Asia share markets, dollar wary on tariff news

Asian markets opened cautiously amid President Trump's threat to double tariffs on steel and aluminum imports, a move criticized by the EU, and ahead of key U.S. jobs data and a likely ECB rate cut. While White House officials downplayed a court ruling against Trump's tariff authority, JPMorgan anticipates continued protectionist measures including potential tariff increases on ASEAN and US-EU trade. Investors are also awaiting potential easing signals from the Federal Reserve, contingent on upcoming unemployment data, as well as the Senate's consideration of a bill that would add trillions to the national debt.

Analysis

Global financial markets commenced the week with a cautious tone, reflecting a moderately negative sentiment (score -0.45) and a significant market impact score (0.65), primarily driven by uncertainty surrounding U.S. trade policy. President Trump's threat to double tariffs on imported steel and aluminum to 50% by June 4, despite drawing ire from European Union negotiators and a court ruling questioning his authority, underpins this wariness. JPMorgan's chief economist, Bruce Kasman, anticipates a continued U.S. commitment to a minimum 10% tariff rate and potential further increases on ASEAN and US-EU trade, even as Treasury Secretary Scott Bessent signaled upcoming talks between Trump and Chinese President Xi Jinping on critical minerals. This uncertainty contributed to a flat MSCI Asia-Pacific index (ex-Japan), a 1.1% decline in Japan’s Nikkei, and modest dips in South Korean stocks, S&P 500 futures (-0.2%), and Nasdaq futures (-0.3%), contrasting with strong May gains (S&P +6.2%, Nasdaq +9.6%) previously fueled by hopes of lower final levies. The market is also reacting to economic volatility, with a Q1 contraction potentially followed by a Q2 jump (Atlanta Fed GDPNow at 3.8%) due to tariff front-running, though a second-half slowdown is anticipated.

Investors are keenly awaiting key U.S. economic data, particularly May payrolls (forecasted at +130,000, unemployment at 4.2%), which could influence Federal Reserve policy, where a September rate cut is priced with a 75% probability despite reserved commentary from officials like Chair Jerome Powell. Governor Christopher Waller acknowledged downside economic risks from tariffs potentially supporting easing later in the year. Meanwhile, the European Central Bank is widely expected to cut its rates by 0.25% to 2.0% on Thursday, and the Bank of Canada is anticipated to hold rates at 2.75% but adopt a dovish outlook. The U.S. dollar remains weak, exemplified by its 0.2% dip against the yen to 143.79 and 0.1% slip against the Canadian dollar to 1.3727, pressured by trade concerns and a looming Senate bill set to add $3.8 trillion to federal debt, which is also pushing 30-year Treasury yields towards 5%. In commodities, gold edged up 0.6% to $3,310 an ounce, while oil prices rebounded (Brent +$1.07 to $63.85, U.S. crude +$1.18 to $61.95) after OPEC+ decided to maintain its current pace of output increases for July.

Key Decisions for Investors

• Adopt a cautious investment stance, closely monitoring developments around U.S. tariff policies, particularly the June 4 deadline for steel and aluminum, and any outcomes from U.S.-China trade discussions.
• Scrutinize upcoming U.S. jobs data and Federal Reserve communications, as weaker employment figures could strengthen the case for monetary easing, potentially impacting equity and bond valuations.
• Anticipate continued volatility in currency markets, particularly for the U.S. dollar, which faces headwinds from trade tensions and expanding fiscal deficits; also consider the divergent monetary policy paths of the ECB and Bank of Canada.
• Evaluate fixed income allocations in light of rising U.S. Treasury yields, driven by increased debt issuance, and assess the broader economic implications of increased U.S. government debt.
• Monitor commodity markets, as gold may find support from ongoing uncertainties, while oil prices will remain sensitive to OPEC+ supply decisions and global demand shifts influenced by trade disputes.