Asia shares slip as investors remember the drag of tariffs

By Wayne Cole

SYDNEY (Reuters) -Asia shares eased on Tuesday while the euro nursed its losses as investors pondered the downside of the U.S.-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% levy quickly soured when set against the 1% to 2% 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% to 20% 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% 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 U.S. leadership in global free trade,” they warned. “While we no longer see a U.S. recession as our baseline from this shock, the risk is still elevated at 40%.”

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. [O/R]

Brent edged up 0.1% to $70.10 a barrel, having climbed 2.3% on Monday, while U.S. crude held at $66.73.

The air of caution saw MSCI’s broadest index of Asia-Pacific shares outside Japan slip 0.7%. Japan’s Nikkei eased 0.8%, while Chinese blue chips fell 0.1%.

European shares steadied after Monday’s sell-off. EUROSTOXX 50 futures edged up 0.2%, while FTSE futures and DAX futures both added 0.1%.

The euro was flat at $1.1592, after falling 1.3% overnight in the largest drop since mid-May. It now has chart support at $1.1556.

The dollar index was up at 98.674, after the rush out of short dollar positions lifted it 1% 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. [.N]

S&P 500 futures nudged up 0.1%, while Nasdaq futures added 0.2%.

Yields on 10-year Treasuries held at 4.408% having crept higher on Monday as markets braced for another steady decision on interest rates from the Federal Reserve.

Futures imply a 97% chance the Fed will keep rates at 4.25%-4.5% at its meeting on Wednesday and reiterate concerns that tariffs will push inflation higher in the short term.