Asian stocks, already under pressure from growing global growth fears, tumbled on Thursday after New York markets slumped overnight because the United States opened a new trade war front by saying it will impose tariffs on $7.5 billion of goods from the European Union.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.38%. Japan's Nikkei stock index .N225 dropped 1.96% and Australian shares declined 2.19%.
Yields on two-year US Treasury yields approached a two-year low and the dollar fell against major currencies as weakening economic data exposed the damage that the trade war with China has already caused to the US economy.
Oil future extended their decline in Asia as a bigger-than-expected increase in US crude inventories and growing evidence of slowing economic growth point to lower energy demand.
The United States and China have already hiked tariffs on each other's goods in a year-long trade row that has raised the risk of recession and caused major central banks to ease monetary policy.
The chance that Europe will respond in kind to US tariffs is likely to further fuel concerns that global growth is set for a prolonged period of stagnation.
"In the short term it looks a bit dicey (for markets) given the declines we've already had in the past two days," said William O'Loughlin, portfolio manager at Rivkin Asset Management in Sydney.
"The EU tariffs are concerning. I agree that sentiment for equities will be weak. The bond market is saying it's not confident in future growth."
US stock futures ESc1 were up 0.21%, but this did little to bolster sentiment after shares on Wall Street suffered their sharpest one-day decline in nearly six weeks on Wednesday.
The United States on Wednesday said it would enact 10% tariffs on European-made Airbus (AIR.PA) planes and 25% duties on French wine, Scotch and Irish whiskies and cheese from across the continent as punishment for illegal EU aircraft subsidies.
The tariffs announced Wednesday were approved by the World Trade Organization but could still cause friction across the Atlantic.
EU manufacturers are already facing US tariffs on steel and aluminum and a threat from U.S. President Donald Trump to penalize EU cars and car parts.
The two-year yield US2YT=RR fell to 1.4760%, close to a two-year low of 1.4280%, after a weak U.S. private sector jobs report depressed boosted expectations that the Federal Reserve will cut interest rates this month.
Traders see a 74.4% chance the Fed will cut rates by 25 basis points to 1.75%-2.00% in October, up from 39.6% on Monday, according to CME Group's FedWatch tool. FEDWATCH
Bets on a rate cut could rise further if US non-farm payrolls due on Friday show weakness in the labor market.
The dollar index .DXY against a basket of six major currencies stood at 99.020, extending a retreat from a two-year high reached on Tuesday.
Spot gold XAU=, a safe-haven asset that investors often buy during time of heightened risk, rose 0.02% to $1,499.59 per ounce. [GOL/]
US crude CLc1 dipped 0.3% to $52.48 a barrel. In addition to a slowing global economy, energy traders are worried about an oversupplied market and the chance of geopolitical friction in the Middle East.