From headwinds to handshakes: Asia rides Wall Street’s repricing wave

US stock futures wobbled in after-hours trade on a one-two punch: first, SNAP pulled its forward guidance, citing “ uncertainty”, just vague enough to let the bear brigade run with “canary in the coal mine” narratives. Then came President Trump, taking the stage at his 100-day victory lap to resurrect his favourite punching bag—Fed Chair Jerome Powell. While the Powell-bashing has been priced in a dozen times over, it still reopens the Fed independence wound, and that tail risk never fully leaves the macro radar.

Despite the headline noise, Asia is set to ride Wall Street’s coattails, chasing a continuation bid as investors lean into the narrative that Corporate America’s innovation engine can still outpace the drag from tariffs. But on the tariffs themselves? The assumption? We settle somewhere around a vanilla 10% blanket levy—blunt, but digestible. No embargo-level blowups, just a controlled policy burn that both Wall Street and Main Street can model around. That’s been enough to re-engage risk in the near term.

The immediate risk event in Asia is in Japan. The BoJ kicks off its policy meeting Wednesday, and while no move on rates is expected, spot USDJPY sitting near 142 is a clear signal: markets are positioned for Ueda to keep normalization alive. A dovish misstep—especially if they walk back growth or inflation targets too hard—will light a fire under USDJPY and potentially trigger renewed scrutiny from Washington’s currency cops. The FX compliance heat is real, and Tokyo knows it.

Zooming out, the broader price action is whispering what the headlines haven’t said outright yet: the worst-case tariff scenario is already migrating into the tail-risk bin. Vol curves are softening, skews’s coming in, and cross-asset correlations are stabilizing. But let’s not sugarcoat it—macro uncertainty is still sky-high. With valuations off the mat and earnings season going full throttle, we’re heading into a gauntlet. Mega-cap results from the Big 4—Apple, Amazon, Microsoft, Meta—are loaded with event risk. Implied move premiums say it all.

But the real juice powering the ASEAN rally wagon? That’s coming from DC. Treasury Sec. Bessent gave markets exactly the mood music they wanted—talks with Japan are progressing, South Korea’s deal contours are taking shape, and the pivot away from China is more tactical than total. It’s bespoke trade diplomacy in motion, and the market is front-running the worst-case tail risk unwind.

Don’t confuse this temporary tariff truce talk for a lasting shift in China’s stance. Sure, Asian equities benefited from rumours that U.S. duties might relax amid a smorgasbord of trade deals expected to be finalized. But the China tape tells a bleaker story. We’re still sitting on one of the region’s worst performers since the April 2 tariff shock, and global allocators haven’t reloaded in size. That tells us we’re merely chasing a short-squeeze, not a genuine rotation. In our view, any rally triggered by headline optimism will be met with selling distribution, even more so once the market digs into slower growth, tighter margins and the inevitable China policy limbo.

Under the hood, the economic impulse is weakening fast: growth forecasts have been slashed to sub-1% annualized in Q2, and volatility is flashing a sustained premium that reflates every time Beijing dangles stimulus carrots. Meanwhile, nobody’s forgotten that it took 18 months to nail down the last deal—and this round’s decoupling risks are far more structural. Supply chains are already rerouting out of China, and we’re seeing domestic investors eye foreign yields as the local risk/reward skews unfavourable. Sure, dip-buyers who missed January’s China rally might step in on the fabled National Team backstop. Still, until we see real, not simply jawboned, policy support and a clear roadmap to de-escalation, we’d rather watch China from the sidelines than saddle up for a long position play. In plain English, the Chinese market still needs convincing.