Asian Markets Decline Amid US Tariff Concerns; Oil Prices Increase
Asian stock markets experienced a slight downturn on Monday, influenced by declines in Wall Street futures and renewed tariff threats from U.S. President Donald Trump. Despite the cautious investor sentiment, there are indications that the market’s reaction may be more resilient than it appears. Trump announced plans to impose a 30% tariff on most imports from the European Union and Mexico starting August 1, even as negotiations continue. This announcement, however, did not significantly impact stock prices, with only minor fluctuations observed.
Market Reactions to Tariff Threats
The announcement of new tariffs has created a ripple effect across Asian markets. The MSCI index, which tracks shares in the Asia-Pacific region excluding Japan, remained relatively stable. In contrast, Japan’s Nikkei index saw a decline of 0.5%. Futures for the S&P 500 and Nasdaq both dropped by 0.4%, indicating a cautious outlook as the earnings season approaches. Major banks are set to report their earnings on Tuesday, and analysts expect S&P companies to show a profit growth of 5.8% compared to the previous year, a decrease from earlier projections of 10.2%. This tempered growth forecast reflects the uncertainty surrounding ongoing trade negotiations and tariff implications.
Currency and Commodity Movements
In the currency markets, the euro fell by 0.2% to $1.1665, retreating from a recent four-year high of $1.1830 due to the renewed tariff threats. Meanwhile, the U.S. dollar gained 0.1% against the yen, reaching 147.53, and saw a similar increase on its currency index, which hit 98.008. The dollar also strengthened against the Mexican peso, rising 0.3% to 18.6900. Mexican President Claudia Sheinbaum expressed optimism about reaching a trade agreement before the August deadline, which may help stabilize the currency further. In commodities, gold prices rose by 0.3% to $3,366 an ounce, driven by safe-haven demand amid market uncertainties. Oil prices also saw a slight increase, with Brent crude rising 0.1% to $70.45 a barrel, as speculation grows regarding potential sanctions on Russian oil.
Bond Market and Federal Reserve Outlook
In the bond market, U.S. Treasuries experienced a modest uptick in safe-haven demand, with 10-year yields remaining steady at 4.41%. Futures linked to the Federal Reserve’s policy rate showed a slight increase, as investors adjusted their expectations for interest rate cuts in the coming year. Although Fed Chair Jerome Powell has maintained a cautious stance regarding rate easing, President Trump is applying political pressure for more aggressive stimulus measures. Over the weekend, White House economic adviser Kevin Hassett suggested that Trump could have grounds to remove Powell due to cost overruns in the renovation of the Fed’s headquarters. Trump himself commented that it would be “a great thing” if Powell were to step down, adding another layer of uncertainty to the economic landscape.
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