Asian stock markets showed tentative gains on Tuesday, reflecting a cautious mood among investors amid ongoing uncertainties surrounding U.S.-China trade relations. The broader MSCI Asia-Pacific index, excluding Japan, rebounded to trade 0.6% higher after earlier losses, while Japan’s Nikkei 225 climbed 0.66%. Mainland Chinese markets resumed trading after an extended holiday, with the CSI 300 blue-chip index advancing 0.23% and the Shanghai Composite gaining 0.3%. Meanwhile, Hong Kong’s Hang Seng Index surged over 1%, recovering strongly from a one-month low hit the previous day.
Highlights:
MSCI Asia-Pacific ex-Japan index rises 0.6% after early losses
Nikkei 225 advances 0.66% as Japanese markets react cautiously
CSI 300 and Shanghai Composite gain modestly after holiday break
Hang Seng rebounds sharply with more than 1% gain
Investor sentiment remains tempered by the prospect of a high-stakes phone call this week between U.S. President Donald Trump and Chinese President Xi Jinping. The upcoming discussion is being closely watched for signals on whether trade tensions between the world’s two largest economies might ease or intensify. White House press secretary Karoline Leavitt confirmed the leaders are expected to speak soon, adding a degree of uncertainty that is contributing to cautious market behavior.
Dollar Falls to Six-Week Low Ahead of Key U.S. Jobs Data
The U.S. dollar weakened to a six-week low against a basket of major currencies, slipping to 98.58 on Tuesday. This decline reflects growing investor caution ahead of the U.S. nonfarm payrolls report due on Friday, which will provide a critical snapshot of the labor market’s health. A softer-than-expected jobs report could potentially encourage the Federal Reserve to reconsider tightening measures, though markets have largely ruled out interest rate cuts in the near term.
Highlights:
U.S. dollar drops to six-week low at 98.58 ahead of jobs data
Euro hits six-week high before easing to $1.1426
Sterling declines slightly to $1.3532 amid market caution
Weaker U.S. jobs report could ease pressure on Treasury yields
The euro rallied to a six-week peak earlier in the session, trading near $1.1426, while the British pound dipped modestly to $1.3532. The bond market remains sensitive to economic data, with 30-year Treasury yields flirting with the psychologically significant 5% threshold. Investors are pricing in greater risk premia due to mounting U.S. debt and fiscal uncertainties, compounded by complex geopolitical and trade challenges.
Trade-Related Manufacturing Slowdown Evident in U.S. and China
Recent economic data highlight the tangible impact of ongoing tariff disputes on manufacturing activity in both the United States and China. The U.S. Institute for Supply Management (ISM) reported a contraction in manufacturing for the third consecutive month in May, with supplier delivery times lengthening to their longest in nearly three years. Economists from Wells Fargo noted that tariff pressures are contributing to slowing production, longer lead times, and declining inventory levels.
Highlights:
U.S. manufacturing contracts for third straight month in May
Supplier lead times hit near three-year highs amid tariffs
China’s factory activity shrinks for the first time in eight months
Tariff-induced disruptions increasingly weigh on global supply chains
In China, a private-sector survey showed factory activity shrinking in May for the first time in eight months, indicating that tariffs are beginning to adversely affect manufacturing output. These data points underscore the widespread repercussions of tariff-induced trade frictions, which continue to cloud global economic prospects and create challenges for supply chain resilience.
U.S. Futures Slip While European Markets Show Mild Strength
In early Asian trading, U.S. equity futures declined modestly, with Nasdaq and S&P 500 futures both down 0.2%, reflecting investor caution ahead of the week’s key events. In contrast, European futures were slightly firmer, with the EUROSTOXX 50 up 0.28% and FTSE futures rising 0.15%, suggesting more measured optimism across European markets.
Highlights:
Nasdaq and S&P 500 futures fall 0.2% amid trade concerns
EUROSTOXX 50 futures gain 0.28%, FTSE futures up 0.15%
Market sentiment remains fragile pending U.S.-China talks
Investors weigh geopolitical and economic data for direction
Analysts emphasize that market sentiment is heavily influenced by the expected communication between President Trump and President Xi, as well as upcoming U.S. deadlines for trade agreements with other partners. Until clearer signals emerge, price action may remain volatile and vulnerable to abrupt moves on either side.
Rising U.S. Debt and Fiscal Risks Weigh on Treasury Yields
The U.S. bond market remains under pressure amid concerns about the expanding federal debt and fiscal stimulus proposals. The Senate is set to consider a tax-and-spending bill expected to add approximately $3.8 trillion to the already substantial $36.2 trillion national debt. This has contributed to a repricing of risk premia in Treasury yields, with investors demanding higher returns to compensate for growing fiscal, trade, and geopolitical uncertainties.
Highlights:
Senate to review tax-and-spending bill adding trillions to U.S. debt
Treasury yields rising due to fiscal and geopolitical risk factors
30-year Treasury yields approaching 5% mark, affecting borrowing costs
Increasing term premiums reflect concerns over U.S. dollar debasement
Vishnu Varathan, head of macro research at Mizuho Asia ex-Japan, noted that the higher term premiums on Treasury bonds are partly a hedge against potential depreciation of the U.S. dollar and broader economic risks. This trend suggests increased caution among investors over the long-term sustainability of U.S. fiscal policies.
Commodities Rally on Supply Concerns and Safe-Haven Demand
Commodity markets reflected heightened uncertainty with oil prices climbing and gold reaching a near one-month high. Brent crude futures rose 0.88% to $65.20 per barrel, while U.S. crude gained 1% to $63.13 per barrel amid concerns about supply disruptions. Meanwhile, spot gold rallied to around $3,392.03 an ounce, as investors sought refuge from volatility in financial markets.
Highlights:
Brent crude futures up 0.88% to $65.20 per barrel
U.S. crude oil climbs 1% to $63.13 per barrel on supply fears
Spot gold hits roughly one-month high amid market jitters
Commodities act as hedges amid geopolitical and trade uncertainties
