Stella Chiu
SYDNEY (Reuters) – Asian shares fell on Tuesday as investors pondered a possible Donald Trump victory and its impact on China, while the dollar rose for a second straight day despite dovish comments from the Federal Reserve that raised expectations of a U.S. interest rate cut this year.
MSCI’s broadest index of Asia-Pacific shares ex-Japan was down 0.5% after dropping 0.3% on Monday. Japan returned from a public holiday, sending the index up 0.4%.
Investors continued to digest the impact of Saturday’s assassination attempt on former U.S. President Donald Trump throughout the night. Trump is the front-runner in November’s presidential election and on Monday named J.D. Vance as his running mate.
Wall Street closed higher, with the Dow Jones Industrial Average closing at an all-time high thanks to energy and bank stocks. Stocks rose 6%, gold rose toward a record high and the yield curve steepened as investors embraced the so-called Trump victory trade.
“J.D. Vance is in the camp that is going head-to-head with China to get a better trade deal for the US, and this will only weigh on sentiment towards China. We saw a strong sell-off in Chinese stocks yesterday,” said Chris Weston, head of research at Pepperstone.
The index fell 0.3 percent, while Hong Kong’s index dropped 1.4 percent. It had already fallen 1.5 percent a day before weak economic data from China raised the risk that Beijing will not meet its 5 percent growth target this year without strong stimulus measures.
Also pleasing Wall Street, Fed Chairman Jerome Powell said Monday that three U.S. inflation measures for the second quarter “provide some increased confidence” that inflation is returning sustainably to the Fed’s target.
The market is now fully pricing in a quarter-point Fed rate cut in September, with a total of 68 basis points expected by the end of the year.
That kept the U.S. dollar in check overnight, but some investors betting on a Trump victory sparked buying interest. The U.S. dollar rose 0.1% against a basket of major currencies to 104.34 on Tuesday.
The dollar rose 0.3 percent to 158.55 against the yen, which has struggled to maintain gains following allegations of market intervention by Tokyo last week.
“I actually bought the dollar here. I think the US dollar has bottomed for now,” said IG analyst Tony Sycamore. “We’ve got the soft CPI data and a dovish Powell response. I think the risk to the dollar is on the upside here.”
“The idea that the Trump administration is in the White House and the possibility of raising tariffs on China is not good for Chinese stocks at all. Combine that with a stronger US dollar and rising yields and I think it’s going to be a tough time for the Hang Seng Index.”
Longer-term government bonds gained ground in Asia, with the 10-year Treasury yield down 1.5 basis points to 4.2138%, having risen 4 basis points from the previous night.
In commodities, gold rose 0.2% to $2,426.18 an ounce, nearing a two-month high. [GOL/]
Oil prices fell on concerns that a slowdown in the Chinese economy would put pressure on demand. [O/R]
Futures fell 0.2% to $84.72 a barrel, while U.S. West Texas Intermediate (WTI) crude also fell 0.2% to $81.77.
