[WORLD] Asian equities steadied on Tuesday following a sharp retreat from U.S. assets that rattled Wall Street and pressured the dollar, as investor unease over the Federal Reserve’s autonomy continued to weigh on global sentiment.
Mounting political uncertainty surrounding the leadership of the U.S. central bank has injected fresh volatility into the markets. Traditionally a bedrock of investor confidence, the Fed’s independence has come under scrutiny amid repeated public attacks from President Donald Trump on Fed Chair Jerome Powell — the very official he nominated. Analysts warn that sustained political interference could undermine the dollar’s global reserve status and further destabilize markets.
Despite the turmoil, losses in Asia remained relatively modest, fueling speculation that investors may be shifting capital toward regional equities. However, concerns linger over the broader economic impact of tariffs, which continue to act as a headwind for growth.
Wall Street bore the brunt of market anxiety on Monday, with major indexes tumbling roughly 2.5% and the dollar falling to three-year lows. Trump’s intensifying calls for rate cuts from Powell added to investor fears, reinforcing a widespread risk-off mood.
“The ‘sell America’ trade was in full swing,” noted Tapas Strickland, head of market economics at NAB. “Regardless of whether Trump can or will move against the Fed, the spectacle highlights a broader loss of U.S. exceptionalism and growing policy risk for global investors.”
In contrast, Asian markets have demonstrated relative strength, buoyed by expectations of intervention from regional central banks. The People’s Bank of China has hinted at readiness to inject liquidity, while Japan’s Finance Ministry reaffirmed its commitment to support the yen. This diverging policy stance has made emerging markets an attractive destination for yield-hunters in the short term.
Selling pressure eased slightly across Asia, allowing S&P 500 futures to rise 0.4% and Nasdaq futures to gain 0.5%. Markets are bracing for a fresh round of corporate earnings this week. Tesla reports later in the session, following a near 6% drop on Monday amid concerns over production delays. Other major names on deck include Alphabet, Boeing, Northrop Grumman, Lockheed Martin, and 3M.
Industrial sector results will be watched closely for evidence of tariff-related cost pressures. Companies like Boeing and 3M have already warned of narrowing profit margins due to rising input costs. Any downward revisions could reignite fears of an impending profit recession. These concerns come on the heels of the IMF’s decision to lower its global growth forecast for 2025, citing trade friction as a major risk.
Japanese stocks edged lower, with the Nikkei down 0.3%, while MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.2%. Chinese blue chips were flat European markets appeared more vulnerable, with futures for the EUROSTOXX 50, FTSE, and DAX all retreating around 0.7% in volatile trading.
Yields on benchmark U.S. 10-year Treasuries held at 4.40%, driven by fears that the White House could push to replace Powell with a more dovish successor, even as inflation pressures persist due to Trump’s aggressive tariff regime. There are also concerns that the Fed, wary of appearing politically compromised, may hesitate to lower rates even if warranted by economic data.
According to the CME Group’s FedWatch tool, markets are now pricing in a 25% probability of an emergency rate cut by year-end. However, some strategists caution that such a move could backfire by signaling distress rather than strategic flexibility. “The Fed is walking a tightrope,” said Diane Swonk, chief economist at Grant Thornton. “Cut too early, and you risk stoking inflation. Hold steady, and political tensions could escalate.”
While trade negotiations are ongoing or soon to begin, quick resolutions seem unlikely. JPMorgan analysts point out that the average trade deal takes about 18 months to finalize and nearly four years to fully implement.
“If current policies remain in place, we estimate a 90% chance of a U.S. recession in 2025,” they wrote in a client note.
The flight from U.S. assets has hammered the dollar, which fell to its lowest level since March 2022 against a basket of peers, touching 97.923. The greenback hit a ten-year low against the Swiss franc at 0.8038, while the euro briefly surpassed $1.1500 before settling at $1.1486. A weaker dollar, combined with heightened demand for safe-haven assets, helped gold reach a new record above $3,343 an ounce.
Oil prices, meanwhile, faced downward pressure amid concerns over slowing global demand and a possible increase in supply from OPEC. Nonetheless, prices saw a modest rebound Tuesday, with Brent rising 58 cents to $66.82 per barrel and U.S. crude climbing 51 cents to $63.59.
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