Post by : Meena Ariff

Stock markets across Asia fell on Monday, July 7, as investors reacted to mixed signals from the United States about its new tariff plans. At the same time, oil prices dropped sharply after OPEC and its allies, known as OPEC+, announced that they would increase oil production more than expected in August.

US Tariffs Delay Creates Confusion

The United States had earlier planned to impose higher tariffs on many countries from this week. However, President Donald Trump said on Sunday that the US is close to completing several trade agreements in the coming days. Because of this, the US will now inform other countries about the higher tariff rates by July 9, and these rates will take effect on August 1.

US Treasury Secretary Scott Bessent explained that President Trump will send letters to some trading partners warning them that if they do not act quickly to finalise trade deals, then on August 1, the tariffs will return to the levels that were set on April 2.

In April, President Trump announced a base tariff rate of 10 per cent on most countries. He also introduced a plan for higher “reciprocal” tariffs that could go up to 50 per cent. Initially, the deadline for these tariffs was set for this Wednesday. However, on Sunday, Trump added that tariffs could even be as high as 60 or 70 per cent in some cases. He also threatened to impose an extra 10 per cent tariff on countries that support the “anti-American policies” of the BRICS group, which includes Brazil, Russia, India, and China.

Uncertainty About Which Countries Will Be Affected

Despite these announcements, many experts believe that the deadline will be pushed out again because very few actual trade deals have been completed. There is also confusion over whether the new deadline and tariffs will apply to all trading partners or only some of them.

Analysts have said that this sudden rise in trade tensions is coming at a time when the United States is holding important trade talks with major partners like the European Union, India, and Japan. They warned that if the US imposes these higher tariffs as planned or increases them further, it could hurt the country’s economic growth and raise inflation even more.

Market Reaction to Tariff News

Investors have become used to the uncertainty around US trade policies, so their reactions were cautious. In the US market, futures for the S&P 500 and Nasdaq both fell by 0.3 per cent. In Europe, futures for EUROSTOXX 50 dropped by 0.1 per cent, FTSE futures fell by 0.2 per cent, while DAX futures remained steady.

In Asia, Japan’s Nikkei index fell by 0.5 per cent, while South Korean stocks stayed flat. The MSCI’s broad index of Asia-Pacific shares excluding Japan fell by 0.6 per cent. In China, blue-chip stocks fell by 0.5 per cent.

Singapore Stock Market Shows Strength

Unlike other Asian markets, Singapore’s stock market performed better on Monday. The Straits Times Index (STI) opened higher and by 12:31 pm, it had risen by 12.1 points, or 0.3 per cent, to reach 4,025.720.

Bond and Currency Market Updates

In the bond market, safe-haven US Treasury bonds were in demand as investors sought security. The yield on 10-year US Treasury bonds fell by almost 2 basis points to 4.326 per cent.

In currency markets, the US dollar index rose slightly to 97.071. The euro held steady at US$1.1771, which was just below its high of US$1.1830 last week. The US dollar also gained slightly against the Japanese yen, reaching ¥144.76.

Investor Concerns Over Tariff Policies

Investors remain worried about President Trump’s unpredictable tariff decisions and the possible effects on economic growth and inflation. These worries have also prevented the US Federal Reserve from cutting interest rates. Analysts are now waiting for the minutes of the Fed’s last meeting to understand when most members might support rate cuts in the future.

This week is expected to be quiet in terms of statements from Fed officials, with only two district presidents scheduled to speak. There is also very little economic data to be released this week.

Interest Rate Decisions in Australia and New Zealand

The Reserve Bank of Australia is widely expected to cut its interest rates by a quarter point to 3.60 per cent in its meeting on Tuesday. This will be the third rate cut in this cycle. Market experts believe that Australia’s interest rates will eventually go down further to between 2.85 per cent and 3.10 per cent.
Meanwhile, New Zealand’s central bank will meet on Wednesday. It is expected to keep its interest rates unchanged at 3.25 per cent after having already reduced rates by 225 basis points in the past year.

Commodities Market Performance

In the commodities market, gold prices fell by 0.3 per cent to US$3,324 an ounce. However, gold gained almost 2 per cent last week as the US dollar weakened.
Oil prices dropped again after OPEC and its allies agreed on Saturday to increase oil production by 548,000 barrels per day in August. This increase was larger than what experts had expected.

OPEC+ Plans May Impact US Shale Industry

OPEC+ also warned that it could raise production by a similar amount in September. Analysts believe that OPEC+ is trying to reduce the profits of smaller oil producers, especially those involved in US shale oil production. They think OPEC+ wants to keep Brent oil prices between US$60 and US$65 per barrel. This would make it difficult for US shale producers to grow and take away market share from OPEC+ in the coming years.

After OPEC’s announcement, Brent crude oil prices fell by 52 cents to US$67.78 per barrel, while US crude oil prices dropped by US$1.01 to US$65.99 per barrel.