Asian shares rose on Tuesday, buoyed by Wall Street’s positive performance and investor optimism that U.S. President-elect Donald Trump might adopt a less aggressive approach to tariffs than initially promised during his 2024 campaign.
Reports from The Washington Post on Monday suggested that Trump’s aides were exploring tariff plans targeting only specific sectors deemed critical to national or economic security, rather than imposing broad tariffs on all countries. This shift in strategy, if true, sparked an initial rally in stocks and a decline in the U.S. dollar. However, Trump’s subsequent denial of the report on his Truth Social platform led to a partial rebound in the dollar.
Khoon Goh, head of Asia research at ANZ, commented on the uncertainty surrounding the new administration’s trade policies. “It’s still possible that the report is accurate. His team will explore various options, but ultimately, it’s up to Trump to decide. For now, his rhetoric on tariffs remains tough, but past experience suggests he’s open to negotiation, which may explain why markets are not reacting too negatively,” he said.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose by 0.16%, while Japan’s Nikkei surged 2%, driven by a rally in technology stocks.
The U.S. dollar, meanwhile, hovered near a one-week low of 108.36, recovering slightly from previous losses. The euro and British pound trimmed some of the sharp gains they made after the tariff report, falling 0.1% to $1.0377 and $1.25085, respectively.
In China, the CSI300 index recovered from early losses to rise by 0.12%, while the Shanghai Composite Index dropped by 0.09%. Hong Kong’s Hang Seng Index declined by 0.43%.
To stabilize markets as China navigates a delicate economic period, authorities reportedly asked large mutual funds to limit stock selling at the beginning of the year, according to sources familiar with the matter.
Meanwhile, a busy week of economic data releases is underway, with a particular focus on U.S. labor market statistics. The U.S. nonfarm payrolls report for December, due on Friday, will be the highlight, but preceding data, such as ADP hiring, job openings, and weekly jobless claims, will set the stage for expectations. Positive job market data could reduce the likelihood of aggressive rate cuts from the Federal Reserve, which have been priced down to just 40 basis points for 2025.
The minutes from the Fed’s last meeting, due on Wednesday, will provide further insights into the central bank’s rate path, while comments from several Fed policymakers will add to the discussion. The prospect of a more measured easing cycle has supported U.S. Treasury yields, with the 10-year yield recently standing at 4.6219%, its highest since May. The two-year yield stabilized at 4.2704%.
In currency markets, the U.S. dollar reached a six-month high against the Japanese yen, trading at 158.425. The Canadian dollar, after gaining on Monday following news that Prime Minister Justin Trudeau would step down in the coming months, traded slightly weaker at 1.4345 per U.S. dollar. Thierry Wizman, global FX and rates strategist at Macquarie, suggested that a potential shift toward a Conservative-led government in Canada could lead to further appreciation of the Canadian dollar. “Certain outcomes under a Conservative government could benefit Canada, and markets may anticipate this shift,” he said.
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