US stock-index futures surged, and the dollar weakened following reports that members of President-elect Donald Trump’s economic team are discussing a gradual approach to ramping up tariffs. This potential shift is seen as a way to avoid triggering an inflation spike, and it has provided some optimism across Asian markets, where tariffs have loomed as a significant concern, particularly for China.
The dollar gauge fell for the first time in six days, with New Zealand’s currency leading the gains among the Group-of-10 currencies. In Asia, stocks in Sydney and South Korea rose, while Chinese and Hong Kong equities opened higher. The MSCI regional index also edged up, and US futures contracts climbed, extending the slight gains observed in the S&P 500 on Monday.
Gradual Tariffs May Ease Inflation Concerns
The idea of gradually implementing US tariffs has sparked optimism in Asia. With the potential for a phased approach, Asian exporters might gain more breathing room to adjust their pricing strategies or find alternative markets. However, some analysts, such as Frederic Neumann, chief Asia economist at HSBC, caution that US tariffs will still prove disruptive to global trade in the long run.
Neumann notes that while a gradual phase-in could alleviate immediate concerns, it remains uncertain how disruptive the tariffs will ultimately be. Investors are waiting for detailed tariff plans to ease uncertainty over the exact timelines and tariff levels.
Japan’s Bond Market and US Stock Market Movements
In Japan, the 40-year yield rose to its highest level since 2007 amid a global debt selloff and expectations that the Bank of Japan may eventually raise interest rates. Equities in Japan fell after markets reopened following a holiday.
Meanwhile, US Treasury yields saw a slight decline. The 10-year Treasury yield fell one basis point to 4.77%, after reaching 4.78% on Monday. The S&P 500 rose by 0.2%, while the Nasdaq 100 dropped 0.3%. The Dow Jones Industrial Average saw a significant 0.9% increase.
However, a Bloomberg index tracking the “Magnificent Seven” tech megacaps, including major firms like Nvidia, slid 0.4%. This drop followed the announcement of new US limits on the sale of advanced AI chips, with the Trump administration still deciding how to implement these restrictions.
China’s Efforts to Stabilize the Market
In China, the China Securities Regulatory Commission (CSRC) has pledged to focus on stabilizing the market in 2025. Following a disappointing start to the year, the CSRC emphasized the need to anchor market expectations. Chinese officials are also reportedly evaluating a potential acquisition of TikTok’s US operations by Elon Musk, should the app face a ban.
Inflation and Retail Data Impact US Market Outlook
US inflation likely cooled slightly at the end of 2024, though concerns about price pressures remain. Investors have been selling stocks amid fears that inflation remains stubborn despite a resilient job market and economy. The core consumer price index (CPI), which excludes food and energy, is expected to show a 0.2% rise in December, down from 0.3% in previous months. Year-over-year, the core CPI is projected to increase by 3.3%, matching the previous three months.
The upcoming CPI report, expected Wednesday, will be followed by December retail sales data, which is anticipated to confirm strong spending during the holiday season. Analysts like Chris Larkin from E*Trade suggest that while even cooler-than-expected inflation data may not prompt the Fed to cut rates immediately, it could ease bearish sentiment in the markets.
Oil Prices Slightly Fall After Five-Month Rally
In the commodity markets, oil prices fell slightly on Tuesday after a strong rally that saw prices reach their highest levels in five months during the previous session. The retreat in oil prices could reflect the market’s cautious sentiment ahead of economic and inflation data releases later in the week.
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