Asia open: The ten trillion Yuan dilema

Asia markets could face a mixed start on Wednesday as investors process news of China’s potential 10 trillion yuan fiscal boost and juggle the pressures of a firmer U.S. dollar and buoyant Treasury yields. We might see a hint of green from the tech sector, with the U.S. tech index closing at record highs, as cash-rich hyperscalers—armed with long-term financing at lower rates—continue to ride above yield volatility. If earnings impress, this resilience could well continue.

In Japan, political gridlock after Sunday’s inconclusive election still looms, but it might actually benefit local stocks. A weak yen provides a tailwind, and the market may view this political stalemate as a check on the Bank of Japan’s more hawkish voices. Of course, there’s a tipping point where yen weakness could fuel inflation, but for now, the dramatic dip in oil prices offers some relief for Japan, a major oil importer.

China’s fiscal news added fuel to the conversation, with reports hitting the wires on Tuesday that China is weighing an issuance of over 10 trillion yuan ($1.4 trillion) in debt to shore up its economy. This hefty package could swell even further if Trump wins the U.S. election, increasing urgency around China’s stimulus efforts. Yet, despite the buzz, Chinese stocks slid 1% on Tuesday, with local and foreign investors staying firmly in "show me the money" mode, holding back until concrete fiscal moves materialize.

Perhaps the yuan’s recent drop to a two-month low could aid Chinese stocks, mirroring the boost a weaker yen often brings to Tokyo markets. A softer yuan may lift exports and nudge the economy from deflationary risks. However, China’s policymakers walk a fine line; a weaker currency could risk triggering capital flight, complicating their balancing act.

Meanwhile, a steady rise in U.S. bond yields and dollar strength might temper local optimism. The 10-year Treasury yield surpassed 4.30% for the first time since July, and the dollar hit a three-month high. It’s shaping up to be the dollar’s biggest monthly gain in over two and a half years—and the second largest in a decade. Many investors are definitely feeling the pinch since Trump’s odds surged last Monday, flipping the playbook from selling the dollar on rallies to snapping it up at every dip. This shift has completely changed the game, as the market leans hard into dollar strength.