The latest wave of tariff announcements by Trump is likely to put short-term pressure on risk assets, including equities in both the U.S. and Asia, according to Tai Hui, Chief Market Strategist for Asia Pacific at J.P. Morgan Asset Management.
Hui notes that investor concerns are shifting from inflation to the risk of an economic slowdown, prompting a rotation into safe-haven assets such as government bonds. Despite this, equity markets in Hong Kong and mainland China have shown resilience, underpinned by expectations of fresh policy support from Beijing and continued earnings growth, particularly in sectors linked to China’s expanding AI industry.
Hui warns that persistent tariffs could fuel inflationary pressures, as U.S. manufacturers face obstacles in scaling up production. Rising supply chain costs may ultimately be passed on to consumers, adding to inflation risks over time.
In a counterintuitive market reaction, the U.S. dollar weakened and Treasury yields held steady following news of retaliatory tariffs, suggesting that investors are more focused on the inflationary implications than the broader economic fallout.
Market pricing also reflects growing expectations of monetary easing: the overnight indexed swap (OIS) rate for the U.S. dollar implies an 80% probability of a Fed rate cut in June, with investors anticipating three 25-basis-point cuts by year-end.
