Asian Traders Tread With Caution as Fed Bets Wane: Markets Wrap

Stocks in Asia are set for a cautious open after mixed US inflation data spurred traders to trim Federal Reserve rate-cut bets. The dollar rose, Treasuries declined and the yen touched its weakest since April.

Equity futures for Japan and Australia fell as the closed 0.4% lower. Hong Kong stock contracts gained as US tech shares jumped on news and will resume some chip sales to China, while an index of US-listed Chinese shares climbed to its highest since April. While short-dated Treasuries led losses, longer maturities also slid — with 30-year yields topping 5%. The rose 0.4%.

Underlying US inflation rose by less than expected for a fifth month in June even as the details signaled companies are beginning to more meaningfully pass some tariff-related costs to consumers. Traders priced in somewhat lower odds that the Fed will cut rates more than once this year, and the probability of a move in September is now seen as only slightly higher than 50%.

“The big question for the inflation picture is tariffs. It’s taking some time for tariffs to show up in the data, but it’s highly likely that a tariff-driven inflation reckoning is coming,” said Skyler Weinand at Regan Capital. “The Fed will want to watch the next several inflation and jobs reports before it makes any moves on rates.”

Traders will be monitoring for additional information on tariff moves, after President Donald Trump said he reached a deal with that will see goods from the country face a 19% rate, while US exports will not be taxed. An accord would be the fourth trade framework Trump has announced since pausing his country-specific tariffs, after pacts with Vietnam, the UK and China that have thus far fallen short of full-fledged trade agreements.

Meanwhile, Treasury Secretary Scott Bessent suggested that Fed Chair Jerome Powell should step down from the board when his term is up in May 2026. Asked whether Trump has asked Bessent himself to serve as Fed chair, the Treasury chief said, “I am part of the decision-making process.” He noted that “it’s President Trump’s decision, and it will move at his speed.”

The , excluding the often volatile food and energy categories, increased 0.2% from May. While a decline in car prices helped keep a lid on the figure, goods categories exposed to Trump’s levies including toys and appliances rose at the fastest paces in years.

To Ellen Zentner at Morgan Stanley Wealth Management, inflation has begun to show the first signs of tariff pass-through. While services inflation continues to moderate, the acceleration in tariff-exposed goods is likely the first of greater price pressures to come, she said.

“While any tariff-induced boost to inflation is likely to be short-lived, with higher tariffs being announced, it would be wise for the Fed to remain on the sidelines for a few more months at least,” said Seema Shah at Principal Asset Management.

At Goldman Sachs Asset Management, Kay Haigh notes that while underlying inflation remained muted, price pressures are expected to strengthen — and the July and August CPI reports will be important hurdles to clear.

“For the time being, the Fed remains in wait-and-see mode,” Haigh said. “Should underlying inflation, however, continue to prove benign the path remains open to a resumption of the Fed’s easing cycle in the autumn.”

Traders this month have of Fed easing. Strong June employment data released July 3 led them to rule out a cut after the next meeting concludes July 30 and to downgrade the chances of a September cut, which was fully priced in as recently as late June.

Given recent trade policy developments, the Fed will likely look to stay patient as inflation impacts continue to materialize, according to Oscar Munoz and Gennadiy Goldberg at TD Securities.

“Today’s report showed the beginning of the tariff passthrough into core goods inflation, and as long as the labor market remains strong, the Fed can afford to wait and see how inflation and inflation expectations evolve over the summer,” they said.

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This story was produced with the assistance of Bloomberg Automation.