Asian stock markets presented a mixed picture on Thursday, suggesting investor caution quickly returned following a significant relief rally on Wall Street.

While Wall Street celebrated apparent easing in tensions surrounding the Federal Reserve’s leadership and US trade policy, uncertainty about President Donald Trump’s unpredictable approach kept Asian sentiment fragmented.

Wall Street rebound sets uneasy tone

The trading day in Asia began against the backdrop of a powerful surge in US equities on Wednesday.

The S&P 500 climbed 1.7%, the Dow Jones Industrial Average added 419 points (1.1%), and the Nasdaq Composite jumped 2.5%.

This robust performance more than erased steep losses incurred earlier in the week and was fueled primarily by two key developments: President Trump stating late Tuesday that he had “no intention” of firing Federal Reserve Chair Jerome Powell, and hints that US tariffs on Chinese imports might be significantly reduced, though not eliminated, as part of a potential trade deal. US Treasury Secretary Scott Bessent added to the optimism Wednesday, remarking, “There is an opportunity for a big deal here.”

Trump’s comments regarding Powell were particularly crucial.

His prior sharp criticisms and suggestions he might seek to remove the Fed chief had unnerved markets, raising concerns about the central bank’s independence – a vital element for economic stability, as the Fed must sometimes make unpopular decisions for long-term health.

Trump’s apparent reversal on this issue provided significant, albeit potentially temporary, relief.

Similarly, his indication that tariffs on China “won’t be that high” offered hope for de-escalation in the trade war, even lacking concrete details.

Persistent uncertainty clouds outlook in Asia

Despite the strong US lead, Asian markets displayed caution. Japan’s Nikkei 225 managed gains of nearly 0.9% to 35,168.80, and Australia’s S&P/ASX 200 rose 0.6% to 7,966.50.

However, South Korea’s Kospi fell 0.5% to 2,513.17, Hong Kong’s Hang Seng declined 0.3% to 22,005.16, while mainland China’s Shanghai Composite saw a modest gain of 0.4% to 3,309.12.

This divergence highlighted the underlying anxiety that persists. Analysts warned against reading too much into short-term shifts driven by presidential comments.

Tan Jing Yi of Mizuho Bank characterized Trump’s policy announcements as “headline turbulence,” cautioning that global economies could face long-term damage.

“Sentiments swing from hopes of intense relief to inflicted economic gloom,” she added, capturing the market’s volatile state.
Many strategists agree that sharp market swings are likely to continue as long as US economic policy remains subject to sudden shifts.

“The market will more likely than not continue to be dictated by Trump’s latest whims regarding tariffs and trade,” Tim Waterer, chief market analyst at KCM Trade, told Associated Press.

Despite the recent rally, the S&P 500 remains 12.5% below its record high set earlier this year, underscoring the ground yet to be recovered and the market’s fragility.

Wednesday’s US rally saw significant contributions from major technology stocks. Nvidia climbed 3.9%, recouping more of the losses sustained after warning that US restrictions on chip exports to China could impact results by $5.5 billion.

Tesla shares also revved 5.4% higher following CEO Elon Musk’s statement that he would refocus on the company after a period heavily involved in government cost-cutting efforts, which had generated backlash and weighed on the brand.

Bond market eases, currencies shift

Trump’s more conciliatory comments also had a calming effect on the US bond market. The yield on the benchmark 10-year Treasury note eased slightly to 4.38% from 4.41% late Tuesday.

In currency markets, the US dollar weakened against the Japanese yen, slipping to 142.73 yen from 143.15 yen. The euro gained ground against the dollar, trading at $1.1350 compared to $1.1322 previously.

Oil prices saw modest gains, with US crude rising to $62.52 a barrel and Brent crude reaching $66.38.

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