Stockholm syndrome or Fed fever break? Asia markets straddle tariff détente and ‘higher for longer’ heat

Markets are starting to feel the tug of bond yield gravity after weeks of levitation, with Asian equities set to stumble out of bed Friday despite another feather-light record close on Wall Street. The S&P 500 crept to its 10th all-time high in 19 sessions, lifted by megacap tech’s familiar hand — a performance more mirage than miracle as breadth narrowed and the broader tape wilted underneath.

Across the Pacific, sentiment has turned cautious as rate-cut euphoria continues to drain like sand from a cracked hourglass. Stronger-than-expected U.S. jobs data — including a sixth straight weekly drop in jobless claims — has nudged Fed expectations back toward caution. The bond market didn’t like it: Treasuries sold off, yields rose, and the dollar rediscovered some swagger. Traders, who had once bet on nearly three cuts this year, now whisper about maybe seeing one. Maybe.

Asian futures reflect the hangover. Japan, Australia, and Hong Kong contracts are all in the red, as the region digests not just the shifting Fed picture, but also a high-stakes chess match playing out in Stockholm. There, U.S. Treasury Secretary Scott Bessent will sit down with Chinese officials next week, trying to stitch together an extension of the current tariff truce before the August 12 expiry. The Bessent-China channel, while more civil than some of Trump’s other trade engagements, still hides barbs behind its bouquet. The U.S. wants commitments on fentanyl precursors, Chinese industrial overcapacity, and purchases of U.S. goods. China, for its part, is angling for relief on export controls and access to more tech — particularly in AI components.

The backdrop? A flurry of diplomatic dealmaking as Trump’s self-imposed August 1 ( China August 12) tariff gauntlet draws near. Already Japan has signed on to a 15% tariff pact and pledged a jaw-dropping $550 billion in U.S. investments. That’s not just checkbook diplomacy — that’s a lifeline to the White House narrative that tariffs are a lever, not a lid.

In this climate, Stockholm becomes more than a photo op. It’s the stage where the world’s two largest economies will decide whether trade peace holds or fractures again. The fact that Beijing just suspended its antitrust probe into DuPont’s China unit may be more than a token — it may be a breadcrumb along the path to détente.

But traders aren’t waiting for the white smoke. The narrowing U.S. rally, the rising dollar, and the simmering trade chessboard all point to a market that’s no longer running on hope and momentum alone. Volatility may not be back — yet — but it's certainly circling the block.