Trump tariff risks put Asian stocks' strong July record to test
Markets are bracing for heightened volatility ahead of the Jul 9 deadline for countries to cut trade deals with the US. Uncertainty over the outcome of these negotiations poses a hurdle for regional shares to maintain an average return of 1.36 per cent for July, the second-best performing month of the year, over the past decade.
Investors are 'somewhat holding back on fresh allocations to emerging Asia', said Christian Nolting, global chief investment officer at Deutsche Bank's Private Bank. 'While recent comments from high-level negotiators suggest constructive progress in ongoing talks with major Asian trading partners,' uncertainties remain high given that trade disputes during US President Donald Trump's first term lasted one and a half years, he added.
While the MSCI Asia-Pacific Index has gained for three consecutive months to June, a potential return of 'Liberation Day' tariff rates could send shares plunging in the similar way they did in early April.
Trump ruled out delaying the Jul 9 deadline for imposing higher levies on trading partners and renewed threats to hike tariffs on Japan. That saw Japanese shares leading losses in Asia early on Wednesday, with the Nikkei 225 down about 1 per cent.
Even if trade deals materialise, some levels of tariffs are likely to stay. That would be a drag on the region's export-led economies. A number of central banks in Asia have lowered their growth outlooks for the year. Meanwhile, elevated US interest rates may curb the scope for Asian central banks to further lower borrowing cost.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
'The third quarter looks to have lots of dangerous potholes with higher inflation and the prospect of slower growth,' said Gary Dugan, chief executive officer of the Global CIO Office. 'We are not so convinced the Federal Reserve will have sufficient reasons to cut rates at the pace the market prices.'
To be sure, a milder-than-expected tariff outcome and more dovish signalling from the Federal Reserve may encourage flows into the region. Current positioning in Asian assets leaves room for upside, said Gary Tan, a portfolio manager at Allspring Global Investments.
The US central bank has refrained from cutting interest rates this year as it assesses the impact of Trump's tariffs on inflation. The Trump administration though has been applying pressure to lower borrowing costs, and two Fed governors in recent days have said a cut could be appropriate as soon as July.
The MSCI Asia-Pacific gauge has risen 12 per cent so far this year, outperforming the US, with shares in South Korea and Hong Kong seeing renewed interest. Still, some markets in South-east Asia, where countries were hit with among the highest tariff rates, remain under pressure.
'We continue to expect choppy markets over the summer,' Nomura Holdings strategists, including Chetan Seth, wrote in a recent note. 'We recommend investors focus on stock selection and on idiosyncratic themes that provide insulation from policy uncertainty and ones that offer better visibility.' BLOOMBERG
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Times
an hour ago
- Business Times
US: S&P 500, Nasdaq retreat from record rally after hot producer inflation data
[NEW YORK] The S&P 500 and the Nasdaq retreated from record highs on Thursday (Aug 14), after a hotter-than-expected producer prices report dampened investor expectations of potential interest-rate cuts by the Federal Reserve this year. The Dow Jones Industrial Average fell 31.4 points, or 0.07 per cent, at the open to 44,890.84. The S&P 500 fell 13.1 points, or 0.20 per cent, at the open to 6,453.46, while the Nasdaq Composite dropped 63.9 points, or 0.29 per cent, to 21,649.211 at the opening bell. REUTERS
Business Times
an hour ago
- Business Times
US jobless claims edge lower, continuing claims remain elevated
[WASHINGTON] Applications for US unemployment benefits edged lower last week, suggesting employers remain reluctant to lay off workers. Initial claims decreased by 3,000 to 224,000 in the week ended Aug 9, which was about in line with economists' forecasts. Businesses have pared back on hiring new employees amid economic uncertainty driven by President Donald Trump's policies, particularly tariffs. However, the relatively low level of initial filings indicates that employers aren't widely cutting workers. Continuing claims, a proxy for the number of people receiving benefits, fell to 1.95 million in the previous week, according to Labor Department data released on Thursday (Aug 14). That figure has been hovering around the highest since 2021 for the last few months, indicating many out-of-work Americans are finding it difficult to find employment. Investors expect the Federal Reserve to reduce interest rates at their September policy meeting. Recent data point to a cooling labour market, while the impact from tariffs on prices has been limited. Separate data has shown a significant slowdown in job creation over the past three months after sizeable downward revisions to May and June figures. Following that report, Trump fired the head of the Bureau of Labor Statistics. He has since announced EJ Antoni as his pick to lead the agency – an appointment that is subject to Senate confirmation. Economists on both sides of the political aisle have raised concerns about Antoni's political views and work history. The four-week moving average of new applications, a metric that helps smooth out volatility, was little changed at 221,750. Before adjusting for seasonal factors, initial claims rose last week, led by Massachusetts and California. BLOOMBERG
CNA
2 hours ago
- CNA
Stocks diverge as bitcoin hits record high
LONDON: European and Asian stock markets diverged on Thursday (Aug 14) and bitcoin hit a record high on the eve of landmark talks between United States President Donald Trump and Russian counterpart Vladimir Putin on potentially ending the Ukraine war. Most European equity indices climbed after major Asian peers ended lower. Bitcoin hit a new peak at US$124,514.59 in Asian trading, before cooling to around US$121,500. The world's biggest cryptocurrency is benefiting from expectations that the Federal Reserve will cut US interest rates before 2026, which is weighing on the dollar. Bitcoin is also winning investor support thanks to strong backing for the cryptocurrency sector from Trump. "An accommodative stance from the Trump administration combined with expectations of a September Fed rate cut have helped to propel gains for bitcoin," Victoria Scholar, head of investment at Interactive Investor, noted on Thursday. The pound won some support thanks to expectations that the Bank of England may not follow up its interest-rate cut last week with another reduction this year. The currency's rise weighed on London's FTSE 100 index of top companies, some of which earn in dollars. Britain's economy performed better than expected in the second quarter as it weathered the impact of US tariffs and a higher UK business tax, official data showed on Thursday. On Friday, Putin and Trump are to discuss ways to settle the Ukraine conflict during a summit in Alaska, the Kremlin said. The meeting will be the first between sitting US and Russian presidents since 2021, and comes as Trump seeks to broker an end to Russia's nearly three-and-a-half-year offensive. "It is probably obvious to everyone that the central topic will be the resolution of the Ukraine crisis," Kremlin aide Yuri Ushakov told reporters. Oil prices edged higher on Thursday, with market watchers waiting to see if the meeting's outcome affects trading of crude, of which Russia is a major supplier.
