Asian shares set for worst week since April after US tariff blitz

Asian shares are poised for their worst weekly performance since April, with MSCI's broadest index down 2.2%, following the US imposition of new tariffs ranging from 10% to 41% on imports from numerous trading partners, including India, Taiwan, and South Korea, and increased duties on Canadian goods. This tariff escalation, alongside disappointing Amazon earnings, has prompted a broad sell-off across global equities, signaling an era of higher trade barriers and anticipated negative growth impacts. Concurrently, the likelihood of a September Fed rate cut has sharply diminished to 39% as inflation picked up and the labor market remained stable, underpinning a stronger dollar and shifting focus to forthcoming US jobs data for further monetary policy cues.

Analysis

Global equity markets are experiencing a significant risk-off event, primarily driven by the United States' imposition of steep tariffs, ranging from 15% to 35%, on key trading partners including South Korea, India, and Canada. This action has directly catalyzed a sell-off in Asian markets, with MSCI's Asia-Pacific ex-Japan index falling 2.2% for the week, its worst performance since April, and South Korea's KOSPI plummeting 3.5%. The negative sentiment is compounded by disappointing earnings from Amazon, whose shares fell 6.6% after-hours, dragging down U.S. equity futures. Concurrently, macroeconomic factors are shifting investor expectations. Recent U.S. data indicating rising inflation and a stable labor market has sharply reduced the perceived probability of a Federal Reserve rate cut in September from 65% to 39%, according to CME's FedWatch tool. This pivot has fueled a significant rally in the U.S. dollar, which gained 2.5% this week, and has placed intense focus on the upcoming U.S. jobs report as the key determinant for the Fed's next move.

Key Decisions for Investors

• Investors should immediately review and potentially reduce exposure to export-driven Asian equities, particularly in South Korea and India, given the direct impact of the newly imposed U.S. tariffs.
• Closely monitor the forthcoming U.S. jobs data, as an upside surprise would likely solidify a no-cut stance from the Fed, further strengthening the dollar and increasing pressure on risk assets globally.
• Exercise caution with high-valuation technology stocks, as Amazon's significant post-earnings drop indicates heightened sensitivity to performance disappointments amid a deteriorating macroeconomic backdrop.
• The sustained strength of the U.S. dollar, which is experiencing its largest weekly rise since late 2022, presents a significant headwind for U.S. multinationals with large overseas revenues and could warrant currency hedging strategies.