Asian Markets Struggle Amid US Economic Concerns And Dollar Weakness
Despite the turmoil in the US, the losses in Asia were relatively limited, sparking discussions about the potential reallocation of funds to the region's equities. However, the ongoing concerns about the economic impact of tariffs remained a significant drag on the markets.
'The 'sell America' trade was in full flight,' said Tapas Strickland, head of market economics at NAB. He added that the President's vocal criticisms of Fed Chair Jerome Powell, particularly his call for rate cuts, underscored a loss of US exceptionalism and raised policy risks for investors. Strickland pointed out that the political tension was adding to the uncertainty surrounding the US economy.
While the selling pressure eased slightly in Asia, it provided some relief for US stock futures, with S&P 500 futures rising 0.4 per cent and Nasdaq futures up 0.5 per cent. Despite this, the market remained on edge as the earnings season continued, with major companies such as Tesla, Alphabet, Boeing, Northrop Grumman, Lockheed Martin, and 3M set to report their results this week. Tesla had already seen a nearly 6 per cent drop on Monday amid reports of production delays.
In Asia, Japan's Nikkei index dipped by 0.3 per cent, while the MSCI Asia-Pacific index excluding Japan fell by 0.2 per cent. However, Chinese blue-chip stocks held steady. European markets fared worse, with futures for the EUROSTOXX 50, FTSE, and DAX all down around 0.7 per cent amid volatile trading.
The US bond market also reflected growing concerns. Yields on US 10-year notes stood at 4.40 per cent, having climbed due to fears that President Trump could attempt to replace Powell with someone more inclined to cut rates. This, combined with rising inflation driven by Trump's tariffs, further exacerbated the uncertainty. The White House's trade talks, which are ongoing or about to begin, added to the unease, as analysts at JPMorgan noted that the average trade deal takes 18 months to negotiate and 45 months to implement.
The loss of confidence in US assets led to a sharp decline in the dollar, which hit its lowest point since March 2022 against a basket of currencies. The dollar also hit a decade-low against the Swiss franc at 0.8038, while the euro briefly rose above US$1.1500, settling at US$1.1486.
In contrast, the dollar's weakness and a surge in demand for safe-haven assets helped gold reach a new record, surpassing US$3,343 an ounce. On the other hand, oil prices saw a slight recovery, with Brent rising 58 cents to US$66.82 a barrel, and US crude adding 51 cents to US$63.59 per barrel, as concerns about a global economic slowdown met the prospect of increased supply from OPEC.
The markets now face a crucial week ahead, with earnings reports and trade developments likely to provide more clarity on the economic outlook.
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