Caution Grips on Asian Markets as Tariff Deadline and Earnings Wave Approach

Asian share markets dipped on Tuesday, following a second straight day of gains on Wall Street. The MSCI Asia-Pacific Index (excluding Japan) hit its highest since October 2021 before falling 0.4%. Even with the pullback, the index is up about 16% in 2025, registering robust regional gains.

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Shares in Japan also faltered upon their return from a Monday holiday. The Nikkei and Topix opened in positive territory but turned negative by afternoon as election results suggested that Prime Minister Shigeru Ishiba's coalition had lost control of the upper house. Nonetheless, Ishiba said he would not step down.

European futures, meanwhile, indicated that markets were set for a softer opening, with EUROSTOXX 50 and DAX futures slipping 0.5% and FTSE futures down 0.3% ahead of earnings from SAP and UniCredit.

Trade Negotiations and the Yen in the Spotlight

Investors are focusing on U.S. trade talks with not just Japan but also the EU as the August 1 U.S. deadline to impose auto tariffs approaches. Negotiations seem tense, and the European Union is making plans for broader countermeasures if no deal is struck.

The yen rose 1% on Monday before trading roughly flat on Tuesday and was last at 147.73 per dollar. Economists warned that the collapse in political backing for Ishiba could pave the way for more government spending, which might put pressure on the yen and Japanese bond yields.

The euro was flat at $1.1689 after climbing 0.5% on Monday. It's still up 13% this year, as investors pull the plug on U.S. assets for the time being over tariff uncertainty. The U.S. dollar index was near 97.905, as currency traders look for more clarity about trade policies.

Fed Tensions and Earnings Add to Uncertainty

Markets are also worried about the independence of the Federal Reserve. U.S. President Donald Trump recently raised the possibility of firing Fed Chair Jerome Powell and later backed off. The Treasury and Scott Bessent suggested a full review of the Fed's performance was warranted, intensifying concerns over political pressure on monetary policy.

Now all eyes are on Powell's speech later Tuesday for hints on where interest rates are going. The Fed will almost certainly leave rates unchanged later this month, though market participants are expecting rate cuts before the year is out. Goldman Sachs expects three 25-basis-point cuts beginning next month, provided inflation expectations stay moderate.

Global Markets Watch Corporate Earnings

Another focus this week is corporate earnings. Alphabet and Tesla will share their results in the United States, and European giants like LVMH and Roche are also expected to report. Investors are keen to see how companies are dealing with tariffs and rapidly shifting consumer demand.

On Wall Street, the S&P 500 and Nasdaq reached record highs on Monday, while the Dow was unchanged. Experts suggest these earnings reports will play a big role in how the market moves next.

Brent crude fell 0.9 percent to $68.56 a barrel in the commodities market, and U.S. West Texas Intermediate dropped 1% to $66.51 a barrel on concerns about global demand.

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