Investors Optimistic as Trump Plans Shift in Tariff Policies

Asia Shares Rise on Hope for Softer Trump Tariffs

Key Highlights:

• Asian stocks rise, tracking positive Wall Street performance.
• Investors hope for a less aggressive tariff stance from incoming U.S. President-elect Donald Trump.
• Mixed performance in Chinese equities and inflation data due from the Euro zone.
• Oil prices edge lower, while gold prices rise.

Asian shares saw a positive boost on Tuesday, following a favorable lead from Wall Street and growing investor optimism that incoming U.S. President-elect Donald Trump may soften his tariff policies. This shift in expectations followed a Washington Post report indicating that Trump aides were exploring a new tariff plan that would target only specific sectors deemed crucial to national or economic security. This development marked a potential departure from Trump’s tough trade stance during his 2024 presidential campaign.

Trump’s Tariff Plans Raise Investor Hopes

The news initially sent global markets rallying, with the dollar falling. However, Trump’s denial of the report on his Truth Social platform later reversed some of the dollar’s losses.

“No one really knows for sure what kind of tariffs or trade policies the Trump administration will implement,” said Khoon Goh, head of Asia research at ANZ. “It’s possible that what the Washington Post reported is true, but ultimately, it’s up to Trump to decide.”

Trump’s earlier rhetoric on tariffs has made markets cautious, but Goh noted that Trump has shown flexibility in his approach to trade during his first term, which helps ease market concerns.

Asian Market Performance

• MSCI’s Asia-Pacific Index (excluding Japan) rose 0.16% in the early session.
• Japan’s Nikkei jumped 2%, fueled by a rally in technology stocks.
• Chinese Equities: The CSI300 index turned positive, rising 0.12%, while the Shanghai Composite Index dipped 0.09%.
• Hong Kong’s Hang Seng Index fell 0.43%.

China’s stock exchanges took measures to calm the markets, with large mutual funds instructed to restrict stock selling in early January. These actions come as authorities aim to stabilize the economy as the country faces challenges.

Euro Zone Inflation Data and Global Economic Outlook

Markets are closely watching inflation figures from the Euro zone, which will be released later on Tuesday. These figures will provide clearer insights into the European Central Bank’s future rate cuts. For now, markets anticipate slightly less than 100 basis points of easing for 2025.

U.S. Economic Data in Focus

The upcoming U.S. economic data is set to drive market expectations. This week’s major releases include the December nonfarm payrolls report on Friday, alongside data on ADP hiring, job openings, and weekly jobless claims.

If these reports are stronger than expected, it could reinforce the case for fewer rate cuts from the Federal Reserve. Markets have already adjusted expectations to just 40 basis points for 2025.

Additionally, minutes from the Fed’s last meeting will be released on Wednesday, providing more insight into their future monetary policy.

U.S. Treasury Yields and Currency Moves

The U.S. Treasury yields remained firm, with the 10-year yield at 4.6219%, following its highest level since May. The two-year yield stood at 4.2704%.

• The dollar was near a one-week low at 108.36.
• The euro and sterling each pared gains after the tariff news, trading at $1.0377 and $1.25085, respectively.
• The dollar reached a six-month high against the Japanese yen, at 158.425.
• The Canadian dollar eased slightly, trading at 1.4345 per U.S. dollar.

Thierry Wizman, global FX and rates strategist at Macquarie, noted that the Canadian dollar could appreciate if a Conservative-led government were to emerge from an early election in Canada.

Commodity Markets

• Oil Prices: Brent crude fell 0.37% to $76.02 per barrel, while U.S. crude eased 0.46% to $73.22 per barrel.
• Gold: Spot gold rose 0.18%, reaching $2,640.49 an ounce, supported by global economic uncertainty.

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