Asian shares are mostly higher after US stocks rise to the brink of a record

U.S. equities approached record highs, supported by robust economic data including stronger manufacturing orders and declining unemployment claims, though Treasury yields fluctuated amidst reports concerning potential Fed leadership changes. Conversely, Asian markets were mixed, with Hong Kong and Shanghai declining after China reported a significant 9.1% drop in May industrial profits, highlighting persistent trade war 'scars' despite U.S. claims of a 'signed' trade deal, which China's vague statements and lack of detail on key issues like rare earths cast doubt upon.

Analysis

A significant divergence has emerged between U.S. and Asian equity markets, driven by conflicting economic signals and geopolitical uncertainty. U.S. indices are approaching record highs, with the S&P 500 climbing 0.8% to 6,141.02, buoyed by stronger-than-expected durable goods orders and declining weekly unemployment claims. This optimism persists despite a downward revision to Q1 GDP, which economists largely attribute to temporary tariff-related distortions. However, a major headwind remains in the form of the U.S.-China trade situation. While U.S. officials claim a deal is signed, China's response was notably vague, confirming only a 'framework' and omitting details on key issues like rare earths access. This ambiguity is weighing heavily on Asian markets, particularly the Shanghai Composite, which fell 0.7% after China reported a severe 9.1% drop in May industrial profits, reflecting what analysts call 'tariff scars.' Compounding this cautious global sentiment, U.S. Treasury yields have eased, with the 10-year falling to 4.24%, amid reports of a potential early replacement for the Federal Reserve Chair, raising concerns about central bank independence.

Key Decisions for Investors

• While US economic data supports continued exposure to rallying domestic equities like SPY and QQQ, the proximity to all-time highs and unresolved trade risks warrant using tight stop-losses or considering protective put options.
• Investors should remain cautious on or underweight Chinese equities, as the 9.1% plunge in industrial profits and the ambiguous nature of the reported trade deal signal persistent economic stress and downside risk.
• Monitor developments concerning Federal Reserve leadership and Treasury yields closely, as any perceived threat to the central bank's independence represents a systemic risk that could trigger broad market volatility and a flight to safety.