Asian stocks cautious as US data clouds Fed path

Synopsis

Asian stocks displayed mixed performance following weak US services data, creating uncertainty about the Federal Reserve's policy. Investors are anxious about the Fed's next move, as economic data complicates balancing inflation control and sustaining growth. Chinese markets will be in focus amid trade deal hopes.

Asian stocks struggled for direction at the open after weakening US services data fueled uncertainty about the Federal Reserve’s policy path.

The Nikkei-225 index was flat while shares in South Korea declined and those in Australia rose. The broader MSCI Asia Pacific Index rose 0.2%. A gauge of the dollar edged lower while Treasuries steadied after dropping in the prior session. Chinese markets will be in focus after President Donald Trump said he was “getting very close to a deal” with Beijing.

The S&P 500 was on the brink of all-time highs on Tuesday, before losing steam. In late hours, Advanced Micro Devices Inc. gave a stronger-than-expected sales forecast, but warned that its access to the crucial China market remains uncertain. Super Micro Computer Inc. tumbled after its results missed expectations.

The pullback in stocks highlighted investor anxiety over the Fed’s next move, with economic data complicating the central bank’s balancing act between controlling inflation and sustaining growth. Stocks had rallied Monday amid growing bets on potential rate cuts after weak jobs data last week.

“We expect further choppy trading to persist in the later stages of summer, especially as the path of interest-rate policy remains unknown and highly sensitive to incoming economic data,” said Chris Senyek at Wolfe Research.

The US services sector effectively stagnated in July as firms — faced with tepid demand and rising costs — reduced headcount. The data, released Tuesday, painted a picture of a sluggish service economy wrestling with the fallout of higher tariffs, cautious consumers and uncertainty stemming from Trump’s policies.

Data out last week showed weaker-than-expected jobs data while inflation-adjusted consumer spending barely rose.

“Traders are continuing to speculate on the time of the Fed’s next rate cuts with sticky inflation signs weighed against weakening economic indicators,” said Fawad Razaqzada at City Index and Forex.com.

He also noted the S&P 500 outlook could start to deteriorate in the near-term amid warnings over sky-high valuations against a backdrop of weakening economy.

Meanwhile, Trump also suggested he would impose increased tariffs on additional countries buying energy from Russia — including China — after saying earlier Tuesday that he would raise levies on Indian exports within 24 hours. Trump also said that US tariffs on semiconductor and pharmaceutical imports would be announced “within the next week or so.”

In other tariff news, Swiss President Karin Keller-Sutter arrived in Washington to make a last-minute bid for a deal to lower the 39% tariff imposed last week. The trip is to “facilitate meetings with the US authorities at short notice and hold talks,” the government said in a statement.

Elsewhere, the Reserve Bank of India is set to announce its interest-rate decision later Wednesday with some economists bringing forward their expectations for easing.

Trump told CNBC that Treasury Secretary Scott Bessent said he did not want to be nominated to replace Jerome Powell as the next Fed chair.

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