By: Rimi
Published on: May 01, 2025
Asian shares edged higher on Thursday, buoyed by a dramatic rebound in U.S. equities and optimism around cooling inflation, though trading volumes remained subdued with many regional markets closed for Labor Day holidays. Japan’s Nikkei 225 led gains, rising 0.9% to 36,359.24, while Australia’s S&P/ASX 200 inched up 0.1% to 8,137.40. The muted activity contrasted with Wall Street’s rollercoaster session, where the S&P 500 staged a stunning reversal to notch its seventh consecutive gain despite early losses tied to stagflation fears and President Donald Trump’s escalating trade policies.
U.S. markets dominated headlines on Wednesday as the S&P 500 swung from a 2.3% drop to a 0.1% gain, closing at 5,569.06. The Dow Jones Industrial Average climbed 0.3% to 40,669.36, while the Nasdaq Composite dipped slightly by 0.1% to 17,446.34. The session began with a sharp sell-off after a preliminary GDP report hinted at a contraction in the U.S. economy for Q1 2025—a stark reversal from 2024’s robust growth. Analysts attributed the decline to importers rushing shipments ahead of anticipated Trump-era tariffs, which distorted trade balances and raised concerns about economic resilience.
The GDP shockwave reignited fears of stagflation, a nightmare scenario where stagnant growth coexists with persistent inflation. Such conditions could paralyze the Federal Reserve, which faces a dual mandate of stabilizing prices and maximizing employment. “The Fed has no easy tools to tackle stagflation,” noted Lydia Boussour, senior economist at Oxford Economics. “Rate cuts might stimulate growth but risk rekindling inflation, while hikes could deepen a downturn.”
A midday reprieve came with the release of the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, which slowed to 2.3% in March from 2.7% in February. The data brought relief to investors, as it edged closer to the central bank’s 2% target. “This gives the Fed room to pivot if growth falters,” said Diane Swonk, chief economist at KPMG. Markets immediately pared losses, with bond yields reflecting heightened bets on future rate cuts. The 10-year Treasury yield dipped to 4.17%, while Fed funds futures priced in a 60% chance of a September rate reduction.
Further unease stemmed from ADP’s April jobs report, which showed private employers added just 129,000 jobs—less than half of economists’ forecasts. The labor market has been a pillar of U.S. economic strength, and cracks here could signal broader vulnerabilities. All eyes now turn to Friday’s nonfarm payrolls report, which will provide a clearer picture of employment trends.
President Donald Trump’s trade agenda loomed large over markets. His administration’s erratic tariff announcements—ranging from 10% to 60% on Chinese goods—have injected volatility into global supply chains and equity markets. “Uncertainty is the real killer,” warned Goldman Sachs strategist David Kostin. “Businesses are delaying investments, and consumers are bracing for higher prices.”
The Nikkei’s rally followed the Bank of Japan’s decision to hold rates steady, a move seen as cautious amid global turbulence. Governor Kazuo Ueda emphasized “heightened risks from external trade policies,” a veiled reference to U.S.-China tensions. Meanwhile, Trump dismissed market fluctuations, stating, “We inherited a mess,” while defending his protectionist stance as necessary for long-term competitiveness.
In commodity markets, Brent crude edged down 0.1% to 61.01abarrel,whileWestTexasIntermediatefellto61.01abarrel,whileWestTexasIntermediatefellto58.11. The dollar strengthened against the yen (143.88) and euro ($1.1308), reflecting its haven appeal during geopolitical strife.
Investors face a minefield of risks in Q2 2025:
Trade War Escalation: Additional tariffs could disrupt global growth and corporate earnings.
Fed Policy: Inflation trends will dictate whether rate cuts materialize.
Election Volatility: With the 2026 midterms approaching, political rhetoric may amplify market swings.
Historical parallels to 2018’s trade skirmishes suggest markets could remain choppy. However, some analysts see opportunities in sectors less exposed to tariffs, such as tech and healthcare. “Selective investing is key,” advised JPMorgan’s Marko Kolanovic. “Focus on companies with pricing power and resilient margins.”
Asian markets’ muted gains reflect a fragile equilibrium between hope and fear. While cooling inflation and the Fed’s potential pivot offer a lifeline, Trump’s trade war and stagflation risks keep investors on edge. As Friday’s jobs report looms, one truth remains clear: In today’s interconnected markets, every data point and policy tweet can tilt the scales.
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