Asia open: markets tiptoe through a minefield of tariffs and debt

Markets Tiptoe Through a Minefield of Tariffs and Debt

Trader's are parsing China’s factory data like tea leaves—call it a contraction with a silver lining.

The curtain rises on another cautious Asian Monday open, but this isn't the kind of show traders came for—this is theatre of the volatile. U.S. equity futures wobbled out of the gate after President Trump lit the tariff fuse again, pledging to double levies on steel and aluminum. It's the type of move that temporarily deflates global risk appetite like a pin to a balloon animal—sudden, messy, largely performative and seemingly having less bite these days.

Asian equity contracts are now pointing to a tentative drift lower, opening the week with caution, as if the region is collectively bracing for aftershocks. The bullish May rally, which marked the best month for global equities since late 2023, now feels like a sugar high fading into a groggy geopolitical hangover. There’s no unifying theme to cling to, only scattered bursts of price action and a macro tape that reads more like a ransom note than a road map.

Meanwhile, oil is trading as if it has just remembered that geopolitics exists. Despite OPEC+ agreeing to a modest output increase—411,000 barrels a day, the third round of its production hike bonanza— the price of crude climbed nearly 2% after Ukraine ramped up its offensives on Russian infrastructure. It's a balancing act between barrels and bombs, where the smallest misstep could trigger a bigger flight to long hedging. But this is all geopolitical crisis arbitrage, which tends not to have long legs

US Treasuries aren’t faring much better. May snapped their winning streak, and the long bond is now on a three-month slide—its worst stretch since 2023. Traders are beginning to price in the cost of all this fiscal bravado, as Washington attempts to thread a needle between tax cuts, a looming debt ceiling, and a ballooning deficit. Scott Bessent’s weekend assurance that America "won’t default" landed like a politician’s handshake—meant to reassure, but signalling there’s real tension in the room.

And just in case the tariff theatrics weren’t enough to keep risk desks on edge, Asia rolls into a week littered with potential macro tripwires. Focus now shifts to Hong Kong, where traders will be parsing China’s factory data like tea leaves—desperately hunting for green shoots in a field still largely barren.

May’s official manufacturing PMI ticked up ever so slightly, offering a flicker of hope. But let’s not kid ourselves—at 49.5, the reading remains below the 50 line that separates expansion from contraction. Call it a contraction with a silver lining.

From the trader’s lens, this is classic “less bad” dressed up as “getting better.” The uptick likely owes more to inventory reshuffling and light policy grease than to any real resurgence in demand. Domestic consumption is still limp, global orders aren’t snapping back, and the Chinese consumer remains more cautious than curious.

With the mainland shuttered for the Dragon Boat Festival, reduced liquidity brings heightened fragility—but that won’t stop markets from searching for direction. Eyes will turn to Hong Kong and other regional bourses to act as a proxy, serving as the pressure gauge for sentiment toward China’s wobbly recovery. In thin conditions, even a modest shift in tone or positioning could trigger outsized moves. For now, Asia’s risk radar remains fully lit, and Hong Kong, at least for today, becomes the canary in the coal mine for whatever macro winds blow in next.

Overlay that with whispers of a call between Trump and Xi, and you’ve got the makings of another classic risk-on/risk-off whiplash session. Traders will need to navigate headline risk the way a pilot threads through a storm—carefully, and with one hand on the ejector seat.

As we head into nonfarm payrolls Friday—a data print with a nasty habit of shaking the tree just when markets start to feel complacent—positioning will be tight, hedges will be live, and any sign of macro weakness could be the spark that sets off the next round of de-risking. And then there’s the Middle East, always smouldering on the periphery, threatening to jump front and center if diplomacy with Iran collapses.

This isn’t a market trend. It’s a market reacting. And right now, it’s reacting to a world that feels like it’s one headline away from slipping off the edge.

Where the Market Stands Now: A Bull Pauses at the Crossroads, Staring Down a Summer of Fog

The first five months of 2025 have played out like a Quentin Tarantino flick for equity traders—brutal in bursts, clever in parts, and impossible to predict from one scene to the next. After the S&P 500’s best May since the days of Vanilla Ice, the index is still barely clinging to a 0.5% year-to-date gain, trailing its global peers by the widest margin since 1993. So yes, Wall Street may have danced through a storm, but it's arriving into June drenched, disoriented, and wondering if the worst is behind or just regrouping.

In a rare inversion, the S&P is now the global laggard, bested by a world it used to outpace with ease. The MSCI World ex-US has broken out of the dollar’s shadow, fuelled by localized rate cuts, softer inflation, and a global appetite for non-U.S. assets. The American tape, meanwhile, is stuck in a loop: May’s pop was encouraging, but context matters—the market had just rebounded from April’s lows, which scraped levels not seen since December 2023.

In this cycle, there’s no dominant narrative—just overlapping plotlines. Trump's tariff drama continues to keep global investors on edge. CEO confidence is wilting like a neglected houseplant, the Fed is walking a tightrope between inflation fatigue and growth jitters, and geopolitics—well, pick a continent and spin the wheel. Markets are reacting, not trending, flipping from risk-on to risk-off like a cat chasing a laser pointer.

Technically, we’re still in a bull market—the S&P has rallied over 65% since the 2022 lows—but it’s the third year of that bull run, historically a stretch where gains slow and corrections become the price of admission. Five of the last eleven multi-year bulls suffered 10 %+ drawdowns in year three. So while the runway may extend into 2026, nobody should be shocked if turbulence hits on final approach.

And now comes June. Seasonally, it’s a snoozer—a month where the only thing rising reliably is the mercury. Over the past 30 years, the S&P has eked out a meagre 0.2% average gain in June. Add the post-election profit-taking effect, and the odds of a breakout look slim. In this climate, gains may be capped not by macro risk, but by Hamptons-bound trading desks and a pervasive fear of being the last one holding the bag.

Still, there are signs of shifting gears beneath the surface. Industrials—long the bridesmaids to tech’s big wedding—are leading in 2025, up over 8%. That breadth is a good omen. It suggests this isn’t just a one-horse race led by the Magnificent Seven. In fact, while those tech titans have clawed back 29% since April’s low, they’re still down 4.3% for the year—a reminder that mean reversion is alive and well.

So, where do we go from here?

We’re not at a cliff’s edge, but we are somewhere between the forest and the fog. The market isn't screaming higher, and it’s no longer pricing in Goldilocks. This is a ‘show-me’ tape—one where defensive allocations are building, international flows are climbing, and cash-on-the-sidelines is more than just a soundbite.

If May was a rescue rally, June may be a litmus test. The question isn’t whether the bull is dead—it’s whether it’s just catching its breath or limping toward the gate.

Either way, don’t mistake stillness for safety. In this market, calm is often the setup before the next big move.

Big Tech Reloads: The Profit Engine That Refuses to Stall

When skeptics were writing the obituary for the tech-led rally, the Magnificent Seven barreled back onto the scene like a convoy of Teslas with their chargers fully juiced and their GPS set for all-time highs. What initially appeared to be a breakdown in April has quickly evolved into a high-octane reboot. Nvidia, Microsoft, and Tesla didn’t just help flip the S&P 500 out of a near-bear nosedive—they’re now dragging the broader market uphill, one earnings beat at a time.

With Nvidia shrugging off China export headwinds and still managing to light up the scoreboard, the message is clear: the Big Tech growth machine may sputter occasionally, but it doesn’t stall. Microsoft’s AI roadmap remains paved with revenue, Tesla has ripped 56% higher from the April lows, and Nvidia’s up 40% in the same stretch. Together with the rest of the cohort—Alphabet, Apple, Amazon, and Meta—they’ve driven nearly half of the S&P’s 19% rebound. That’s no cameo; that’s a leading role.

The S&P is now within arm’s reach of its February peak, less than 4% away. But unlike past rallies fueled by froth, this one has earnings muscle. Cloud demand, digital ad spend, and capex signals from Meta and Microsoft all point to a secular AI story still in the early innings. In other words, Big Tech isn’t just riding the wave—it’s generating the swell.

And yet, this isn’t 2021. Even with this eight-week surge, the group is still lagging the S&P 500 year-to-date—an unthinkable setup in any of the past ten years. Valuations, now pressing 30x forward earnings for the Mag 7, are starting to raise eyebrows. That’s a lot of future priced in. But here’s the kicker: while valuations are rich, forward earnings for the cohort are still expected to grow 15%—twice the pace of the broader index. So yes, you’re paying up—but you’re buying real growth.

Still, risk hasn’t left the chat. Tariffs remain the foghorn in the background, blasting through every bullish breakout. The market choked briefly on fresh reports of broader U.S. restrictions on Chinese tech before recovering most of its losses. That intraday resilience speaks volumes: the dip buyers are back, and they’re targeting tech.

The sector’s gravitational pull on markets is undeniable. With the Magnificent Seven now accounting for a third of the S&P 500’s weight, it’s less a sector bet and more a macro tide. Ignore them at your portfolio’s peril—but overexpose, and you risk being a passenger on a single-engine jet flying through geopolitical turbulence.

For now, the jet’s still climbing. Capex from Big Tech remains robust, AI investment is far from saturated, and corporate America’s digital backbone still runs through these platforms. Whether you love or loathe their dominance, they’re the horsepower under the S&P 500’s hood.

The road ahead may be bumpy. But with Big Tech back behind the wheel, the market’s next leg higher might just have the torque to surprise.