Asia shares, dollar slip as tariff tensions darken mood

There was little obvious reaction to President Donald Trump's threat late Friday to double tariffs on imported steel and aluminium to 50%, beginning on June 4, a sudden twist that drew the ire of European Union negotiators.

Speaking on Sunday, Treasury Secretary Scott Bessent said Trump would soon speak with Chinese President Xi Jinping to iron out a dispute over critical minerals.

Beijing then forcefully rejected Trump's trade criticism, suggesting a call might be some time coming.

White House officials also continued to play down a court ruling that Trump had overstepped his authority by imposing across-the-board duties on imports from U.S. trading partners.

"The court ruling will complicate the path ahead on trade policy, but there remains an ample set of provisions available to the administration to deliver its desired results," said Bruce Kasman, chief economist at JPMorgan.

"There is a commitment to maintaining a minimum U.S. tariff rate of at least 10% and imposing further sector tariff increases," he added. "An increase in ASEAN to discourage transhipment looks likely, and the bias for higher tariffs on U.S.-EU trade persists."

Markets will be particularly interested to see if Trump goes ahead with the 50% tariff on Wednesday, or backs off as he has done so often before.

In the meantime, caution reigned and MSCI's broadest index of Asia-Pacific shares outside Japan went flat. Japan's Nikkei fell 1.4%, while Hong Kong dropped 2.5%.

South Korean stocks edged up 0.2% on hopes a snap presidential election on Tuesday would deliver a clear winner.

EUROSTOXX 50 futures dipped 0.2%, while FTSE futures and DAX futures were little changed.

A move in September is seen at around a 75% chance, though Fed officials have stopped well short of endorsing such pricing. There are at least 11 Fed speakers on the diary for this week, led by Fed Chair Jerome Powell later on Monday.

Fed Governor Christopher Waller did say on Monday that cuts remain possible later this year as he saw downside risks to economic activity and employment and upside risks to inflation from the tariffs.

A softer jobs report would be a relief for the Treasury market, where 30-year yields continue to flirt with the 5% barrier as investors demand a higher premium to offset the ever-expanding supply of debt.

The Senate this week will start considering a tax-and-spending bill that will add an estimated $3.8 trillion to the federal government's $36.2 trillion in debt.

Across the Atlantic, the European Central Bank is considered almost certain to cut its rates by a quarter point to 2.0% on Thursday, while markets will be sensitive to guidance on the chance of another move as early as July.

The Bank of Canada meets Wednesday and markets imply a 76% chance it will hold rates at 2.75%, while sounding dovish on the future given the tariff-fuelled risk of recession there.

Widening rate spreads have so far offered only limited support to the U.S. dollar.

"The greenback remains near the lower end of its post-2022 range and considerably weaker than interest rate differentials would imply," noted Jonas Goltermann, deputy chief markets economist at Capital Economics.

"Sentiment around the greenback remains negative and it continues to look vulnerable to further bad news on the fiscal and trade policy fronts."

On Monday, the dollar slipped 0.3% on the yen to 143.55 , while the euro edged up 0.2% to $1.1370 .

The greenback even fell 0.2% on the Canadian dollar to 1.3727 , getting no tailwind from Trump's threat of 50% tariffs on Canadian steel exports.

In commodity markets, gold firmed 0.6% to $3,310 an ounce, having lost 1.9% last week.

Oil prices bounced after OPEC+ decided to increase output in July by the same amount as it did in each of the prior two months, a relief to some who had feared an even bigger increase.

Brent rose $1.60 to $64.38 a barrel, while U.S. crude gained $1.74 to $62.53 per barrel.