SYDNEY — Asia shares eased on Tuesday while the euro nursed its losses as investors pondered the downside of the US-EU trade deal and the reality that punishing tariffs were here to stay, with unwelcome implications for growth and inflation.
The initial relief over Europe’s 15 percent levy quickly soured when set against the 1 percent to 2 percent that stood before President Donald Trump took office. Leaders in France and Germany lamented the outcome as a drag on growth, pulling down stocks and bond yields across the continent while slugging the single currency.
Trump also flagged a “world tariff” rate of 15 percent to 20 percent on all trading partners that were not negotiating a deal, among the highest rates since the Great Depression of the 1930s.
“While the worst case scenario was averted, the implied EU tariff increase from 1 percent in January is a significant tax increase on EU exports,” wrote economists from JPMorgan in a note.
“This is a very big shock that unwinds a century of US leadership in global free trade,” they warned. “While we no longer see a US recession as our baseline from this shock, the risk is still elevated at 40 percent.”
A further risk to world growth came from a sudden spike in oil prices after Trump threatened a new deadline of 10 or 12 days for Russia to make progress toward ending the war in Ukraine or face tougher sanctions on oil exports.
Brent edged up 0.1 percent to $70.10 a barrel, having climbed 2.3 percent on Monday, while US crude held at $66.73.
The air of caution saw MSCI’s broadest index of Asia-Pacific shares outside Japan slip 0.7 percent. Japan’s Nikkei eased 0.8 percent, while Chinese blue chips fell 0.1 percent.
European shares steadied after Monday’s sell-off. EUROSTOXX 50 futures edged up 0.2 percent, while FTSE futures and DAX futures both added 0.1 percent.
The euro was flat at $1.1592, after falling 1.3 percent overnight in the largest drop since mid-May. It now has chart support at $1.1556.
The dollar index was up at 98.674 USD, after the rush out of short dollar positions lifted it 1 percent overnight, while it touched a one-week high on the yen at 148.63.
Wall Street held firm on hopes for upbeat results from mega caps this week that include Apple, Microsoft and Amazon.
S&P 500 futuresnudged up 0.1 percent, while Nasdaq futures added 0.2 percent.
Yields on 10-year Treasuries held at 4.408 percent having crept higher on Monday as markets braced for another steady decision on interest rates from the Federal Reserve.
Futures imply a 97 percent chance the Fed will keep rates at 4.25 percent-4.5 percent at its meeting on Wednesday and reiterate concerns that tariffs will push inflation higher in the short term.
Analysts also assume one, or maybe two, Fed officials will dissent in favour of a cut and supporting wagers for a move in September.
