Asian markets broke down on Tuesday just as fast as they had rallied on Monday. Traders across the region walked away from early gains after fresh fears over president Donald Trump’s trade decisions began creeping in.
According to Reuters, the rally that kicked off after a 90-day truce between the US and China failed to hold. Wall Street’s Monday surge didn’t carry over. European futures pointed lower.
Chinese stocks stayed flat. S&P 500 and Nasdaq futures slid during the Asian session. Trump’s temporary pause in tariff hikes wasn’t enough to convince the markets that anything permanent was on the table.
Asia turns cautious despite tariff reductions
The MSCI Asia-Pacific Index outside Japan dropped 0.2%, right after hitting a six-month high earlier that same morning. Fitch Ratings laid out the numbers. The US effective tariff rate fell to 13.1% after the announcement—down from 22.8% before—but that’s still much higher than the 2.3% average seen at the end of 2024, and the highest since 1941.
The market was already tense after Trump launched his tariff campaign back in early April. Since then, investors have been pulling money out of US assets and moving to safe havens like the yen, the Swiss franc, and gold.
Trump’s new terms reduce tariffs on Chinese goods from 145% to 30%, and China agreed to cut tariffs on US imports from 125% to 10%. That sounded like progress on paper, but it didn’t move the needle in the markets. The sense was that this was a tactical pause, not a resolution.
Hong Kong’s Hang Seng index fell 1.67%, clearly reacting to the weak confidence. Over in Japan, the Nikkei jumped more than 2%, reaching its highest level since February 25. But even that spike wasn’t enough to convince people the situation was improving.
Traders shift attention to inflation after trade pause
Investors are now waiting to see what actually happens once the 90-day trade pause expires. But even before that, eyes are locked on US inflation numbers expected later on Tuesday. Those figures could have an impact on where the Federal Reserve goes next with rate policy.
Matt Simpson, a senior market analyst at City Index, explained the thinking. “Should we be treated to another set of soft CPI figures, it could allow traders to refocus on Fed policy and the potential for cuts, and take some steam out of the dollar’s rebound,” Simpson said.
Right now, traders have walked back their rate cut expectations. At the peak of trade panic in April, they were betting on more than 100 basis points of cuts. That’s now down to just 56 basis points for the rest of the year.
US Treasury yields backed that up. The 2-year yield hit 3.9873%, and the 10-year was at 4.4512%, both sitting near one-month highs during Tuesday’s early trading session. That tells you people aren’t rushing into bonds the way they were last month.
In crypto, bitcoin stayed steady at $102,676, sitting above the $100,000 level it passed last week. No big moves in that space despite the broader market weakness. Traders weren’t using bitcoin as a flight-to-safety asset on Tuesday.
On the commodities side, oil prices dipped slightly after climbing to a two-week high on Monday when the trade agreement was first announced. As for gold, prices bounced back a bit after dropping 2% the day before. Investors who briefly dumped safe havens returned as confidence in the trade deal fell apart.
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