Asian Markets Lose Steam as Trade War Truce Fails to Inspire Confidence
Asian stocks faltered and the U.S. dollar weakened on Tuesday, despite initial optimism around a 90-day pause in U.S.-China tariffs. Investors welcomed the truce but quickly shifted focus to lingering uncertainties over the broader impact of trade policies on global growth. While Wall Street had rallied, markets in Asia, particularly China—remained cautious, with Hong Kong’s Hang Seng dropping while Japan’s Nikkei surged to a multi-month high. Analysts remain skeptical that the ceasefire will bring lasting change, pointing to continued elevated tariff levels.
Although tariffs between the U.S. and China have been significantly reduced, they still sit well above historical norms. Fitch Ratings noted the U.S. effective tariff rate now stands at 13.1%, down from 22.8% but still far above the 2.3% level seen at the end of 2024. The market’s initial relief was short-lived as concerns about the long-term effects of these trade measures, especially on U.S. consumer and business activity, began to dominate sentiment.
The cautious tone was reflected in currency and commodity markets. The dollar, which had briefly surged on Monday, softened as enthusiasm waned. Meanwhile, investors rotated into safe havens like the yen, Swiss franc, and gold, although gold later recouped some losses. Oil prices eased slightly after a recent rally, and Bitcoin held steady above $100,000, reflecting the complex and mixed risk sentiment across asset classes.
Looking ahead, investor attention is shifting toward upcoming U.S. inflation data, which could shape expectations for Federal Reserve policy. Any sign of cooling inflation might revive hopes for rate cuts, which have been scaled back recently. Traders are now pricing in roughly 56 basis points of cuts in 2025—down significantly from earlier in the year, suggesting that the Fed may have less urgency to ease policy in light of the trade developments.
In short, while the temporary tariff truce between the U.S. and China offered a brief boost, markets remain wary. With inflation data and Fed decisions on the horizon, volatility is likely to persist. Institutional investors appear to be waiting on the sidelines, prepared to jump back in only if stronger fundamentals emerge or prices dip more attractively.
Source: Reuters