Markets in Asia traded with caution on Monday as a cloud of uncertainty over U.S. trade policy and the approaching earnings report from Nvidia kept investors on edge. The dollar fell modestly as traders digested abrupt shifts in Washington over tariffs, while commodities moved in response to geopolitical risk and expectations around U.S.-Iran diplomacy.
Tariff uncertainty shakes sentiment
Confusion over the United States' tariff stance followed a U.S. Supreme Court decision that struck down previously announced emergency tariffs. In response, President Donald Trump announced a new 10% tariff rate on the rest of the world, and later raised that rate to 15% - a step that reportedly surprised some administration officials. Market participants were left unclear on when any new levies would take effect, which countries might be excluded, and whether all trading partners would ultimately face a 15% charge.
Under the earlier rules, some countries such as the UK and Australia faced 10% tariffs, while a number of Asian economies were subject to higher rates. Rodrigo Catril, senior FX strategist at NAB, summed up market concerns, saying the tariff backdrop has become "more uncertain than before" and warning that a cycle of announcements and reversals could emerge unless consensus prevails.
Equities: light trading, selective gains
With much still undecided about trade policy, MSCI's broadest index of Asia-Pacific shares outside Japan inched higher by 0.5% in light trading. Japan's Nikkei market remained closed for a holiday, though futures moved at 56,970 compared with a recent cash close of 56,825. South Korea continued its rally, adding 2.0% on Monday after jumping 5.5% last week to reach record highs.
Nvidia in focus for the AI trade
Futures on the S&P 500 fell 0.3% and Nasdaq futures eased 0.4% as investors positioned ahead of Nvidia's earnings report. Nvidia accounts for almost 8% of the S&P 500 index and its quarterly results are expected to test confidence in the broader AI theme. Consensus estimates point to a 71% rise in earnings per share to $7.76, although published estimates range from $6.28 to $9.68. Options markets indicate that Nvidia's shares could swing by at least 6% in either direction on the announcement.
Treasuries and fiscal implications
News of the tariff upheaval also reverberated through Treasury markets, which were hit by the prospect that the U.S. government might have to repay roughly $170 billion in revenue. Such an outcome would, on paper, widen the fiscal deficit by around half a percentage point to approximately 6.6% of GDP. With cash Treasuries not trading in Japan because of the holiday, 10-year note futures were down 2 ticks.
Markets have been pulled between mixed data points: economic growth in the December quarter missed forecasts significantly, while core inflation surprised on the upside. That mix reduced the implied probability of a June rate cut by the Federal Reserve to near 52%, down from above 60% a week earlier, a shift that left the dollar firmer over the prior week.
Currency moves and safe-haven flows
Early on Monday the dollar came under some pressure as traders contemplated whether the trade-policy turmoil could reinforce a recent "sell America" theme. The dollar eased 0.4% against the Japanese yen to 154.36. The euro strengthened 0.4% to $1.1826, while the dollar slipped 0.5% versus the Swiss franc to 0.7718.
Precious metals drew safe-haven demand: gold firmed 0.8% to $5,143 an ounce and silver rose 2% to $86.24 per ounce, after an almost 8% gain on Friday.
Oil and geopolitics
Oil prices were choppy on Monday. Brent eased 0.6% to $71.29 a barrel and U.S. crude fell 0.8% to $65.95 per barrel after gains last week related to comments that the U.S. military could strike specific targets in Iran should a nuclear deal not be reached. Another round of U.S.-Iran talks is scheduled for Geneva on Thursday, and the prospect of U.S. military action remains a risk if negotiations fail to produce a deal.
What to watch
Key near-term market drivers include clarification on the scope and timing of any new U.S. tariffs, Nvidia's quarterly results and the outcome of the U.S.-Iran discussions in Geneva. Until those items resolve, volatility and selective sector responses are likely to persist.