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Trump criticized both foreign tariffs and non-tariff trade barriers, pointing to Australia’s limits on U.S. beef, the European Union’s poultry bans, and Japan’s charges on rice imports X - Asian market shares rose slightly on Tuesday, driven by potential exemptions on auto-related tariffs as hinted by U.S. President Donald Trump.
- Investors reacted positively to the news, pushing shares higher, despite ongoing uncertainty over Trump's trade policies.
- U.S. Treasuries held onto gains after last week's selloff, while the dollar remained near a three-year low against the euro.
- The global economic outlook remains uncertain due to the ongoing trade war, but recent developments suggest a possible reprieve for certain sectors.
In the financial world, the Asian market has seen a slight uptick, with shares edging higher on Tuesday. This surge was primarily driven by gains in auto companies, following a hint from U.S. President Donald Trump that he might consider exemptions on auto-related levies already in place.
The US President's statement on Monday suggested a potential modification to the 25% tariffs imposed on foreign auto and auto parts imports from Mexico, Canada, and other places. These tariffs could significantly increase the costs of a car by thousands of dollars. Trump's statement that car companies need a little bit of time because they're going to make 'em here indicates a potential reprieve for the auto industry.
This development follows Friday's move to exempt smartphones, computers, and some other electronics from Trump's reciprocal U.S. tariffs. However, the administration later intensified probes into imports of semiconductors after Trump announced he would be revealing their tariff rate over the next week.
Illiana Jain, an economist at Westpac, described it as a hopeful situation, saying, "When we start to see some of these exemptions flow through for particular sectors, it helps markets think about tariffs as something that aren't necessarily going to be all-encompassing, and that they might actually be reprieved."
Market Reactions and Investor Sentiments
Investors, still reeling from last week's heavy selling across markets, took this as good news and pushed shares slightly higher. MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.3%.
In Japan, the Nikkei rose 1%, with shares of auto companies like Toyota and auto parts maker Denso among the top gainers on the index. However, the gains were limited due to the uncertainty over Trump's trade policies and his constant back-and-forth on tariffs, which continued to cast a shadow over markets and the global economic outlook.
U.S. futures swung between losses and gains to last trade lower after an overnight gain on Wall Street. Nasdaq futures and S&P 500 futures were each down close to 0.2%. In Europe, EUROSTOXX 50 futures fell 0.14%, while FTSE futures were up 0.25%. Investors have more earnings to weather this week with Bank of America and Citigroup among the big banks reporting. Numbers from chipmaker TSMC later in the week will also be a highlight.
China's CSI300 blue-chip index and Shanghai Composite Index eased more than 0.4% each, while Hong Kong's Hang Seng Index reversed early gains to fall 0.16%. The Nasdaq climbed more than six-tenths of a percent.
Bharat Sachanandani, head of flow strategy and solutions for Asia Pacific at Societe Generale, commented on the situation, At the margin, the uncertainty and re-ordering of the global trade system is both inflationary and suggestive of slower growth.
Impact on U.S. Treasuries and Dollar
U.S. Treasuries held onto overnight gains on Tuesday after a manic selloff last week that led to the largest weekly increase in borrowing costs in decades. Bond yields move inversely to prices. The benchmark 10-year yield was steady at 4.3564%, after having fallen nearly 13 basis points in the previous session. Similarly, the two-year yield was little changed at 3.8450% after sliding 12 bps on Monday.
Federal Reserve Governor Christopher Waller commented on Monday that the Trump administration's tariff policies are a major shock to the U.S. economy that could lead the Fed to cut rates to head off recession even if inflation remains high. Atlanta Fed Bank President Raphael Bostic, meanwhile, suggested the U.S. central bank should stay on hold until there is more clarity.
In currencies, the dollar held near a three-year trough against the euro at $1.13245 and was not far from its decade-low against the Swiss franc. SocGen's Sachanandani noted, The U.S. dollar is not liking the prospect of U.S. corporations being less profitable, U.S. consumers facing higher inflation and foreign investors having a collapsing appetite for U.S. assets.
Oil prices rose, boosted by the latest tariff exemptions floated by Trump. Brent crude futures gained 0.2% to $65.01 per barrel while U.S. crude was up 0.24% to $61.68. Spot gold held near a record high at $3,221.45 an ounce.
