Asian markets extended losses on Tuesday and silver hit a fresh peak on fears of a US-EU trade war fuelled by Donald Trump's tariff threat over opposition to his grab for Greenland.
After a bright start to the year fuelled by fresh hopes for the artificial intelligence sector, investors have taken fright since the US president ramped up his demands for the Danish autonomous territory, citing national security.
With Copenhagen and other European capitals pushing back, Trump on Saturday said he would impose 10 per cent levies on eight countries, including Denmark, France, Germany and Britain, from 1 February, lifting them to 25 per cent on 1 June.
The move has raised questions about the outlook for last year's US-EU trade deal, while French President Emmanuel Macron has called for the deployment of a powerful, unused instrument aimed at deterring economic coercion.
In response, US Treasury chief Scott Bessent said on Monday that any retaliatory EU tariffs would be "unwise".
The prospect of another trade standoff between two of the world's biggest economic powers has fuelled a rush to safety and dealt a blow to risk assets.
After hefty selling in Europe, Asia equities extended losses.
Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Singapore, Taipei, Manila and Wellington were all down.
Silver hit another record high, touching $94.73 in Asian trade, while gold held just shy of its own peak hit on Monday.
Meanwhile, treasury yields rose amid a move out of US assets fuelled by the uncertainty sparked by Trump's latest volley.
Japanese government bonds yield also rise, with that on the 40-year note hitting the highest since it was launched in 2007, after Prime Minister Sanae Takaichi called snap elections on Monday and pledged to cut a tax on food for a two-year period.
The announcement fuelled fresh worries the government will borrow more cash at a time when questions are already be asked about the country's finances.
Her cabinet approved a record 122.3-trillion-yen ($768 billion) budget for the fiscal year from April 2026, and she has vowed to get parliamentary approval as soon as possible to address rising prices and shore up the world's fourth-largest economy.
Eyes are now on Davos, Switzerland, where the US president is expected to give a speech to the World Economic Forum.
"Davos now becomes the theatre that matters. Not for soundbites, but for whether the adults step back into the room," wrote Stephen Innes of SPI Asset Management.
"If this turns sour, volatility will not stay bottled. What would normally be a Ukraine-focused week risks being hijacked by a far more destabilising question, namely, whether the transatlantic alliance is being stress-tested in public.
"A NATO fracture, even a rhetorical one, is not something markets are trained to shrug off."
- Key figures at around 02:30 GMT -
Tokyo - Nikkei 225: DOWN 1.2 per cent at 52,931.11 (break)
Hong Kong - Hang Seng Index: DOWN 0.6 per cent at 26,401.75
Shanghai - Composite: DOWN 0.7 per cent at 4,087.43
Euro/dollar: DOWN at $1.1639 from $1.1641 on Monday
Pound/dollar: DOWN at $1.3417 from $1.3428
Dollar/yen: UP at 158.15 yen from 158.09 yen
Euro/pound: UP at 86.76 pence from 86.71 pence
West Texas Intermediate: UP 0.4 per cent at $59.69 per barrel
Brent North Sea Crude: UP 0.1 per cent at $64.01 per barrel
New York - Dow: Closed for a holiday
London - FTSE 100: DOWN 0.4 per cent at 10,195.35 (close)
