working with allies to impose stricter restrictions on semiconductor technology exports to China.
“The optimism about China’s tech sector is cooling off as markets realize that the more promising the sector appears, the higher the likelihood it will be targeted by U.S. restrictions,” said Kyle Rodda, a senior analyst at Capital.com.
Adding to investor concerns, Trump signaled that proposed tariffs on Mexico and Canada were still on track to take effect next week, despite expectations that negotiations might prevent them.
Overnight, Wall Street’s technology sector saw a broad selloff, intensifying focus on Nvidia’s earnings report. Investors will be closely analyzing whether the company’s rapid revenue growth justifies its substantial spending on AI technology, particularly in light of rising competition from China’s low-cost DeepSeek.
Recent weak economic data—including lackluster retail sales, declining consumer confidence, and soft manufacturing and services sector reports—have dampened confidence in the resilience of the U.S. economy.
This has also led to increased speculation that the Federal Reserve could cut interest rates by a total of 50 basis points this year, up from previous estimates of 40 basis points.
As a result, bonds have rallied, with the benchmark 10-year Treasury yield hitting a two-month low of 4.371% in Asia, while two-year yields dropped to 4.143%, their lowest level since early December.
In the currency market, the euro’s rally lost steam, with the currency returning to its starting position for the week at $1.0476. It had briefly climbed to a one-month high of $1.0528 following Germany’s election, which avoided any major market disruptions. Meanwhile, the U.S. dollar rebounded from a two-and-a-half-month low, reaching 106.59 against its major peers.
Oil prices edged higher on Tuesday following fresh U.S. sanctions on Iran, with Brent crude rising 0.5% to $75.13 per barrel, while U.S. crude climbed 0.6% to $71.14 per barrel. Gold, which had recently hit a record high of $2,956.15 per ounce, experienced some profit-taking and slipped 0.5% to $2,937 per ounce.