Asian equities struggled to maintain their position on Tuesday after a swift retreat from U.S. investments weakened Wall Street and the dollar, as worries over the Federal Reserve's independence added to the pressure on Treasuries. Relatively modest losses in Asia did ignite discussions that funds might be shifting capital to stocks in the region, although the effect of tariffs on economic growth continued to be a significant hindrance. President Donald Trump's rising criticisms of Fed Chair Jerome Powell for failing to lower interest rates led to a decline of approximately 2.4 per cent in Wall Street indexes on Monday, with the dollar reaching three-year lows. "The 'sell America' trend was in full swing," stated Tapas Strickland, head of market economics at NAB.
"Regardless of President Trump's legal ability and willingness to act against the Fed, the conflict highlights the decline of U.S. exceptionalism and the significant policy risk for investors." The selling eased somewhat in Asia, enabling S&P 500 futures to rise by 0.3 per cent and Nasdaq futures by 0.4 per cent. This week, the market is likely to encounter another challenge from earnings, as 27 per cent of the S&P 500 is set to release their reports. Tesla is expected later in the session, having already lost nearly 6 per cent on Monday due to reports of production setbacks. This week also features Alphabet with several prominent industrial companies such as Boeing, Northrop Grumman, and Lockheed Martin. The aftermath of Wall Street resulted in Japan's Nikkei (.N225) gaining a slight 0.2 per cent, whereas MSCI's widest index of Asia-Pacific shares excluding Japan remained stable.
Fed Tensions Weaken Global Confidence
Chinese blue chips increased by 0.2 per cent as Beijing cautioned other nations against forming trade agreements with the United States that would disadvantage China. European equities experienced limited declines, with futures for the EUROSTOXX 50 and DAX decreasing by 0.5 per cent and FTSE futures dropping by 0.1 per cent. Yields on U.S. 10-year notes rose again to 4.43 per cent amid concerns that the White House might seek to replace Powell with a candidate more favourable to lowering rates despite inflation being increased by Trump's heavy tariffs. There was also worry that the current Fed might be more hesitant to loosen policy if that seemed like yielding to political influence.
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Although discussions at the White House regarding multiple trade agreements are in progress or set to begin, a swift resolution appears improbable. JPMorgan analysts observed that the typical trade agreement required 18 months for negotiation and 45 months for execution. "We emphasise our belief that without a change in current policies, the likelihood of a U.S. recession occurring in 2025 is 90 per cent," they mentioned in a report. The decline in faith in U.S. assets significantly impacted the dollar, which fell to its lowest point since March 2022 against a range of currencies, reaching 97.923 on Monday. The currency reached a ten-year low against the Swiss franc at 0.8042, while the euro climbed above $1.1500 to attain $1.1538. The dollar hit a seven-month low against the yen at 139.92 and appeared ready to challenge a low from last September at 139.58.
"The autonomy of the Federal Reserve is a fundamental aspect of the dollar's trustworthiness," remarked Quasar Elizundia, a research strategist at broker Pepperstone. "The dollar's position as the premier safe-haven asset can no longer be assumed; it is currently facing significant challenges." The dollar's weakness, paired with the demand for tangible safe havens, propelled gold to set another record, exceeding $3,485 per ounce. Oil prices have been moving downward as concerns about a global slowdown coincided with the possibility of higher supply from OPEC. On Tuesday, there was a modest short-covering rebound as Brent increased by 45 cents to $66.70 a barrel, and U.S. crude climbed 65 cents to $63.73 per barrel.
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