The Asia-Pacific FX session began with mixed responses due to Trump’s announcement of a 30% tariff on EU and Mexican imports from August 1. Leaders from Brussels and Mexico City aim to negotiate a reduced rate, hoping for an amicable resolution.

The U.S. Dollar Index reached a three-week high, reflecting the currency’s strength. Japan’s May Core Machinery Orders exceeded expectations, with a -0.6% m/m and +4.4% y/y performance, offering mild optimism amid volatile conditions. China’s June trade data showed a large trade surplus of US$115 billion despite notable U.S. tariffs.

Asia Pacific Equity Markets

Asia-Pacific equity markets exhibited varied performances, with Australia’s S&P/ASX 200 flat, Hong Kong’s Hang Seng down by 0.1%, Japan’s Nikkei 225 decreasing by 0.25%, and Shanghai Composite rising by 0.4%. U.S. equity index futures traded lower throughout the session, compounding investor concerns.

Bitcoin reached a new all-time high, surpassing $120,000. French President Macron advocated for increased defence spending in response to perceived threats in Europe. Meanwhile, reports suggest Trump is readying a new, more assertive weapons plan for Ukraine, potentially altering current defence-focused policies.

What we’ve seen so far is the result of a direct market reaction to political signalling and unexpected economic shifts, particularly from Washington. The recent tariffs announced by Trump are not merely rhetorical; they carry weight and have jolted currencies and futures markets into recalibrations. By declaring a wide-reaching import levy against EU and Mexican goods, pressure mounts not only on industrial supply chains but also on capital flow expectations in the medium term.

Currency And Trade Dynamics

Given the strength of the Dollar Index, reaching its highest point in three weeks, there’s a clear tilt towards safety or perhaps simply yield. Bonds have not attracted that safety bid in quite the same way, indicating the preference among institutions may be to hold the greenback rather than make a substantial retreat into fixed income. It’s a nuanced shift, but one worth acknowledging. The resilience of the yen likely masked deeper friction in broader risk appetite. Though Japan’s machinery orders beat expectations, that reading—moderate as it was—doesn’t guarantee underlying economic momentum continues across the third quarter.

China’s balance of trade remains sharply positive, even with the added burden of wide-ranging U.S. duties. That suggests exporters are either front-loading orders or adjusting invoice structures in ways that still reflect strong foreign demand. The surplus, over US$115 billion, implies an asymmetric adjustment path, especially if the U.S. further tightens trade policy going forward. From our perspective, that widens the room for divergence trades among currencies in the region.

Equity markets failed to unify around a single narrative: strength in the Shanghai Composite, for instance, didn’t spill over into neighbouring indexes. Australia’s market sat still, not reacting much either way, a tell-tale sign that investors were perhaps waiting to see how commodities would digest the trade headlines. Hong Kong slipped slightly, a marginal loss that nonetheless reminds us how hesitant investors remain towards tech-sensitive or China-exposed assets. Japan also dipped, though modestly, tracking other developed markets. Each percentage drop or gain in these indices, when situated in the broader context of policy shifts and uncertain fiscal backdrops, becomes a clue rather than a verdict.

Futures on U.S. stock indices trading lower points to a general unease, not just about tariffs but also about policy signals from the White House that feel unpredictable. This tempering we’re witnessing hints that the market may have priced in not just tariffs but also a degree of geopolitical pushback. Yet, the lack of hard repricing on volatility shows positioning remains cautious rather than reactive.

As for the crypto sphere, Bitcoin’s ascent to above $120,000 indicates a flow of capital into alternatives. The logic here could be twofold—on one hand, a hedge against policy instability, and on the other, a bet on politically neutral stores of value. We cannot ignore that record highs are typically followed by bouts of retracement, but the scale of movement this week suggests a more structural repricing of digital assets when weighed against fiat.

Macron’s public remarks about boosting defence spending come at a time when conventional diplomacy is fraying. Reallocating national budgets towards military readiness will, over time, reorient financial exposures in both equity and fixed income. Those comments weren’t made in isolation: they coincided with reports from Washington that a shift in military assistance to Ukraine is underway. If proven accurate, this point to a return of a doctrine that emphasises rapid, unrestrained weapons deployment—more aggressive than what we’ve seen in recent months.

Overall, the interwoven elements across currencies, equities, and commodities suggest a market environment that demands clarity of execution. The days ahead require balance: recognising that while some asset classes are embracing risk, others are quietly stuck in a wait-and-watch posture.

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