Asian shares are mixed after US stocks hit an all-time high

U.S. equities achieved new all-time highs, with the S&P 500 and Nasdaq reaching record levels, fostering a mixed performance across Asian markets. This rally was largely attributed to a perceived easing of trade tensions, including Canada's decision to cancel a tech tax and the postponement of U.S.-China tariffs. However, significant policy uncertainty remains due to the Trump administration's looming tariff deadlines and threats of further penalties, while elevated inflation, with the PCE index at 2.3% in May, continues to influence the Federal Reserve's cautious stance on further interest rate cuts despite market expectations.

Analysis

U.S. equity markets have reached new all-time highs, with the S&P 500 rising 0.5% to 6,173.07 and the Nasdaq Composite gaining 0.5%, fueling a mixed but broadly positive session in Asian markets. The immediate catalyst for this risk-on sentiment is a perceived de-escalation in trade tensions, specifically Canada's decision to cancel a tech tax, which prompted a resumption of U.S. trade talks. However, this optimism is set against a backdrop of significant policy uncertainty and persistent inflation. The Trump administration's threat to implement further tariffs remains a primary risk, with a key deadline for the current pause set for July 9. This precarious situation is complicated by inflation data, as the Federal Reserve's preferred gauge, the PCE index, rose to 2.3% in May, remaining above the central bank's 2% target. Consequently, the Fed has maintained a cautious stance, pausing rate cuts in 2025, which contrasts with economists' expectations for at least two cuts before year-end. This divergence between market expectations and central bank caution, coupled with stable but elevated bond yields like the 10-year Treasury at 4.28%, highlights a market that is celebrating short-term relief while facing substantial macroeconomic headwinds.

Key Decisions for Investors

• While U.S. equity indices are at all-time highs, investors should remain cautious given the unresolved trade policy risks, particularly the approaching July 9 tariff deadline which could trigger renewed market volatility.
• Monitor inflation data and Federal Reserve communications closely, as the persistent PCE reading of 2.3% above the 2% target may lead the Fed to delay anticipated rate cuts, challenging the market's current expectations.
• Given the mixed performance across Asian markets and sector-specific resilience, such as Nike's 15.2% surge despite tariff warnings, consider a selective approach focused on companies with strong fundamentals that can withstand potential cost pressures and supply chain disruptions.