Asian shares climbed on Tuesday, buoyed by hopes that U.S. President-elect Donald Trump might adopt a less aggressive tariff policy than previously pledged during his campaign. The optimism followed a report by The Washington Post suggesting Trump’s aides were considering tariffs limited to critical sectors linked to national or economic security, marking a potential departure from his earlier hardline stance.
The report initially sparked a rally in global markets, weakening the U.S. dollar. However, Trump’s subsequent denial on his Truth Social platform tempered some of the currency’s decline.
Khoon Goh, head of Asia research at ANZ, remarked on the market uncertainty: “No one really knows for sure what kind of tariffs or trade policies the Trump administration will implement. While he continues to talk tough on tariffs, his track record shows he’s open to striking deals. This cautious optimism has prevented markets from reacting too negatively.”
Asian markets respond positively
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.16% in early trading. Japan’s Nikkei surged 2%, driven by a rally in technology stocks, reflecting global investors’ renewed risk appetite.
China’s CSI300 index reversed initial losses to edge up 0.12%, while the Shanghai Composite Index dipped slightly by 0.09%. Meanwhile, Hong Kong’s Hang Seng Index slid 0.43%. According to sources, China’s stock exchanges urged mutual funds to limit stock sales at the year’s start, aiming to stabilise markets amid challenges for the world’s second-largest economy.
Currency and commodities market movement
The U.S. dollar hovered near a one-week low of 108.36 after recovering some ground. The euro and the pound sterling pared overnight gains, trading slightly lower at $1.0377 and $1.25085, respectively.
The dollar also reached a six-month high against the Japanese yen at 158.425, while the Canadian dollar weakened marginally to 1.4345 per U.S. dollar. Canadian Prime Minister Justin Trudeau’s announcement of his intention to step down in the coming months has sparked speculation about the political landscape.
Thierry Wizman, global FX and rates strategist at Macquarie, suggested that an early election could boost the Canadian dollar if a Conservative-led government were anticipated, potentially improving Canada’s economic outlook.
Economic data in focus
Investors are bracing for a packed week of economic data releases, particularly from the U.S., culminating in Friday’s December nonfarm payrolls report. Preliminary indicators, including ADP hiring, job openings, and jobless claims, will provide insight into the labour market’s health.
Upbeat data could challenge market expectations for Federal Reserve rate cuts. Current pricing suggests a reduction of 40 basis points in 2025, but stronger-than-expected economic signals could prompt a reassessment.
Minutes from the Fed’s last meeting, set for release on Wednesday, will shed light on policymakers’ expectations, while several Fed officials are also scheduled to speak this week.
Bond yields remain steady
U.S. Treasury yields remained supported, with the benchmark 10-year yield standing at 4.6219% after reaching its highest level since May in the prior session. The two-year yield steadied at 4.2704%, reflecting tempered expectations for aggressive Fed rate cuts.
More Read
Commodities update
Oil prices eased on Tuesday, with Brent crude falling 0.37% to $76.02 per barrel and U.S. crude slipping 0.46% to $73.22 per barrel. Gold prices gained marginally, rising 0.18% to $2,640.49 an ounce, supported by a weaker dollar and persistent economic uncertainties.
A delicate balancing act
The prospect of a softer U.S. tariff stance under Trump has injected cautious optimism into global markets, but uncertainties remain. Investors are closely monitoring policy developments as the incoming administration grapples with balancing domestic priorities and international trade pressures.
As Khoon Goh aptly summarised: “While Trump’s rhetoric remains tough, his history of deal-making keeps hopes alive for a more moderate approach. Markets are prepared for surprises, but they are not overreacting just yet.”
With key data and policy decisions on the horizon, the delicate balance between optimism and caution is expected to shape market movements in the weeks ahead.
