(Sharecast News) - Asia-Pacific markets advanced on Tuesday as investor sentiment improved following Donald Trump's decision to pause tariffs on Mexico and Canada for a month.
However, trade tensions persisted, with China implementing fresh tariffs on US imports in response to American duties on its exports.
Despite the geopolitical backdrop, major indices in the region posted strong gains, with the exception of Australia, while Chinese markets remained closed for the Lunar New Year holiday.
Stephen Innes, managing partner at SPI Asset Management, said the 'let's make a deal' negotiations happening stateside injected some "much-needed calm" into Asian markets on Tuesday.
"After Monday's brutal selloff, traders might finally get a chance to dust off their relief rally hats - assuming that Trump doesn't drop another market-rattling bombshell in the next few hours," he noted.
"With tariff tensions temporarily dialled down, we could see bargain hunters step in, fuelling a solid bounce across equities and foreign exchange.
"But let's not get too comfortable - Trump's trade war twists are anything but predictable."
Innes noted that a single tweet or policy shift could send the market back into risk-off chaos, proving once again that relief rallies came with an expiration date in the current environment.
"Still, given the longstanding correlation that rarely fails, when US markets rally and the dollar softens, the wrecking ball effect on Asia's risk markets eases - and that's when the risk-on engines fire up."
Most markets bounce after Monday's tariff-fuelled sell-off
In Japan, the Nikkei 225 rose 0.72% to 38,798.37, with Sumitomo Dainippon Pharma, Sumitomo Electric Industries, and Kyocera Corporation leading gains.
The broader Topix index gained 0.65% to 2,738.02.
Hong Kong's Hang Seng Index climbed 2.83% to 20,789.96, with notable advances from Shenzhou International Group, Li Auto, and Semiconductor Manufacturing International Corporation (SMIC).
South Korea's Kospi 100 added 1.24% to 2,478.60, driven by a sharp 11.2% rise in Doosan Robotics and strong gains in LIG Nex1 and Hanwha Ocean.
In contrast, Australia's S&P/ASX 200 slipped 0.06% to 8,374.00, with Lynas Rare Earths, Neuren Pharmaceuticals, and Contact Energy weighing on the index.
Across the Tasman Sea, New Zealand's S&P/NZX 50 gained 0.74% to 12,905.04, supported by EBOS Group, KMD Brands, and Spark New Zealand.
In currency markets, the dollar was last up 0.37% on the yen to trade at JPY 155.31, as it advanced 0.29% against the Aussie to AUD 1.6106, and strengthened 0.37% on the Kiwi, changing hands at NZD 1.7829.
Oil prices declined, with Brent crude futures last down 0.92% on ICE to $75.25 per barrel, and the NYMEX quote for West Texas Intermediate dropping 1.68% to $71.93.
Trump pauses tariffs on Canada and Mexico, China slaps on retaliatory charges
At the top of the economic agenda was the US temporarily halting new tariffs on Mexico and Canada, easing trade tensions in North America.
However, friction with China escalated as Beijing imposed retaliatory duties on American goods in response to Washington's latest round of tariffs.
China raised levies by up to 15% on US imports, including coal and liquefied natural gas, while crude oil, farm equipment, and select automobiles faced an additional 10% duty.
The measures took effect just as the US implemented a new 10% tariff on all Chinese imports at the start of Tuesday.
The latest trade moves could have significant economic consequences, with Wall Street analysts warning of potential inflationary pressures and slower growth.
Economists at Morgan Stanley estimated that if tariffs remained in place, US inflation could rise by 0.3 to 0.6 percentage points in the coming months, pushing headline PCE inflation to a range of 2.9% to 3.2%.
Meanwhile, US economic growth could slow by 0.7 to 1.1 percentage points over the next three to four quarters, bringing real GDP expansion down to between 1.2% and 1.6%.
Reporting by Josh White for Sharecast.com.
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