Asian stock markets started the week on a firm footing Monday, with most regional indices advancing as signs of progress in a trade standoff between the United States and Canada helped to boost risk sentiment.
A dip in the US dollar, driven by concerns that upcoming US jobs data might show enough weakness to justify larger Federal Reserve rate cuts, also contributed to the positive mood.
Indian benchmarks, including the Sensex, are expected to open higher.
A significant development over the weekend saw Canada announce on Sunday that it had rescinded its digital services tax.
This move, a clear concession to pressure from President Donald Trump, is aimed at advancing trade negotiations between the two countries.
The talks are now focused on reaching a deal by a new deadline of July 21, extending from President Trump’s original July 9 deadline for his “reciprocal” tariffs.
Officials have suggested that most of these deals could now be finalized by the September 1 Labor Day holiday. This easing of trade tensions provided a supportive backdrop for Asian markets.
This bullish sentiment spilled over into Japan’s Nikkei, which rose an impressive 1.6%, while South Korean stocks gained 0.8%.
However, MSCI’s broadest index of Asia-Pacific shares outside Japan dipped a slight 0.2%.
Chinese blue chips edged up 0.2%, as recent surveys showed a slight improvement in manufacturing activity in June, while the services sector also picked up.
The positive mood was also reflected in futures markets. In Europe, EUROSTOXX 50 futures rose 0.2% and DAX futures gained 0.3%, though FTSE futures were flat.
There was no doubting the continued demand for the US tech sector and its megacap growth stocks, including Nvidia (NVDA.O), Alphabet (GOOGL.O), and Amazon (AMZN.O).
Nasdaq futures rose another 0.4%, while S&P 500 e-minis added 0.3%.
While trade news was positive, investors are also keeping a wary eye on the progress of a huge US tax-cutting and spending bill, which is slowly making its way through the Senate.
There are signs it may not pass by President Trump’s preferred July 4 deadline.
The Congressional Budget Office has estimated the bill could add $3.3 trillion to the nation’s debt, which will test foreign appetite for US Treasuries in the long run.
Indian markets set to continue positive momentum
Indian stock market benchmark indices, the Sensex and Nifty 50, are likely to open higher on Monday, tracking the upbeat cues from global markets.
Easing tensions in the Middle East between Israel and Iran, alongside optimism over US-China trade deals, are contributing to this positive outlook.
The trends on Gift Nifty also indicate a positive start for the Indian benchmark index. The Gift Nifty was trading around the 25,770 level, a premium of nearly 20 points from Nifty futures’ previous close.
This follows a strong previous session where the Sensex surged 303.03 points, or 0.36%, to close at 84,058.90, and the Nifty 50 settled 88.80 points, or 0.35%, higher at 25,637.80.
All eyes on US jobs data and Fed policy
The major focus for global markets this week will be the US payrolls report.
Due to a US holiday on Friday, the data is being released a day early. Analysts are forecasting a rise of 110,000 jobs in June, with the unemployment rate expected to tick up to 4.3%, its highest level in almost a year.
The resilience of the US labor market has been a key reason why the majority of Federal Reserve members have stated they can afford to wait before cutting interest rates, allowing them more time to gauge the true impact of tariffs on inflation.
Therefore, a weak jobs report would likely stoke speculation of a rate cut as early as July, rather than the more widely expected September.
“While initial jobless claims retreated somewhat from their recent high, continuing claims jumped higher yet again,” noted Michael Feroli, head of US economics at JPMorgan.
“Consumers’ assessment of labor market conditions also deteriorated in the latest confidence report.” Feroli believes these developments suggest “that the unemployment rate in June should tick up to 4.3%, with a significant risk of reaching 4.4%.”
Such an outcome would almost certainly see futures markets increase the probability of a July rate cut from the current 18% and price in more than the present 63 basis points of cuts anticipated for this year.
The prospect of an eventual policy easing from the Fed has helped US Treasuries weather concerns about the US budget deficit and the massive borrowing it entails.
This has also put pressure on the US dollar.
Fed Chair Jerome Powell will have an opportunity to reiterate his cautious outlook when he joins several other central bank chiefs at the European Central Bank forum in Sintra on Tuesday.
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