Asian shares saw a significant decline on Monday, reflecting heightened geopolitical uncertainty due to ongoing trade tensions and the escalating Russian-Ukraine conflict. The Hang Seng index in Hong Kong fell sharply by over 2%, specifically dropping 2.2% to 22,778.45, as tensions between Beijing and Washington intensified. U.S. President Donald Trump's recent announcement to double tariffs on steel and aluminum to 50% further fueled investor concerns.
Adding to the dismal market sentiment, a report released over the weekend indicated that China's factory activity contracted in May, though the decline showed signs of slowing compared to April. This contraction came despite China reaching an agreement with the U.S. aimed at reducing tariffs, which had been a source of worry for investors. The mainland Chinese markets remained closed for a holiday during this period.
In the commodities market, oil prices surged following OPEC+’s decision to initiate a modest output increase starting in July, marking the third consecutive monthly increase. U.S. benchmark crude oil saw an uptick of $1.60, reaching $62.39 per barrel, while the international benchmark, Brent crude, rose by $1.41 to $64.19 per barrel.
As geopolitical tensions mounted, missiles and drones launched from Moscow targeted Ukraine shortly before a new round of peace talks took place in Istanbul. Ukrainian officials claimed responsibility for a drone attack that reportedly destroyed over 40 Russian aircraft within Russian territory.
In addition to the turbulence in Hong Kong, Tokyo's Nikkei 225 index decreased by 1.6%, closing at 37,356.97, while South Korea's Kospi index experienced a slight decline of 0.4%, settling at 2,686.17. Australia’s S&P/ASX 200 also retreated, dropping 0.2% to 8,416.00.
On Wall Street, Friday marked the end of its most successful month since 2023. The S&P 500 closed slightly lower, retreating less than 0.1% to end at 5,911.69. The Dow Jones Industrial Average inched up by 0.1% to 42,270.07, whereas the Nasdaq composite saw a decline of 0.3%, closing at 19,113.77. Despite reports of stronger-than-expected profit and revenue for Gap in the latest quarter, its stock plummeted by 20.2%, impacted by the anticipated rise in tariffs affecting imports from China and other nations, estimating that costs could increase by up to $300 million this fiscal year.
Despite optimism that the worst of market concerns had subsided, earlier in May, Trump had temporarily paused tariffs on both China and the European Union. However, the permanence of these tariffs remained uncertain as the White House continued to appeal a U.S. Court ruling that had blocked many of Trump's imposed tariffs.
Notably, the technology sector also reflected vulnerability, with shares in Nvidia dropping 2.9% after a triumphant earnings report that had exceeded analysts’ expectations earlier in the week—significantly weighing down the S&P 500. Conversely, Ulta Beauty experienced an impressive rise of 11.8% following a stronger-than-expected sales and profit report, as the company lifted its revenue guidance for the fiscal year. Costco similarly fared well, climbing 3.1% on reporting quarterly results that surpassed analyst expectations.
In bond markets, Treasury yields eased following a report indicating that inflation metrics favored by the Federal Reserve were slightly lower in April than economists had predicted. Additionally, consumer sentiment in the U.S. improved better than anticipated, particularly in the latter half of May, attributed to Trump's temporary pause on tariffs.
In early trading on Monday, the U.S. dollar weakened against the Japanese yen, falling to 143.55 from 143.87. Meanwhile, the euro showed a slight increase, rising to $1.1364 from $1.1351.
