Core Insights - Asia's resilience to U.S. tariffs may be challenged by a stronger dollar and rising interest rates, which could tighten financial conditions [1][3] - The IMF projects Asia's economy to grow by 4.5% in 2025, slightly down from 4.6% in the previous year, but an increase from earlier estimates due to strong exports [4] Financial Conditions - Continued cuts in U.S. interest rates could lead to a decline in the dollar, allowing Asian central banks to ease monetary policy without fearing capital outflows [2] - Current low interest rates and declining long-term yields have enabled Asian governments and companies to borrow cheaply, helping them cope with the impact of higher U.S. tariffs [2] Risks and Challenges - Rising interest rates, particularly long-term rates, could significantly impact Asia, where debt servicing costs relative to revenue are already high [3] - The IMF warns that risks are tilted to the downside, projecting growth to slow to 4.1% in 2026 [4] Inflation Dynamics - Inflation in Asia has remained modest compared to other regions, attributed to the ability of Asian central banks to anchor inflation expectations and maintain independence from government interference [5] - The importance of central bank independence is emphasized for achieving price stability, while also being accountable to the public [6]

Core Viewpoint - A productivity-driven increase in real interest rates is identified as the most powerful driver for a currency [1] Group 1 - The relationship between productivity and real interest rates is emphasized as a significant factor influencing currency strength [1]

Currency Market - The dollar index (DXY00) is up by +0.44% at a 1-week high, driven by the resignation of French Prime Minister Lecornu, which negatively impacted the euro [1] - The ongoing US government shutdown, now in its second week, is bearish for the dollar, with potential negative implications for GDP growth [2] - The USD/JPY has increased sharply by +1.72%, with the yen falling to a 2-month low following the election of pro-stimulus lawmaker Sanae Takaichi as the likely new Japanese prime minister [6] Eurozone Economic Indicators - The EUR/USD is down by -0.37%, reaching a 1-week low due to political turmoil in France after Prime Minister Lecornu's resignation [4] - The Eurozone's October Sentix investor confidence index rose by +3.8 to -5.4, exceeding expectations of -7.7, providing some support for the euro [5] - Eurozone August retail sales increased by +0.1% month-over-month, aligning with expectations [4] Precious Metals Market - December gold is up by +64.60 (+1.65%), reaching a new contract high, while nearest-futures gold hit an all-time high of $3,944.00 per troy ounce [7] - December silver is also up by +0.585 (+1.22%), with nearest-futures silver achieving a 14-year high [7]

Trade Negotiations & Market Impact - The market has largely priced in President Trump's negotiating style regarding trade, characterized by aggressive initial stances followed by negotiation [2][3] - The market's current tolerance of this approach may embolden the President to continue [5] - Exhaustion with trade tensions is anticipated around Q3, potentially pressuring policymakers [7] - Tariffs' impact on company margins and revenue is expected to become more apparent in Q3 as older, cheaper inventory is depleted [7][8] Earnings & Company Performance - Consumer companies with limited pricing power and excess inventory are likely to be most affected by tariffs [10] - Negative comments regarding tariff impacts are expected to emerge in late July/early August during earnings season, particularly from companies reporting later [10] - Larger companies and multinationals can mitigate tariff effects, aided by a weaker dollar and lower oil prices [11] Currency & Monetary Policy - A weaker dollar is anticipated over the next 12 months due to expected aggressive rate cuts by the Federal Reserve compared to other central banks [12] - A temporary spike in inflation from tariffs is expected to drive the weaker dollar view [13] - A near-term dollar rally is possible as a counter-trend move, which could negatively impact equities in Q3 [13][14] - The currency market has already largely priced in tariff concerns [15] Equity Market Outlook - US stocks are expected to continue to outperform global stocks [17] - A market cleanout occurred in April, reversing the rate of change in stock performance [17]