Global financial markets witnessed a bout of volatility as Asian stocks looked set to open lower on Friday, reflecting growing investor unease over a slowing US economy and lingering uncertainties surrounding former President Donald Trump's trade tariffs. After a five-day winning streak in several major Asian indices, the mood turned cautious.

US Markets Weaken on Legal and Economic Worries

US equity-index futures dipped 0.2% in early trading after the S&P 500 Index pared most of its earlier gains, nearly wiping out a 1% advance during Thursday's session. This shift in sentiment came as investors grew concerned over a federal court ruling that momentarily backed Trump’s controversial tariff strategy, potentially prolonging the trade war narrative that had rattled markets during his presidency.

On the macroeconomic front, the US economy contracted in the first quarter of the year. Revised data showed that consumer spending weakened, and the impact of global trade imbalances grew larger than previously expected. These indicators painted a grim outlook, raising fears of a prolonged slowdown.

Trump’s Tariff Reprieve and Economic Risk

Adding fuel to the fire, a federal appeals court gave Trump a temporary win by suspending a lower court ruling that threatened to overturn most of his tariff-based policies. While this granted temporary relief to protectionist policies, analysts see this as a double-edged sword.

“No matter what happens, markets realise that we are facing a long period of uncertainty,” said Win Thin, Global Head of Markets Strategy at Brown Brothers Harriman & Co.

Market observers are now wary of stagflation risks—a mix of slow economic growth and high inflation—which is typically negative for equities and the dollar.

Federal Reserve Rate Cut Bets Increase

Amid signs of economic weakness, US Treasuries saw buying interest, pushing down yields. This came alongside data showing weekly jobless claims rising, suggesting labour market softness. These developments pushed traders to raise their expectations of interest rate cuts by the Federal Reserve.

Swaps markets now fully price in two rate cuts by the Fed by the end of the year, up from previous estimates. Further pressure came from political interference, as Donald Trump reportedly urged Fed Chair Jerome Powell to lower interest rates, arguing that the central bank was making a mistake by not reducing borrowing costs.

Mixed Signals from Corporate America

The corporate earnings landscape offered mixed cues.

• Dell Technologies Inc. exceeded profit expectations and reported a surge in AI-related server orders, reflecting growing enterprise demand for AI infrastructure.

• Salesforce Inc., on the other hand, indicated that while its AI products were gaining traction, its overall revenue growth continues to slow, unnerving investors.

• United Airlines Holdings Inc. warned that disruptions at its Newark hub would negatively impact profits, adding to the corporate sector’s cautious tone.

Asian Market Focus Shifts to Japan’s Inflation

As Friday trading hours began to roll in across Asia, investor focus shifted to Japan, where Tokyo’s inflation reading is set to act as a proxy for broader Japanese economic conditions. Analysts expect consumer prices excluding food and energy to climb to 3.2% year-on-year, marginally higher than April’s 3.1%.

This will put pressure on the Bank of Japan (BOJ) as it weighs another rate hike in July or December, marking a continuation of its shift from ultra-loose monetary policy.

"However, for the BOJ, the risks are skewed toward fewer hikes," said Kristina Clifton, Senior Economist at Commonwealth Bank of Australia, citing global uncertainty and negative spillovers from US tariffs on Japan’s export-heavy economy.

Currency and Commodity Movements

The US Dollar Index weakened 0.4% on Thursday, though it remained stable in early Friday trading. This was seen as a result of both dovish Fed expectations and flight-to-safety flows.

In commodities:

• Oil prices dropped, largely due to fears of oversupply, possibly linked to increased US output and slower demand globally.

• Gold surged as much as 1.3%, benefitting from its status as a safe-haven asset amid inflation and geopolitical worries.

Investor Sentiment at a Crossroads

Global markets are now navigating a complex terrain—on one hand, slowing growth and trade uncertainty, and on the other, the possibility of rate cuts and AI-driven corporate optimism. The sentiment remains fragile, especially in Asian markets heavily reliant on trade, like Japan, South Korea, and China.

In the coming days, inflation readings, US job data, and corporate earnings will be closely watched. Any signs of resilience or deterioration in these metrics could dramatically shift investment strategies and central bank policies across continents.

Conclusion

To sum it up, global markets are caught in a tug-of-war between hope and fear. While the tech sector and AI growth offer a ray of optimism, the US economic slump and prolonged tariff issues continue to cloud the outlook.

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