Asian Markets Edge Higher Amid U.S. Tariff Tensions and Fed Rate Cut Expectations

Asian stock indexes made modest gains on Wednesday, with Japan and Australia outperforming regional peers. Investors appeared to shrug off weak U.S. economic data and looming concerns over new tariffs, choosing instead to focus on positive corporate earnings. Futures in Europe and the U.S. also pointed upwards, despite pressure on specific sectors, such as chipmakers. Notably, shares of Advanced Micro Devices (AMD) dropped 6.6% after disappointing revenue reports, particularly in data center sales.

Despite a generally upbeat earnings season, signs of strain from President Trump’s trade policies are beginning to emerge. U.S. service sector activity stagnated in July, employment figures softened, and input costs surged—reflecting the inflationary impact of tariffs. Trump announced plans to impose new tariffs on semiconductors and pharmaceuticals, while also threatening additional tariffs on Indian imports over Russian oil purchases.

The uncertainty around U.S. trade policy was further complicated by Trump’s comments on China, suggesting a potential year-end meeting with Xi Jinping if progress on a trade deal is made. Meanwhile, India’s central bank held interest rates steady, but analysts now expect potential cuts due to recent steep U.S. tariffs. These developments added pressure to emerging markets and kept investors cautious.

Currency markets remained relatively flat. The dollar failed to find a strong direction following a sharp drop last Friday caused by weak job numbers. This has strengthened market expectations for a Federal Reserve rate cut in September. Fed funds futures indicate a 94% chance of a cut, with investors also anticipating another reduction before year-end. Trump’s forthcoming Fed board nominee could also shift the central bank’s tone, especially as he ruled out replacing Powell early.

In commodities, oil prices rebounded after four straight sessions of decline. Brent and U.S. crude both rose 0.6%, with prices partly supported by ongoing geopolitical concerns, including potential sanctions on Russian oil buyers. Meanwhile, U.S. Treasury yields edged slightly higher but remained near multi-month lows, as markets absorbed a weak 3-year note auction and anticipated more bond supply during the week.

Source: Reuters