SINGAPORE: Asian stocks stumbled on Wednesday (Jul 2) and the dollar languished near three-and-a-half-year lows as investors pondered the prospect of US interest rate cuts and the scramble for trade deals ahead of President Donald Trump’s Jul 9 deadline for tariffs.
Trump said he was not considering extending the deadline for countries to negotiate trade deals with the United States, and cast doubts again that an agreement could be reached with Japan, although he expects a deal with India.
MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.13 per cent in early trading, inching away from the November 2021 top it touched last week.
Tech stocks led Japan’s Nikkei, Taiwan stocks and South Korea’s Kospi Index lower, tracking US technology firms.
“You’ve seen it with other trade negotiations that they take years if you want to do them properly,” said Matthias Scheiber, senior portfolio manager and the head of the multi-asset solutions team at Allspring Global Investments.
“It’s not something you negotiate within a week. I think that’s also what the US is realising now. If the tariffs get ramped up again and the situation sours, short term, we can definitely see some volatility.”
Data on Tuesday showed the US labour market remained resilient with a rise in job openings for May, sharpening the focus on the payrolls report due on Thursday as investors try to gauge when the Federal Reserve is likely to cut rates next.
Fed Chair Jerome Powell, under fire from Trump to cut rates immediately, reiterated that the US central bank plans to “wait and learn more” about the impact of tariffs on inflation before lowering interest rates.
Traders are pricing in 64 basis points of cuts this year from the Fed with the odds of a move in July at 21 per cent.
That maintained a bearish bias on the dollar. The euro last bought US$1.1794, just below the three-and-half-year high it touched on Tuesday. The yen was steady at 143.66 per dollar.
“Any disappointing economic data can prompt further dovish repricing of FOMC rate cuts and another round of USD selling,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.