Financial markets across Asia commenced the week with a notable surge in optimism, as investors eagerly awaited the second round of high-level trade discussions between the United States and China in London. This sentiment of cautious anticipation largely outweighed recent economic data that painted a mixed picture, highlighting the profound influence of geopolitical negotiations on global market dynamics.
Asian Markets Respond Positively
Stock exchanges throughout Asia saw significant advances on Monday. Tokyo’s Nikkei 225 index climbed notably, despite an official report indicating a 0.2% economic contraction in Japan during the first quarter of the year. Similarly, Seoul’s Kospi demonstrated robust growth.
In China, despite a noticeable deceleration in export growth—May’s foreign sales rose by a more modest 4.8% year-on-year compared to over 8% in April, with shipments to the U.S. declining almost 10%—and a fourth consecutive month of consumer price deflation at 0.1% in May, mainland Chinese markets and Hong Kong’s Hang Seng index also advanced. Australia’s markets remained closed for a public holiday, but the broader regional trend was clearly positive.
Currency Dynamics and U.S. Economic Picture
The U.S. dollar experienced a slight retreat against major currencies on Monday. This easing occurred as traders weighed a strong U.S. jobs report from the previous Friday against the looming trade negotiations in London. The Organization for Economic Cooperation and Development (OECD) had recently projected a modest 1.6% U.S. economic growth for the year 2025, a reduction from the 2.8% recorded last year.
The U.S. delegation for the trade talks included prominent figures such as Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and Trade Representative Jamieson Greer. China was expected to be represented by Vice Premier He Lifeng. While Friday’s job data initially bolstered the dollar, cutting its weekly losses in the dollar index by more than half, the currency remained down for the year overall.
The Japanese yen strengthened against the dollar following news of Japan’s economic contraction being less severe than anticipated, alongside remarks from Prime Minister Shigeru Ishiba regarding interest rates. The euro also edged higher amid speculation about a hawkish stance from the European Central Bank. Other currencies like the Swiss franc and sterling also saw minor gains against the dollar.
Oil Markets Hold Steady Amid Trade Hopes
Crude oil prices largely maintained the gains from the previous week, as market participants focused on the potential outcomes of the U.S.-China trade discussions. Brent crude futures remained unchanged, while U.S. West Texas Intermediate saw a fractional rise.
The prevailing market sentiment suggested that optimism surrounding a potential trade agreement between Washington and Beijing was eclipsing concerns about increasing supply from the OPEC+ alliance. OPEC+ had, on May 31, approved another substantial output increase for July. Key aides to President Donald Trump were scheduled to meet their Chinese counterparts, initiating the U.S.-China economic and trade consultation mechanism. Analysts widely anticipated that any tangible progress towards a trade deal would stimulate global economic growth, consequently boosting oil demand.
However, some analysts cautioned that the continued rise in OPEC+ output could exert downward pressure on oil prices later in the year. For instance, HSBC projected that accelerated supply hikes in August and September could introduce downside risks to their forecast of $65 per barrel for Brent in the fourth quarter of 2025. Researchers from Capital Economics echoed this concern, viewing the “new faster pace of production rises” from OPEC+ as a potentially enduring trend.
Sophia Patel brings deep expertise in portfolio management and risk assessment. With a Master’s in Finance, she writes practical guides and in-depth analyses to help investors build and protect their wealth.