Asian Stocks Tumble on US Trade War Fears Amid Trump’s Tariff Threats
Asian Stocks Fall as US Tariff Threats Keep Investors on Edge
The latest round of threats in the US tariff wars dragged Asian stocks lower on Monday, with losses in Wall Street futures keeping investors on edge. Despite hopes that this was mainly bluster by President Donald Trump, the market reaction was more muted than expected. The European Union said it would extend a suspension of countermeasures to US tariffs until early August and continue to press for a negotiated settlement.
Investors Have Become Inured to Trump’s Chaotic Policy Methods
Trump on Saturday said he would impose a 30% tariff on most imports from the EU and Mexico from August 1, even as they are locked in long negotiations. The European Union has already imposed tariffs on US goods worth $7.5 billion, including Harley-Davidson motorcycles, bourbon whiskey, and orange juice. Germany’s finance minister called for firm action if the levies went ahead.
Market Reaction is Mixed
"It is hard to say whether the muted market response is best characterised by resilience or complacency," said Taylor Nugent, a senior markets economist at NAB. "But it is difficult to price the array of headlines purportedly defining where tariffs will sit from August when negotiations are ongoing." For now, MSCI’s broadest index of Asia-Pacific shares outside Japan were little changed, while Japan’s Nikkei eased 0.5%. S&P 500 futures and Nasdaq futures both eased 0.4%.
Earnings Season Kicks Off This Week
Earnings season kicks off this week with the major banks leading the pack on Tuesday. S&P companies are expected to have increased profits by 5.8% from the year-earlier period, down from an expectation of a 10.2% gain on April 1, according to LSEG IBES. Analysts at BofA noted the bar was low for earnings with consensus seeing a slowdown to 4% growth, from the previous quarter’s 13%.
Fed Policy and Tariffs
In bond markets, Treasuries got a very marginal safety bid and 10-year yields held at 4.41%. Futures for the Federal Reserve funds rate edged higher as markets priced in a little more policy easing for next year. While Fed Chair Jerome Powell has signalled a patient outlook on cuts, Trump is piling up political pressure for more aggressive stimulus.
White House Pressure on Powell
White House economic adviser Kevin Hassett over the weekend warned Trump might have grounds to fire Powell because of renovation cost overruns at the Fed’s Washington headquarters. Trump said on Sunday that it would be a great thing if Powell stepped down.
US Consumer Prices and Tariffs
Figures on US consumer prices for June are due on Tuesday and could finally start to show early upward pressure from tariffs, though retailers still have pre-levy inventory to draw on and some companies are absorbing the costs into margins. The impact on supply chain costs could show in producer price and import price figures this week.
China Data Releases
There is also a raft of data out from China starting with June trade on Monday, followed by retail sales, industrial output, and gross domestic product the day after. Among currencies, the euro dipped 0.2% on the tariff news to $1.1665, edging away from its recent four-year top of $1.1830.
Commodity Markets
The dollar added 0.1% on the yen to 147.53 and a similar amount on its currency index to 98.008. The dollar also gained 0.3% on the Mexican peso to 18.6900, with Mexican President Claudia Sheinbaum confident a trade deal could be reached before the August deadline.
Gold and Oil Prices
Gold picked up a modest safe-haven bid and rose 0.3% to $3,366 an ounce. Oil prices edged higher on speculation Trump could announce stiffer sanctions on Russia later on Monday, including levies on major customers buying Russian oil. Brent edged up 0.1% to $70.45 a barrel, while U.S. crude firmed slightly to $68.50 per barrel.
Conclusion
The latest round of threats in the US tariff wars has kept investors on edge, with losses in Wall Street futures dragging Asian stocks lower on Monday. Despite hopes that this was mainly bluster by President Donald Trump, the market reaction was more muted than expected. The European Union said it would extend a suspension of countermeasures to US tariffs until early August and continue to press for a negotiated settlement. Earnings season kicks off this week with the major banks leading the pack on Tuesday, while Fed policy and tariffs remain a key focus for investors.
