A cautious mood permeated Asian financial markets at Monday’s open, with most regional shares declining as investors grappled with a mixed bag of Chinese economic data and the persistent undercurrent of US trade policy rhetoric.
The weakness in Asia contrasted with Wall Street’s recent gains, highlighting a growing divergence in regional sentiment, while Indian benchmarks like the Sensex started the week on a relatively flat note.
The downward pressure on Asian equities was partly fueled by fresh economic indicators from China, which painted a picture of a domestic economy facing challenges even as US tariffs began to impact its export sector.
This coincided with continued verbal pressure from the White House on its trade partners, maintaining an atmosphere of uncertainty.
The unease wasn’t confined to Asia. Wall Street share futures also edged lower, accompanied by a dip in the US dollar, while Treasury yields climbed.
These movements underscored broader concerns about the predictability of US economic policies, a sentiment amplified by Moody’s recent downgrade of the country’s credit rating.
Adding to these concerns, discussions surrounding the United States’ substantial $36 trillion debt have intensified, particularly as Republicans pursue a sweeping package of tax cuts, which some analysts estimate could add between $3 trillion to $5 trillion in new debt over the next decade.
US Treasury Secretary Scott Bessent, in television interviews on Sunday, dismissed the Moody’s downgrade.
However, he also issued a stern warning to trade partners, stating they would face maximum tariffs if they failed to offer trade deals in “good faith.”
Bessent is scheduled to attend a G7 meeting this week for further discussions, while US Vice President JD Vance and European Commission President Ursula von der Leyen met on Sunday to address trade matters.
The potential impact of US tariffs remains a key focus for economists.
“It remains to be seen whether the 10 per cent reciprocal rate – excluding Canada and Mexico – will broadly remain, or will go up or down for some countries,” commented JPMorgan economist Michael Feroli, as quoted by Reuters.
He estimates the current effective tariff rate of around 13 percent is equivalent to a tax increase worth 1.2 percent of US GDP. Feroli further cautioned, “Beyond disruptions from higher tariffs themselves, policy uncertainty should additionally weigh on growth.”
The ongoing tariff war has already taken a toll on consumer sentiment, and market watchers will be keenly scrutinizing upcoming earnings reports from major retailers like Home Depot and Target for insights into consumer spending trends.
Market snapshot: Asia dips, Europe muted, US futures retreat
Reflecting the cautious sentiment, MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.2 percent. Japan’s Nikkei was down 0.6 percent.
Chinese blue chips also softened by 0.4 percent, as April retail sales figures missed forecasts, while industrial output slowed, albeit not as drastically as some had feared.
In early European indications, EUROSTOXX 50 futures added a slight 0.1 percent, while FTSE futures eased 0.1 percent, and DAX futures were flat, suggesting a muted start for the continent.
The retreat in US futures saw S&P 500 futures lose 0.8 percent and Nasdaq futures fall 1.1 percent.
This pullback, however, followed significant rallies last week, spurred by President Donald Trump’s decision to lower levies on China.
The bond market also reacted, with yields on 10-year Treasuries rising another 5 basis points to 4.49 percent, extending a reversal that began on Friday following the Moody’s news.
Current market pricing indicates expectations for only 53 basis points of Federal Reserve rate cuts this year, a significant reduction from the more than 100 basis points anticipated a month ago.
Futures imply just a 33 percent chance of a Fed rate cut by July, though this rises to 72 percent by September.
A number of Federal Reserve officials are scheduled to speak this week, including New York Fed President John Williams and Vice Chair Philip Jefferson on Monday, with Fed Chair Jerome Powell due to speak on Sunday.
Elsewhere, the Reserve Bank of Australia is widely expected to cut its interest rates at its meeting on Tuesday, though it is likely to signal continued caution about easing monetary policy too aggressively.
Currency and commodity movements
The U.S. dollar drifted lower amid investor unease with the volatility of US trade policy.
The euro edged up 0.1 percent to $1.1180, while the dollar slipped 0.3 percent against the yen to 145.19.
In an interview published over the weekend, European Central Bank President Christine Lagarde suggested that “the dollar’s recent decline reflected a loss of confidence in US policies and this could benefit the euro currency.”
Positive sentiment towards the euro was also aided by a surprise centrist victory in Romania’s presidential election and strong showings for centrist candidates in Poland and Portugal.
In commodity markets, gold showed signs of a rebound after a significant sell-off last week, trading 0.6 percent firmer at $3,222 an ounce.
Oil prices, however, struggled due to concerns about potential increases in output from OPEC and Iran. Brent crude inched down 19 cents to $65.22 a barrel, while U.S. crude eased 15 cents to $62.34 per barrel.
Indian markets: Sensex opens flat after strong week
The benchmark BSE Sensex in India opened Monday’s session at 82,300.29 levels, down a marginal 30.30 points or 0.04 percent from its previous close.
Post-opening, the Nifty50 index was down 17.70 points, or 0.07 percent (correction from original 0.7%), at 25,002.10.
In the broader Indian markets, however, there were early signs of resilience, with the BSE Midcap and Smallcap indices quoting 0.33 percent and 0.78 percent higher, respectively.
This subdued opening follows a strong performance for Indian equities last week.
The BSE Sensex rallied nearly 2,900 points, buoyed by easing India-Pakistan border tensions and hopes of a US-India trade deal materializing soon.
During that week, the Sensex reached a high of 82,718 and concluded at 82,331.
This has contributed to an overall gain of over 4,900 points for the Sensex since the beginning of the financial year 2025-2026.
Meanwhile, the NSE Nifty 50 index had reclaimed the 25,000-mark after a gap of around seven months, last closing above this level on a weekly basis on October 4, 2024.
Last week, the Nifty surged 4.2 percent, or 1,012 points, to 25,020 levels.
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