Asian shares open cautiously on tariff angst

Synopsis

Asian shares experienced mixed trading as President Trump's tariff threats countered positive US jobs data. US stocks reached record highs before Independence Day, but Trump's potential tariff actions created uncertainty. Strong US jobs growth reduced expectations for a Federal Reserve interest rate cut in July, signaling a potentially stable economic environment.

Asian shares traded in a tight range Friday after President Donald Trump’s threat to impose higher tariffs outweighed the sentiment from a stronger US jobs data.

The MSCI Asia Pacific Index swung between small gains and losses at the open after US stocks closed at a record Thursday in a shortened session ahead of Friday’s Independence Day holiday. Trump said his administration may begin sending out letters to trading partners as soon as Friday, setting unilateral tariff rates, ahead of the July 9 deadline for negotiations.

Treasuries fell and the dollar rose Thursday in a sign traders see less pressure on the Federal Reserve to cut interest rates after US jobs growth exceeded expectations in June. Swap traders saw almost no chance of a July Fed cut, compared with a roughly 25% probability seen before the data. The chance of a move in September ebbed to about 70%.

“The solid June jobs report confirms that the labor market remains resolute and slams the door shut on a July rate cut,” said Jeff Schulze at ClearBridge Investments. “A wage-price inflationary spiral shouldn’t be a near-term concern, setting up something resembling a ‘Goldilocks’ scenario.”

Meanwhile, Trump secured a sweeping shift in US domestic policy as the House passed a $3.4 trillion fiscal package that cuts taxes, curtails spending on safety-net programs. The 218-214 vote in the House Thursday sends the legislation to Trump, in time for a July 4 deadline he set.

The president said he plans to sign the bill on Friday at a 4 p.m. ceremony at the White House.

A $5 trillion increase in the US debt limit in the package eliminates the risk of a market-rattling payment default the Treasury had forecast could come as soon as mid-August without congressional action.

“The removal of the risk that the Treasury Department would exhaust the capacity to fund itself is a highly welcome development for all market players,” Chris Weston, head of research at Pepperstone Group, wrote in a note. “The Treasury department will soon look to ramp up bill issuance.”

In Asia, Hong Kong’s de-facto central bank bought the city’s dollar again to defend its foreign-exchange peg. The Hong Kong dollar has had a wild ride recently with two previous rounds of intervention failing to send funding costs high enough to dampen bearish currency bets.

Separately, Treasury Secretary Scott Bessent on Thursday questioned Fed officials’ judgment on rates, reiterating his view that two-year yields are a signal their benchmark rate is too high.

“The committee seems to be a little off here in their judgment,” Bessent said in an interview on Fox Business, referring to the Fed’s rate-setting Federal Open Market Committee.

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