Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Asian markets experienced a notable downturn on Friday, largely influenced by growing uncertainty surrounding the US interest rate trajectory, stronger-than-expected economic data from the United States, and fresh tariff threats issued by President Donald Trump. This combination of factors contributed to a negative end to the week for many regional investors, following a third consecutive loss on Wall Street.
US Economic Data and Federal Reserve Outlook
Concerns about the US interest rate outlook intensified after data on Thursday revealed the US economy grew at an annualized rate of 3.8 percent in the second quarter, surpassing initial estimates of 3.3 percent. This marks the fastest quarterly expansion in nearly two years, driven by increased consumer spending.
The stronger economic performance complicates the Federal Reserve’s monetary policy decisions. The central bank recently cut rates, citing a weakening labor market, but indicated that further reductions were not guaranteed. Top decision-makers at the Fed have since offered varying views on the path forward, considering persistently high inflation, softer jobs data, and the potential impact of tariffs.
New Tariff Threats
Sentiment was further impacted by President Donald Trump’s announcement of new tariffs. He declared a 100 percent levy on “branded or patented” pharmaceuticals, big-rig trucks, home renovation fixtures, and furniture, effective Wednesday. The pharmaceutical tariff is contingent on firms building manufacturing plants within the United States.
This news led to declines among Asian pharmaceutical companies, with Shanghai Fosun shedding over four percent and South Korea’s Daewoong falling more than three percent. Japan’s Daiichi Sankyo and Astellas Pharma also saw significant drops, alongside Sydney-listed CSL, which lost approximately two percent.
According to MUFG analyst Michael Wan, India “could be spared” from the pharmaceutical levies for now. Wan noted that the definition of “branded or patented pharmaceutical products” remains unclear, but his working assumption is that generic drugs and pharmaceuticals shipped from countries like India to the US would not be included.
Washington Budget Impasse
Adding to market anxieties is the ongoing dispute in Washington over a funding package to prevent a government shutdown. Lawmakers are in disagreement as a deadline approaches next week, with Democrats and President Trump’s Republicans at loggerheads over spending plans.
National Australia Bank’s Taylor Nugent highlighted the differing positions, stating that Republicans are seeking short-term funding extensions at current levels, while Democrats are demanding increased healthcare spending. The lack of a clear resolution before the October 1 deadline remains a point of concern for traders.
Market Performance Overview
Following Wall Street’s declines, which saw all three main indexes fall each day since hitting record highs earlier in the week, most Asian markets retreated. Major indices in Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Wellington, Taipei, and Manila all closed lower. In contrast, Singapore and Jakarta registered gains.
The US dollar maintained its strength, holding gains after surging in response to the robust economic growth figures.
The confluence of these factors—uncertainty over monetary policy, unexpectedly strong economic indicators, new trade protectionist measures, and domestic political gridlock—created a challenging environment for Asian markets, capping a week marked by cautious trading and a pullback from recent highs.
