Stella Chiu
SYDNEY (Reuters) – Asian shares ex-Japan were slightly lower on Tuesday and the yen weakened again as investors considered how a presidential victory for President Donald Trump would affect China and officials issued fresh warnings following last week’s meddling allegations.
European markets are expected to open lower, with Euro Stoxx 50 futures down 0.3%. S&P 500 futures rose 0.2% and Nasdaq futures added 0.3% as Wall Street rose on dovish comments from the Federal Reserve that boosted expectations of further interest rate cuts in the U.S. this year.
MSCI’s broadest index of Asia-Pacific shares ex-Japan fell 0.3%, extending a 0.3% loss on Monday. Japan returned from a public holiday with the Nikkei average up 0.3%.
Investors continued to digest the impact of Saturday’s assassination attempt on former U.S. President Donald Trump throughout the night. On Monday, Trump nominated J.D. Vance as his running mate.
Polls show a close race between President Trump and President Joe Biden, but President Trump has leads in several battleground states that are likely to decide the election.
The Dow Jones Industrial Average closed at a record high thanks to energy and bank stocks, bitcoin soared, gold rose toward an all-time high and the yield curve surged as investors embraced the so-called Trump victory trade.
“J.D. Vance is in the camp that is going head-to-head with China to get a better trade deal for the US, which will only exacerbate sentiment towards China,” said Chris Weston, research director at Pepperstone.
The Shanghai Composite Index fell 0.1% and Hong Kong’s Hang Seng Index dropped 1.4%, having already fallen 1.5% a day earlier as weak Chinese economic data raised risks that Beijing will miss its 5% growth target this year without strong stimulus measures.
Stocks in Taiwan and South Korea both rose 0.2%.
Fed Chairman Jerome Powell said Monday that three U.S. inflation measures for the second quarter “provide some increased confidence” that inflation is returning to the Fed’s target in a sustainable way.
The market is now fully pricing in a quarter-point Fed rate cut in September, with a total of 68 basis points (bps) of cuts expected by the end of the year.
That capped gains for the U.S. dollar overnight, but renewed yen weakness on Tuesday helped it rise 0.1% against a basket of major currencies.
The yen weakened 0.4 percent to 158.67 to the dollar, struggling to hold on to gains since allegations of Tokyo interference last week upended the popular carry trade.
There was also a new warning from Japanese government officials that the government is ready to take all possible measures to counter excessively volatile currency fluctuations.
“I actually bought the dollar here. I think the US dollar has bottomed out for now,” said IG analyst Tony Sycamore. “We’ve got the soft CPI data and a dovish Powell response. I think the risks to the dollar are to the upside here.”
“The idea that the Trump administration is in the White House and the possibility of raising tariffs on China is not good for Chinese stocks at all. Combine that with a stronger US dollar and rising yields and I think it’s going to be a tough time for the Hang Seng Index.”
Longer-term government bonds gained ground in Asia, with the 10-year Treasury yield down 2 basis points to 4.2060%, having risen 4 basis points from the previous night.
Gold rose 0.3% to $2,428.67 an ounce, near a record high. [GOL/]
Oil prices fell on concerns that a slowdown in the Chinese economy would put pressure on demand. [O/R]
Brent crude futures fell 0.3% to $84.63 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 0.3% to $81.64.
(Reporting by Stella Chiu; Editing by Sam Holmes and Neil Flick)
