US Imposes New Tariffs Amid Trade Talks Deadline, Markets React Cautiously

Asian equity markets retreated on Friday, August 1, following the US administration's announcement of heightened tariffs on imports from various trading partners. Investors remain on edge ahead of key US employment figures, which are expected to influence Federal Reserve decisions on interest rate adjustments next month.

President Donald Trump signed an executive order late Thursday, imposing tariffs ranging between 10% and 41% on imports from numerous countries and regions. Notably, the US set tariffs at 25% for Indian exports, 20% for Taiwanese goods, 19% for Thai products, and 15% for South Korean items.

Additionally, duties on Canadian products not covered by the US-Mexico-Canada Agreement climbed to 35% from the previous 25%, while Mexico received a 90-day exemption to negotiate a broader trade deal.

Taiwanese President Lai Ching-te described the 20% tariff rate on Taiwanese exports as "temporary," anticipating reductions once trade negotiations progress.

Tony Sycamore, an analyst at IG, commented, "Market reactions have been relatively muted due to recent trade agreements with the EU, Japan, and South Korea that have helped soften the blow. Investors likely expect these tariffs to be renegotiated and potentially lowered over time."

Following the tariff announcement, MSCI's broadest index of Asia-Pacific shares outside Japan declined by 0.7%, extending its weekly loss to 1.8%. South Korea's KOSPI experienced a steep 3% drop, and Taiwanese shares fell by 0.9%. Japan's Nikkei decreased by 0.4%, while Chinese blue chips remained steady, and Hong Kong's Hang Seng index edged up 0.2%.

European futures also dipped slightly, with EUROSTOXX 50 futures down 0.2%. US futures for the Nasdaq and S&P 500 similarly eased by 0.2%, pressured after Amazon's earnings missed expectations, causing a 6.6% after-hours decline in its shares. Conversely, Apple exceeded revenue forecasts, buoyed by early iPhone sales ahead of tariffs, resulting in a 2.4% after-hours share gain.

Wall Street's overnight rally faltered as inflation data revealed price increases in June, partly driven by tariff-induced costs. Meanwhile, stable weekly jobless claims pointed to a resilient labor market. These developments dampened expectations for an imminent Federal Reserve rate cut, with futures now pricing a 39% probability of a reduction in September, down from 65% prior to the Fed's decision to hold rates steady.

Market focus now turns to the US jobs report expected later today. Analysts forecast a 110,000 increase in July payrolls and a rise in unemployment to 4.2% from 4.1%. Stronger-than-expected data could undermine the case for rate cuts next month.

The US dollar has strengthened considerably amid diminished rate cut prospects, with the dollar index climbing 2.5% this week to 100.1, marking its largest weekly gain since late 2022. The Canadian dollar remained subdued, touching a 10-week low after earlier declines of about 1% this week.

The Japanese yen weakened sharply overnight, with the dollar gaining 0.8% to reach 150.7 yen — its highest level since March. This movement followed the Bank of Japan's decision to maintain current interest rates and revise upward its near-term inflation outlook, although Governor Kazuo Ueda adopted a cautious stance.

US Treasury yields were mostly stable, with the benchmark 10-year yield edging up by one basis point to 4.374%, rebounding slightly after a minor decline the previous day.

In commodity markets, oil prices steadied following a 1% drop overnight. US crude rose 0.1% to $69.36 per barrel, and Brent crude increased 0.2% to $71.84 per barrel. Gold prices dipped marginally, trading around $1,286 an ounce.