Asia wrap: Swinging like a pendulum

Asia’s benchmark stock indices have swung like a pendulum as investors weigh the impact of a second Trump presidency, with all its hints of steeper tariffs. U.S. stocks have rallied on expectations that Trump’s usual toolkit of tax cuts and deregulation will fuel corporate profits. Still, the Treasury 10-year yield tells a different story, surging 16 basis points on Wednesday. Markets are bracing for inflationary pressures under Trump’s fiscal plans, which—at this stage—are squeezing financial conditions across Asia and casting a bearish shadow over local stocks. Yet in FX? The usual Trade War red flags are nowhere in sight. USDCNH isn’t surging, leaving everyone wondering which Trump campaign promises will go live.

Then there’s an unexpected twist: Elon Musk could be part of this new equation. With deep connections to China’s political elite and talk in Washington of slicing $2 trillion off government spending, Musk could bring a whole new layer of complexity to this Trump chapter.

This morning, as I revisited pre-election notes, the extreme tail risks for Asia kept resurfacing. While a full-scale PBoC yuan devaluation isn’t on the top of my radar, it’s a tail risk that can’t be ignored.

And here’s the kicker: will Trump return to the global stage as a hard-hitting negotiator, or will he double down with his trademark hardline approach? One thing is for certain—he’s not going to sugarcoat a thing, and those unfiltered moves are bound to stir up the markets. Buckle up; things are about to get very real.