Asian markets presented a mixed picture on Tuesday, as bargain buying following recent losses was countered by ongoing concerns about the global economic outlook and the potential impact of a second Donald Trump presidency.
The release of US inflation data this week, as well as the start of the corporate earnings season, is adding to the uncertainty in the markets.
Trump’s tariff plans and a weaker dollar
A report suggesting that President-elect Donald Trump’s economic team is considering a more gradual approach to increasing tariffs on imports provided some support to traders and slowed the dollar’s recent surge.
However, despite this development, worries persist that his tax cuts, deregulation, and immigration policies could reignite inflation.
The potential impact of new US export restrictions targeting AI chips to China also seemed to have little immediate impact on the markets.
Traders scale back Fed rate cut expectations
Traders have significantly adjusted their expectations regarding the Federal Reserve’s interest rate policy, reducing the projected number of rate cuts through 2025 to just one, down from four predicted last year.
There’s even discussion that the Fed’s next move could be a rate hike, driven by persistent inflation and the uncertainty surrounding Trump’s policies.
The better-than-expected December jobs report released on Friday dealt another blow to the hopes for a rate cut at the Fed’s next meeting, sending equity markets lower.
Wall Street recovery and mixed Asian performance
Wall Street managed a slight recovery on Monday, with the Dow and S&P ending in positive territory, although tech stocks, including Nvidia, dragged the Nasdaq down again.
Asian markets experienced a volatile trading session on Tuesday morning.
Hong Kong, Shanghai, Sydney, Wellington, Taipei, and Jakarta saw gains, while Singapore, Manila, and Seoul all experienced losses.
Tokyo was the biggest loser as traders returned from a long weekend, catching up with Monday’s sell-off.
Dollar weakens, eyes on inflation and earnings
The dollar retreated against other currencies after Bloomberg reported that members of Trump’s team were considering a gradual increase in tariffs.
This contrasts with Trump’s previous statements that he would impose huge levies on China, Canada, and Mexico as soon as he took office.
Despite the weaker dollar, the pound remained at levels not seen since the end of 2023, and the euro was close to its weakest level since late 2022, with continued concerns that it could return to parity with the dollar.
All eyes are now on the release of US inflation data this week and the start of corporate earnings season.
Earnings and outlook to set tone for 2025
“This earnings season will set the tone for financial stocks in 2025, but the stakes are high,” Charu Chanana, chief investment strategist at Saxo Markets, told Agence France-Presse.
Even with solid fourth-quarter results, the macro backdrop — characterised by lingering inflation concerns, steeper yields, and recalibrated Fed expectations — may weigh on sentiment.
She added that “uncertainty around Fed policy and a potential shift in fiscal priorities under Trump’s new administration will keep markets on edge.”
Chanana noted:
With valuations already elevated after a strong 2024, further stock gains will require more than just decent earnings. Robust outlooks, ongoing loan demand, and resilient consumer credit will be critical to sustaining investor confidence.
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