Rebound eyed as tariff respite softens initial blow

First the stick, then the carrot.

Investors breathed a sigh of relief on Monday after some of US President Donald Trump’s sweeping tariffs announced over the weekend were put on ice, allowing stocks and non-dollar currencies to claw back losses and regain some poise.

This should help bring some degree of calm to markets in Asia on Tuesday, assuming there is no left-field announcement from Trump in the next few hours. Given the events of the few days though, that may be a risky assumption.

The steep fall across Asian markets on Monday was understandable after Trump on Saturday slapped 25% import tariffs on goods from Mexico, the same levy on non-energy imports from Canada and 10% duties on purchases from China.

US markets were then whiplashed later in the day after Trump and Mexican President Claudia Sheinbaum said the Mexican tariffs would be put on hold for a month while talks between the two countries towards a “deal” got underway.

There’s unlikely to be any official reaction from Beijing to the unilateral tariffs before Wednesday, when China reopens after the Lunar New Year holiday. China’s UN envoy Fu Cong did say on Monday, however, that China could be forced into taking countermeasures.

One option many observers say Beijing may pursue is allowing its currency to fall significantly, which would offset the tariffs. Pressure on the yuan could be pretty intense when trading reopens later this week – the offshore yuan traded in Hong Kong hit a record low against the dollar on Monday before clawing back some of these losses.

Asian stocks got beaten down pretty badly on Monday. The MSCI Asia ex-Japan index, the Nikkei 225, and other major benchmark indices posted their biggest declines in several months, but Japanese futures are pointing to a rebound of more than 1% on Tuesday.

For what it’s worth, market expectations for US interest rates this year have not budged much at all. Investors still expect two more quarter-point cuts, the first coming in July rather than June.

US Treasury yields fell on Monday, surprising some analysts who would have expected the opposite reaction due to the expected inflationary impact of tariffs. A lower dollar and US bond yields should bode well for Asia on Tuesday.

Markets in Asia could get some direction from Japan, where the corporate reporting season is underway. The list of companies releasing results on Tuesday include heavyweights Panasonic, Nintendo, Mitsui, Mitsubishi UFJ, and Sumitomo.

Here are key developments that could provide more direction to markets on Tuesday:

– US tariff fallout

– Japan corporate earnings

– Offshore Chinese stocks, yuan trading in Hong Kong

(By Jamie McGeever)