On July 7, 2023, stock markets across Asia experienced a decline as confusion over U.S. tariff policies created uncertainty among investors. Despite U.S. officials indicating a potential delay in tariffs, the lack of detailed information on these changes contributed to market apprehension. Furthermore, oil prices took a hit as the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, unexpectedly raised production levels.
President Donald Trump announced on Sunday that the United States is nearing the finalization of several trade agreements, with notifications regarding higher tariff rates expected by July 9. These new rates are set to take effect on August 1. U.S. Treasury Secretary Scott Bessent emphasized that Trump would be sending letters to various trading partners, warning that failure to progress could result in a return to the April 2 tariff levels.
In April, Trump initially imposed a base tariff rate of 10% on numerous countries, with some reciprocal rates soaring as high as 50%. He has since suggested that these levies might escalate further, potentially reaching 60% or even 70%. Additionally, Trump has threatened an additional 10% tariff on nations that align with the BRICS coalition, which includes Brazil, Russia, India, and China.
Despite the few trade agreements finalized, analysts had anticipated the postponement of the tariff deadline. The uncertainty surrounding which trading partners the new deadline applies to has raised concerns among market watchers. Analysts at ANZ noted that the escalation in trade tensions occurs amidst critical bilateral negotiations involving major U.S. trade partners, including the EU, India, and Japan. They cautioned that if reciprocal tariffs are enforced in their original form or increased, the risks to U.S. economic growth could intensify, while inflation may also rise.
In light of these developments, investors have grown accustomed to the uncertainty surrounding U.S. trade policy. The initial market reaction was measured, with S&P 500 and Nasdaq futures both dipping by 0.3%. Meanwhile, EUROSTOXX 50 futures eased by 0.1%, FTSE futures fell by 0.2%, and DAX futures remained steady.
In the bond market, safe-haven assets were in higher demand, with 10-year Treasury yields decreasing nearly 2 basis points to 4.326%. The currency market presented a mixed picture, as the dollar index rose slightly to 97.071. The euro traded at $1.1771, just below last week's high of $1.1830, while the dollar edged up to 144.76 yen. The dollar's strength has been undermined by investor concerns regarding Trump's unpredictable tariff policies and their potential impact on economic growth and inflation.
The Federal Reserve remains cautious about cutting interest rates, with minutes from its last meeting expected to provide insights into future easing plans. This week is relatively quiet for Fed speakers, with only two district presidents scheduled to address the public, and economic data releases are sparse.
Looking ahead, the Reserve Bank of Australia is anticipated to lower its rates by a quarter point to 3.60% in an upcoming meeting, marking the third rate cut in this cycle. Markets suggest a potential rate endpoint between 2.85% and 3.10%. Meanwhile, New Zealand's central bank will meet on Wednesday, likely maintaining its rates at 3.25%, having already decreased rates by 225 basis points over the past year.
In the commodities market, gold prices slipped by 0.3% to $3,324 an ounce, although it experienced a nearly 2% increase last week as the dollar weakened. Oil prices also faced downward pressure after OPEC+ agreed to boost production by a larger-than-expected 548,000 barrels per day in August. Analysts believe this increase may target lower-margin producers, particularly those extracting oil from U.S. shale.
According to analyst Vivek Dhar from CBA, OPEC+ appears to be aiming for Brent oil futures to stabilize between $60 and $65 per barrel, which could challenge the economics of U.S. shale oil production. As a result, Brent crude fell by 52 cents, settling at $67.78 per barrel, while U.S. crude dropped by $1.01 to $65.99 per barrel.
Editing by Himani Sarkar
