Markets start sanguine pre-Asia open but slump on fresh Trump-induced US-MX trade war concerns

Asia Market Update: Markets start sanguine pre-Asia open but slump on fresh Trump-induced US-MX trade war concerns; US Mar PPI, US Apr Michigan Consumer Sentiment tonight.

General trend

- The massive volatility of the past week calmed down overnight as US stocks gave back a portion of their outsize recovery the day before, but the market is still on edge and manically focused on trade outcomes and Pres Trump’s phone keystrokes.

- True to form and prior to the Asia equity cash opening, US Pres Trump suddenly threatened additional tariffs on Mexico over a 1944 Water Treaty; USD bids collapsed against most currencies (other than MXN and CNH), with DXY dipping briefly <100, while US equity FUTs immediately turned around their 0.5% gains in early Asian trading to fall -1.5% to -2.0%, with Asian bourses also affected at cash opens with Nikkei quickly losing -5.0%, ASX -2.2% and Kospi -1.8%. Hong Kong stocks eventually outperformed +1.3% on the day but still looking to end Friday with their worst week since the global financial crisis of 2008. US equity FUTs gradually pared all losses as the session continued, and Asian stocks pared some of their losses but still well under water for ASX, Kospi and Nikkei.

- China chip-makers HuaHong +19%, SMIC +9% as Hang Seng tech index +1.7.

- US Treasury 30-year yields spiked back to 4.95%, looking at the biggest weekly increase since 1982, as the Philippines became the third Asian nation this week (after Japan and Taiwan) to say it was Not looking to reduce holdings of US Treasuries.

- Spot Gold traded to fresh record high of $3,219/oz while USD/CHF intraday was lowest since Sept 2011, EUR/USD spiked to nearly 1.14 vs USD, highest since Feb 2022 and JPY/USD jumped to a 7-month high, breaking briefly into the 142 handle.

- Asia credit spreads in mid-Fri trading set for biggest weekly widening since 2022.

- Potentially getting first view of what new US trade deals may look like: Thailand reported to regulate certificate of origin for US exports (going forward); Put more products in watch-list for US exports, while Vietnam govt to implement stricter checks against export of chips and dual-use goods with China, hoping to have US duties cut to 22-28% (v 46% last week):

- Further reports that Trump Admin may be considering delisting shares of Chinese public companies on US exchanges, and the White House confirmed that China's effective tariff rate is at 145% (125% combined with the 20% fentanyl tariff).

- Japan 10-year JGB yields -3.5bps to 1.335%, Aussie 3-year yields -11bps as curve steepens with 10-years +9bps amid speculated rate paths for more aggressive Australia RBA cuts by banks, as Gov Bullock last night still said ‘need to be patient’. NZ yields curve also steepens with 10-years +10bps.

- China PBOC set the Yuan reference rate at a slightly stronger setting, breaking a run of six straight weaker fixes. offshore Yuan was weaker at 7.32 handle vs 7.29 handle earlier.

- US equity FUTs ultimately ended flat during Asian trading after -1.5% to -2.0% losses earlier.

Looking ahead (Asian-weighted news, on Asian time zone)

- Fri Apr 11th (Fri night CN Mar New Yuan Loans, US Mar PPI, US Apr Michigan Consumer Sentiment).

- Sat Apr 13th CN Trade Balance.

Holidays in Asia this week

- Mon Apr 7th Indonesia, Thailand, Vietnam.

- Wed Apr 9th Philippines.

- Thu Apr 10th India.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.5% at 7,670.

- Australia sells A$600M vs. A$600M indicated in 2.75% Jun 2035 bonds; Avg Yield: 4.4063% v 4.5607% prior; bid-to-cover: 4.02x v 4.14x prior.

- RBA Gov Bullock: Too early for RBA to determine path ahead for rates; Not seeing same impacts as market events of 2008; Key is how uncertainty affects households' and firms' decisions - speech text [overnight update].

- New Zealand Mar Manufacturing PMI: 53.2 v 54.1 prior (3rd month of expansion).

China/Hong Kong

- Hang Seng opens -0.6% at 20,557; Shanghai Composite opens -0.1% at 3,219.

- (US) Environmental Protection Agency (EPA) said to be considering cutting of emissions reporting requirements - NYT.

- (US) White House confirms that China effective tariff rate is at 145% (125% combined with the 20% fentanyl tariff).

- China, Japan, and South Korean Central Banks have discussed US tariffs on April 8-9th - press.

- Reportedly Saudi crude oil supply to China will rise to ~48 MMbbl in May – press.

- China Pres Xi to visit Malaysia, Cambodia, and Vietnam from April 14th-18th - press.

- Reportedly Trump Admin considering delisting shares of Chinese public companies on US exchanges - Fox Business' Gasparino.

- Chinese Officials secretly acknowledge role in "Volt Typhoon" infrastructure hacks during December meeting – WSJ.

- Tesla suspends taking new orders for Model X and Model X on China website - financial press.

- Reportedly EU agrees to start negotiations to abolish tariffs on Chinese EVs - press.

- China reportedly to moderately reduce number of imported US films - state TV [overnight update].

- China Commerce Ministry (MOFCOM): Continuously improve effectiveness of export controls; To step up export control management for national security - statement from meeting on export controls [overnight update].

- China Foreign Ministry: China will not sit by and let international trade rules and multilateral system be undermined; US needs ‘attitude of equality’ for talks to start [overnight update].

- China Commerce Ministry (MOFCOM): Reiterates if US insists on its own way, China will 'follow it to the end' (previously said 'fight to the end') [overnight update].

- China MOF sells 30-year bonds: Avg Yield: 1.8455% v 2.0629% prior.

- China PBOC sets Yuan reference rate: 7.2087 v 7.2092 prior- China PBOC Open Market Operation (OMO): Injects CNY28.5B in 7-day reverse repos; Net injects CNY28.5B v drains CNY158B prior.

Japan

- Nikkei 225 opens -1.9% at 33,951; Quickly falls -4.6%.

- Japan Mar M3 Money Supply Y/Y: 0.4% v 0.7% prior.

- Japan PM Ishiba: US tariffs could affect all industries; Has instructed Econ Min Akazawa to hold vigorous talks with the US; Plans to launch task force on reciprocal tariffs.

- Japan Econ Min Akazawa: Aware that Treas Sec Bessent has raised FX and non-tariff barriers as a topic; Bessent can be a tough negotiator - financial press- Japan Trade Min Muto: Reiterates to call on US to reconsider its tariffs.

- Japan Fin Min Kato: Currency rates should be set by markets; Have agreed with US that we would continue to closely communicate with US on FX at Minister level - financial press.

- Japan's ruling party (LDP) and Komeito considering food consumption tax cut – press.

- Japan Komeito (LDP's junior coalition partner) leader Tetsuo Saito: Considering various options, including tax cuts - financial press.

- Japan Econ Min Akazawa: US imposition of tariffs on steel and autos is regrettable; No specific date set for US visit, haven't made first contact with US side on tariffs [overnight update].

- Japan DPP Head Tamaki (opposition party): Want govt to consider cutting sales tax to 5%
[overnight update].

-Fast Retailing Reports H1 Net ¥233.6B v ¥195.9B y/y, Op ¥304.2B v ¥257.1B y/y, Rev ¥1.79T v ¥1.60T y/y; Raises FY profit and dividend guidance [overnight update].

- Japan sells ¥4.5T vs. ¥4.5T indicated in 3-Month Bills; Avg Yield: 0.3468% v 0.3870% prior; bid-to-cover: 3.26x v 3.03x prior.

Korea

- Kospi opens -1.8% at 2,402.

- South Korea Apr 1-10th Imports Y/Y: 6.5% v 7.3% prior; Exports Y/Y: 13.7% v 2.9% prior.

- South Korea Fin Min Choi: Reiterates closely monitoring FX. stock and treasury bond markets - comments from 'F4' meeting.

- South Korea to provide extra KRW9T financing to assist exporters - press.

- South Korea main opposition party DP's Lee support has risen to 37%, ahead of Jun 3rd election - Gallup poll.

Other Asi

- Vietnam govt hopes to have US duties cut to 22-28% (v 46% last week): To implement stricter checks against export of chips and dual-use goods to China - financial press.

- Thailand reported to regulate certificate of origin for US exports (going forward); Put more products in watch-list for US exports- financial press.

- (VE) US Treasury Sec Bessent: Vietnam and US begin formal reciprocal trade talks – press.

- Philippines Central Bank (BSP) Gov Remolona: Reiterates can cut key rate a few more times this year - financial press.

- PHILIPPINES CENTRAL BANK (BSP) CUTS OVERNIGHT BORROWING RATE BY 25BPS TO 5.50%; AS EXPECTED; - See further 25bps rate cuts, can't say how many more
[overnight update].

North America

- Mexico Dep Econ Min Guitierrez: Mexico is seeking more exemptions on US auto tariffs; USMCA review must include conflict resolution.

- Mexico Pres Sheinbaum: Mexico to contact US govt to resolve water matter; Mexico has complied with Water Treaty amid drought - financial press.

- US Pres Trump threatens additional tariffs on Mexico over 1944 Water Treaty; Just last month, I halted water shipments to Tijuana until Mexico complies with the 1944 Water Treaty.

- (PE) Peru Central Bank (BCRP) leaves Reference Rate unchanged at 4.75%; as expected.

- (US) White House NEC Dir Hassett: Two trade deals 'almost closed' as of last week; Big inventory of deals that are right close to finish line; Close to 20 countries making offers - CNBC.

- (BR) Brazil Feb IBGE Services Volume M/M: 0.8% v 0.0%e; Y/Y: 4.2% v 3.4%e.

- (US) Pres Trump: Great News! “The Big, Beautiful Bill” is coming along really well. Republicans are working together nicely. Biggest Tax Cuts in USA History!!! Getting close. DJT - Truth Social post.

- (US) MAR CPI M/M: -0.1% V 0.1%E; Y/Y: 2.4% V 2.5%E (annual pace lowest since both Sept 2024 and Mar 2021); CPI (ex-food/energy) M/M: 0.1% v 0.3%e; Y/Y: 2.8% v 3.0%e.

- (US) INITIAL JOBLESS CLAIMS: 223K V 223KE; CONTINUING CLAIMS: 1.85M V 1.88ME.

- (US) Mar Real Avg Hourly Earning Y/Y: 1.4% v 1.1% prior; Avg Weekly Earnings Y/Y: 0.8% v 0.8% prior.

- Amazon CEO Jassy: We know customers care about selection and price and will do everything we can to offset tariffs; Too early to say we have seen any real change in consumer behavior - CNBC.

- (US) White House Council of Economic Advisers Chair Miran: Trump is buying time to create trade deals; Never thought that we were headed for a meaningful recession.

- (US) Fed's Logan (non-voter): Inflation persistence will depend on how quickly companies pass through cost increases; Higher-than-expected tariffs would very likely raise both unemployment and inflation - speech text.

- (US) Fed's Schmid (voter; hawk): Tariff announcements have elevated economic uncertainty and increase in short-term inflation expectations - speech text.

- (US) WEEKLY EIA NATURAL GAS INVENTORIES: +57 BCF VS. +50 BCF TO +52 BCF INDICATED RANGE.

- (US) Fed's Bowman (voter, hawk): The economy is strong; Growth is solid, but slowing.

- (US) US HOUSE PASSES BUDGET FRAMEWORK TO ADVANCE TRUMP TAX CUTS AND DEBT CEILING HIKE.

- (US) Fed's Goolsbee (voter): Fed's timetable isn't the market's timetable; Our goal is to find the through line, not jump to conclusions - speech text.

- (DK) US White House said to be moving on a messaging plan to acquire Greenland - NYT.

- (US) TREASURY $22B 30-YEAR BOND REOPENING DRAWS 4.813% V 4.623% PRIOR; BID TO COVER 2.43 V 2.37 PRIOR AND 2.42 OVER LAST 8 REOPENINGS; stopped through.

- (US) US Pres Trump: The first deal on tariffs is very close, but it has to be a good deal; Does not consider exceptions for companies right now; Asked about potential for extending the 90 day tariff pause, says "we'll see what happens at that time" - US Cabinet Meeting.

Europe

- (ES) Spain PM Sanchez: Calls for mutual beneficial relations with China - pre-meeting comments with China's Pres Xi (in Beijing).

- (PT) Portugal Mar Final CPI M/M: 1.4% v 1.4% prelim; Y/Y: 1.9% v 1.9% prelim.

- (EU) Commission Pres Von der Leyen: Confirms 90-day delay of EU countermeasure tariffs set for April 15th; Want to give negotiations a chance; All options remain on the table.

- (UK) BOE Dep Gov Breeden: The world has moved significantly since March MPC meeting; Overall, tariffs are likely to lower UK growth, and supply chain disruptions could be pushed higher.

Levels as of 00:20 ET

- Nikkei 225 -4.0%, ASX 200 -1.3%, Hang Seng +1.3%; Shanghai Composite +0.3%; Kospi -1.4%.

- Equity S&P500 Futures +0.2%; Nasdaq100 +0.2%; DAX +0.6%; FTSE100 +0.2%.

- EUR 1.1192-1.1385; JPY 142.88-144.55; AUD 0.6181-0.6259; NZD 0.5736-0.5799.

- Gold +1.8% at $3,232/oz; Crude Oil +0.5% at $60.35/bbl; Copper flat at $4.3912/lb.