Asian shares regain; moderate trade war fears

Asian Stock Markets

Asian shares regained some ground on Tuesday after U.S. President Donald Trump faced growing pressure from political allies to pull back from proposed steel and aluminum tariffs, easing investor worries about an imminent trade war. 

Sentiment was also supported by receding risk aversion in Europe with the euro gaining support from the creation of a coalition government in Germany and the impact of Italy’s inconclusive election results limited to a mild sell-off in domestic bonds and stocks.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.3 percent while Japan’s Nikkei jumped 2.3 percent, a day after it hit a five-month low.

Korean shares have erased all the losses they had taken after Trump’s announcement even though the country is seen as being among the worst affected in region by the tariffs due to its big steel exports to the United States.

MSCI’s broadest gauge of the world’s stock markets rose 0.3 percent after having snapped a four-day losing streak on Monday with a gain of 0.7 percent.

Wall Street shares have now recouped all the losses incurred after Trump unveiled a plan to impose tariffs on steel and aluminum late on Thursday.

Leading Republicans, including House of Representatives Speaker Paul Ryan and Representative Kevin Brady, turned up the pressure on Trump to rethink the plan on Monday.

Some investors also saw the tariffs threats as a U.S. negotiating tactic to get a better deal on NAFTA.

Still, uncertainty remains with confusion about the timing and extent of the planned tariffs inside the 

The specter of a trade war was not the only source of concern for the stock market.

As the global economy steams ahead, investors have become increasingly concerned that U.S. inflation, which has been subdued since the 2008 financial crisis, could finally pick up.

While moderate inflation generally supports equity investors, rapid inflation, or fear of it, could prompt the Federal Reserve to hike rates faster, undermining the attraction of equities.

U.S. bond yields rose as Wall Street shares rallied. The 10-year U.S. Treasuries yield rose back to 2.882 percent from last week’s low of 2.793 percent. A break of last month’s peak of 2.957 percent could trigger fresh selling in Treasuries, traders say.

In the currency market, the euro traded at $1.2352, extending its recovery from a seven-week low of $1.21545 hit on Thursday.

The euro managed to recover losses made on Monday after two anti-establishment leaders made early plays to govern Italy following an inconclusive election where voters shunted mainstream parties to the sidelines.

The dollar fetched 106.41 yen, up 0.2 percent for the day, crawling back from its 16-month low of 105.24 touched on Friday on improved risk appetite. 

The Canadian dollar hit an eight-month low of C$1.3002 per U.S. dollar as U.S. President Donald Trump used proposed tariffs on steel and aluminum as a bargaining chip in talks to revamp NAFTA.