Asia wrap: The tip of the Iceberg

President-elect Donald Trump’s tariff game looks set to return with a vengeance, potentially delivering broader and harsher blows than during his first term. If Trump follows through on his bold campaign promises, markets could face a seismic upheaval—emerging-market stocks, currencies, and global equities, particularly in Asia, are in the crosshairs. The market seems far from fully pricing in these looming moves, and current hedging efforts are merely scratching the surface.

If you missed the flashing red headlines, Fed Chair Powell made it clear: there’s no rush to cut rates. With the economy holding strong and the labour market resilient—weekly jobless claims remain historically low—there’s time to assess the ripple effects of Trump’s tariffs and fiscal policies before making any hasty moves.

On the inflation front, US core PPI rose more than expected in October, hinting at sticky cost pressures. Combine that with unyielding core CPI, and we could see October’s core PCE inflation hold steady, signalling a gradual pace for Fed rate cuts in 2025. Layer in potential tariff-driven import cost increases, and the inflationary backdrop intensifies. Services PPI has been a critical driver of rising producer prices, while goods PPI has barely budged after prior declines.

For Asian markets, the outlook is clouded with uncertainty. The spectre of US tariff hikes looms large, threatening regional growth and amplifying global trade anxieties. Asian FX, led lower by the Thai baht and Malaysian ringgit, has already felt the pressure. Meanwhile, the PBoC appears to be in smoothing mode, carefully managing the yuan until a potential Trump trade salvo forces its hand, which could trigger a make-or-break moment for Chinese currency policy.

In short, we’re looking at an economic and market landscape fraught with tension. Every policy hint from the incoming US administration could ripple through global markets, leaving investors bracing for impact in an unforgettable 2025.