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Asian shares follow Wall Street lower as dollar rangebound

The dollar was weighed down by lower bond yields, as well as weak U.S. economic data, on Wednesday.

Data released on Tuesday showed that the U.S. service sector activity was flat in July. Input costs and employment have risen by nearly three times in the last year, highlighting the impact of President Donald Trump’s tariff policy.

The second-quarter results revealed the impact of Trump's tariffs. Taco Bell's parent company Yum Brands missed earnings expectations due to steep trade duties that dent consumer spending. Caterpillar also warned of tariffs costing it up $1.5 billion in the second quarter.

The report paints a picture that a stagflationary trend is developing, although it's still a long way off. It raises the possibility of an explosive mix of joblessness and rising prices, as tariffs spread through the U.S. economic system, said Kyle Rodda.

The broadest MSCI index of Asia-Pacific stocks outside Japan fell 0.2% while Japan's Nikkei managed a 0.2% gain.

The Hang Seng Index in Hong Kong and the blue chips of China were both flat.

Nasdaq Futures declined 0.3%, while S&P 500 Futures declined 0.1%.

Trump said on Tuesday that he would announce tariffs for semiconductors and chips within the next few weeks. The U.S. will initially impose a'small tariff' on pharmaceutical imports, before it increases it significantly in a year or so.

He said that the U.S. and China were close to a deal on trade, and that he planned to meet with his Chinese counterpart Xi Jinping by the end of the calendar year if a deal was reached. He threatened to increase tariffs on Indian goods over their Russian oil purchases.

On the currency markets, after a disappointing jobs report last Friday that caused markets to price in an almost certain chance of a Federal Reserve rate cut in September, the dollar has stabilized.

The dollar index (which measures the U.S. currencies against six counterparts) was flat this week at 98.821, and up by 0.1% after Friday's fall of 1.4%.

FedWatch from the CME shows that Fed funds futures indicate a 94% probability of a rate reduction next month. At least two cuts are priced in this year.

Investors await Trump's choice to fill the upcoming vacancy at the Federal Reserve Board of Governors. Trump announced that a decision would be made shortly, but ruled out Treasury Secretary Scott Bessent, who is currently the chief of the Federal Reserve, and whose tenure ends in 2026.

Treasury yields rose overnight, but remained near their multi-month lows. This week, the market will see more supply with $42 billion of 10-year notes and $25 billion of 30-year bonds.

The yield on the benchmark 10-year Treasury note rose 2 basis points to 4.2198% after staying steady overnight.

Oil prices have been rising on commodity markets after four sessions of consecutive declines. U.S. crude oil rose 0.2%, to $65.3 a barrel. Brent crude was up 0.1%, at $67.78 a barrel.

Trump said Tuesday that he would decide whether or not to sanction countries which purchase Russian oil following a scheduled meeting with Russian officials on Wednesday.

The spot gold price was flat at $3.381 per ounce.

(source: Reuters)