Trump Deadline, Dollar Slide Weigh On Asian Markets
Asian equities retreated on Wednesday as markets responded to growing uncertainty over US interest rates and a looming trade deadline set by President Donald Trump. MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.23%, pulling back from a November 2021 high reached last week.
Japan's Nikkei slumped 0.78%, driven by weakness in tech shares. Tech-heavy indices in Taiwan and South Korea also tracked lower, mirroring a broader sell-off in US technology stocks following a sharp rally in June.
Adding to the cautious sentiment was Trump's renewed insistence that the Jul 9 deadline for trade negotiations will not be extended. He expressed doubts over a deal with Japan but remains optimistic about reaching an agreement with India.
Meanwhile, investor attention is increasingly shifting to the outcome of the 'One Big Beautiful Bill' Act (OBBBA), which passed the US Senate by a razor-thin margin and now awaits a vote in the House of Representatives. The legislation, expected to expand the national debt by US$3.3 trillion, has sparked fiscal concerns, though market reaction was initially muted. Benchmark US 10-year Treasury yields held steady at 4.245%.
Aninda Mitra, Head of Asia Macro Strategy at BNY Investment Institute, said the Bill 'hard wires' fiscal deterioration in the US and added that elevated term premia may persist due to the uncertainty. 'We don't think long-term yields will fall back materially in the 6 to 12-month horizon,' he added.
US economic data released Tuesday showed a rise in job openings for May, suggesting a still-resilient labour market. Investors are now closely watching Thursday's payrolls report to assess the likelihood of Federal Reserve rate cuts.
Despite pressure from Trump to ease rates immediately, Fed Chair Jerome Powell reiterated the central bank's cautious stance, saying it will 'wait and learn more' about tariff impacts before making any moves.
Markets are pricing in 64 basis points of Fed rate cuts this year, though only a 21% chance of a cut in July. This has weakened the US dollar, which is facing its worst first-half performance since the 1970s, down more than 10% year-to-date.
The euro traded at US$1.1793, just below its recent three-and-a-half-year high, while the yen was steady at 143.52 per dollar. 'Any disappointing economic data can prompt further dovish repricing of FOMC rate cuts and another round of USD selling,' said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
She also warned that developments in OBBBA and trade policy 'have the potential to further weaken the USD if they undermine investor confidence about the US economy'.
Reflecting a flight to safety, spot gold edged lower to US$3,332.19 per ounce, after a 1% jump in the previous session. The precious metal has climbed 27% this year amid rising demand for safe-haven assets.
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