Asian markets absorb tariff headlines

US equities fell sharply yesterday after President Donald Trump’s surprise announcement of sweeping new tariffs. Late in Monday’s session, Trump revealed a fresh 25% tariff targeting Japan and extended “reciprocal” tariff measures to 13 additional countries, triggering a wave of risk-off sentiment across Wall Street.

Smaller stocks led the pullback, illustrated by the 1.6% sell-off in the Russell 2000, although larger benchmarks also ended in the red. The Dow and NASDAQ both lost 0.9% while the S&P 500 dropped 0.8%. While not a huge pullback, the selling was enough to disrupt what had been a remarkably smooth run higher for equities.

Stock index futures steadied overnight and were mixed in early European trade this morning.

Source: TN Trader

Earlier in the day, President Trump issued an executive order extending the reciprocal tariff deadline to Wednesday, August 1, citing fresh recommendations from senior officials. With 14 countries now facing the threat of significant trade penalties, investor attention is shifting to how - or if - these nations respond ahead of the new deadline.

European stock indices indicated a lack of direction in early trade, albeit with a slightly positive tone. Investors across the continent appeared to shrug off the latest US trade developments.

So much is happening and changing on an hourly basis, investors can only sit back and await some clarity, while hoping that, eventually, whatever is agreed won’t cause too much damage economically. 

Although the risk of further escalation looms, the market reaction in early trade has been measured.

The German DAX, which so often behaves as a bellwether for broader sentiment, suggests that European markets could be entering a period of consolidation, with traders looking for signals from economic data and geopolitical updates before committing to a direction.

Currency markets reflected the diverging impact of geopolitical and monetary policy developments. The Australian dollar found support after the RBA decided to keep interest rates unchanged at 3.85%. The move highlighted the central bank’s cautious stance, which traders interpreted as a vote of confidence in the current economic backdrop.

Source: TN Trader

The Japanese yen weakened again, extending losses following President Trump’s tariff threat. Given Japan’s direct inclusion on the new list of tariff targets, it’s no surprise the yen came under renewed pressure.

Source: TN Trader

The New Zealand dollar also gained modestly ahead of the Reserve Bank of New Zealand’s policy decision later today, with consensus expectations pointing to no change in rates.

Precious metals continued trading sideways, with gold and silver becalmed and rangebound. Gold has been unable to build on previous safe-haven flows despite the ramp-up in tariff-related headlines. Silver followed a similar path, drifting lower in directionless trade within the relatively tight range that has been built over the past month.

Source: TN Trader

For now, both metals seem to be taking a wait-and-see approach, with traders reluctant to take big positions until there’s more clarity on inflation, rate direction, or further geopolitical flare-ups.

Crude has had a rollercoaster start to the week. Prices gapped lower early on Monday morning. This followed the news that OPEC+ would reverse prior output cuts by 584,000 barrels per day (bpd) in August, well above the 411,000-bpd expected. Crude then found support with front-month WTI managing to push higher from $65 per barrel.

It continued climbing steadily throughout Monday’s session, peaking at $67.50 early in the evening. However, it has drifted lower since then in what appears to be some profit-taking and consolidation.

Source: TN Trader

Yesterday’s rally was triggered by evidence that US energy demand was holding up well, even if it had been flagging elsewhere. There was also the expectation of a boost in demand due to the US summer driving season. But sentiment cooled slightly as markets weighed the potential drag of escalating trade tensions.

Any significant dampening of global growth expectations could impact demand forecasts and ultimately cap upside potential. That said, the overall trend remains constructive, and oil traders are now watching for updates on demand growth, inventory draws or supply-side shifts.

Natural gas prices slipped slightly after a strong performance yesterday. The overnight move lower was relatively muted as markets continued to assess the broader balance between supply constraints and shifting demand dynamics. Traders remain on edge given the commodity’s inherent volatility. But for now, the pullback appears to be more technical than thematic.

Cryptocurrencies posted modest gains overnight, led by Bitcoin, which continued to hover within its recent range. Bitcoin has yet to convincingly challenge the key $112,000 resistance level. While the overall risk environment has supported sentiment, the lack of a clear breakout suggests investors remain cautious.

The VIX showed little sign of concern despite yesterday’s tariff-driven volatility. The lack of a spike suggests markets are interpreting the latest trade tensions as a negotiation tactic rather than an imminent threat. While volatility could resurface quickly if rhetoric intensifies, it would appear that complacency reigns, for now.

After Monday’s late-session dip, US stock index futures are showing signs of stabilisation. The mild rebound overnight suggests investors are prepared to look past the latest round of tariff threats for now.

Currency markets are recalibrating as the yen continues to suffer from exposure to trade risks, while the Australian dollar has gained on steady monetary policy. Commodities are mixed - oil attempts to hold gains, gold is listless, and gas cools after Monday’s spike. Crypto remains stuck in neutral.

With little on the earnings calendar and few economic catalysts on deck, traders will be looking to tonight’s RBNZ decision and tomorrow’s FOMC minutes for fresh direction. For now, markets appear content to tread water. But the growing list of tariff threats and political friction means headline risk remains elevated.

In the background, President Trump continues to dominate the narrative. Whether these latest tariff announcements are strategic bluster or a sign of further escalation remains to be seen. But as it stands, the bulls remain in control - just with a few more speed bumps in their path.