Asian markets struggle amid Wall Street weakness

February 05, 2025 (MLN): Asian stock markets struggled to make headway on Wednesday as Wall Street futures took a knock from earnings disappointment, and the dollar backtracked on the yen following a fall in Treasury yields.

Investors were also nonplussed by comments from President Donald Trump that the U.S. would like to take over the war-ravaged Gaza Strip and develop it economically.

The suggestion came out of the blue and underlined the risk of more policy uncertainty and market volatility ahead.

The mood was helped a little when Beijing set a firm fix for its yuan, countering concerns that it might allow the currency to slide to offset the impact of tariffs on its exports, as Reuters reported.

China has so far made a relatively restrained response to Trump's added 10% in tariffs, announcing levies that covered just $14 billion of U.S. exports to China.

"The measures are fairly modest, at least relative to U.S. moves, and have clearly been calibrated to try to send a message to the U.S. without inflicting too much damage," said Julian Evans-Pritchard, head of China economics at Capital Economics.

The risk is that China's retaliation proves too modest to exert any real pressure on the U.S. to reverse tariffs, but sufficiently defiant to trigger a further escalation."

A survey did show China's services activity expanded at a slower pace in January, but analysts suspected much of that was due to the timing of the Lunar New Year holidays.

Chinese blue chips returned from holiday with a minor dip of 0.2%.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.6%, and South Korea's main index bounced 1.2%.

Japan's Nikkei went flat as the yen rose broadly along with local bond yields.

EUROSTOXX 50 futures fell 0.5%, while FTSE futures eased 0.2% and DAX futures 0.4% amid the lingering risk of U.S. taxes on trade.

Having bounced on Tuesday, Wall Street futures ran into selling when Alphabet earnings missed forecasts as it ramped up spending on capex.

Its shares dived 7.6% in extended trading, wiping $192bn off its market capitalization.

S&P 500 futures fell 0.4% and Nasdaq futures lost 0.5% in response.

The results on Wednesday include Uber, Ford, Qualcomm and Walt Disney.

The delays to tariffs on Canada and Mexico had at least eased worries the Federal Reserve might be severely restricted in how far it could cut interest rates and prompted a bounce in fund futures.

Yields on two-year Treasuries were back at 4.224% and off a peak of 4.282% hit on Monday.

The pullback in yield coincided with a retreat in the dollar from its peaks, with the dollar index down at 108.050 from Monday's spike peak of 109.880.

The euro rose to $1.0380, a remarkable round trip from the two-year trough of $1.0125 struck at the start of the week.

Likewise, the dollar had recoiled to 1.4327 Canadian dollars from a 22-year high of 1.4792.

The dollar also slipped 0.7% on the Japanese yen to touch a seven-week low at 153.09, breaking support at 153.72.

Japanese government bond yields hit new multi-year highs after upbeat data on wages supported expectations of further tightening by the Bank of Japan this year.

In commodity markets, gold hit a fresh all-time high at $2,848 an ounce aided in part by the pullback in the dollar and yields.

Oil prices were weighed by China's tariffs on imports of U.S. oil, but found support from reports Trump had restored his "maximum pressure" campaign on Iran in a bid to drive Iranian oil exports to zero.

Brent fell 35 cents to $75.85 a barrel, while U.S. crude lost 22 cents to $72.48 per barrel.

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