ASIA STOCKS: Asian Equities Broadly Lower As Tech Rally Runs Out Of Steam

JGB futures are stronger, +8 compared to settlement levels, but well off session bests.

• Today’s move was all about US tsys. Cash US tsys are 6-10bps richer in today’s Asia-Pacific session, with a flattening bias, following yesterday’s holiday. The session has been marked by volatility, driven by reports that Trump suggested tariffs on Canada and Mexico might take effect on February 1. While gains were briefly pared, US tsys have since rebounded, trading near session bests.
• Today’s local calendar was empty apart from 40-year supply.
• Cash JGBs are 1-3bps richer across benchmarks, with the 40-year leading. The benchmark 10-year yield is 0.9bps lower at 1.191% versus the cycle high of 1.262%.
• The issuance of 40-year bonds today was met with strong demand, with the actual high yield coming in notably below dealer expectations. According to a Bloomberg poll, the anticipated yield was 2.60%, compared to the realized yield of 2.57%. The auction’s cover ratio also improved, rising to 2.7518x from 2.2364x in the previous outing.
• Swap rates are slightly higher. Swap spreads are wider.
• Tomorrow, the local calendar will see BoJ Rinban Operations covering 1-25-year JGBs.
• BoJ Policy Decision on Friday.

The USD surged on Trump tariff headlines. From just under 1300, the BBDXY index got above 1310, a +0.80% trough to peak move. We sit lower now, last around 1305.35, around +0.30% firmer versus end NY levels from Monday. 

• The USD started on the backfoot, amid carry over from the US Monday session, with news sources indicating that there would be no Day 1 tariff announcements. However, an impromptu press conference in the oval office (as Trump signed executive orders) saw the USD Rally, as Trump stated Mexico and Canada would likely be hit with 25% tariffs from Feb 1 (which is only a few weeks away).
• Not surprisingly, CAD and MXN saw the brunt of USD demand. Both currencies slumped more than 1%. USD/CAD reached 1.4516, fresh highs back to 2020. USD/MXN rose to 20.7987, just short of recent highs. Both currencies are now away from lows against the USD. USD/CAD last near 1.4420.
• Further Trump headlines stated he hasn't made a decision on universal tariffs. This, coupled with lower US yields, which have fallen today by over 9bps for the belly of the curve, has curbed USD buying interest.
• The US yield move is interesting in the context that tariffs should be seen as inflationary. It may suggest Tsy yields were already primed for such tariff announcements/threats, like those Trump made today. The 25% hike for Mexico and Canada were mentioned in 2024 after Trump won the election.
• USD/JPY is lower, aided by the USJP yield differential dip. We got to lows of 154.78, but sit slightly higher in latest dealings (last 155.00/05). Yen is still 0.40% stronger versus the USD, the only G10 currency higher against the USD so far today. Focus will be on whether we can sustain a downside break under the 50-day EMA, which is just under 155.00.
• AUD and NZD both fell as the tariff headlines crossed. However, we sit away lows, AUD/USD last 0.6250, NZD/USD around 0.5655.
• Later US January Philly Fed non-manufacturing, UK labour market, euro area/German ZEW and Canada’s December CPI data are released.

Asian stocks experienced volatile trading on Tuesday as investors reacted to US President Donald Trump's initial policy actions and trade comments. The MSCI Asia Pacific Index rose 0.5% after fluctuating between gains and losses. While Trump confirmed tariffs of up to 25% on Mexico and Canada by February 1, he held off on outlining specific measures against China, leaving the door open for future negotiations.

• Trump signaled potential tariffs on Chinese goods if Beijing blocks TikTok's sale but avoided committing to immediate China-specific levies.
• Technology stocks led the region, buoyed by news of a Chinese government chip fund's investment in AI. Renewable energy and electric vehicle stocks fell after Trump withdrew the US from the Paris Agreement and rolled back environmentally-friendly policies. and shares in energy and chemical sectors declined as investors weighed Trump's trade policy.
• Goldman Sachs’ Kinger Lau forecasted a potential 20% rise in Chinese equities over the next 12 months, suggesting markets can absorb the impact of tariffs.
• APAC markets: Japanese equities mixed, with the TOPIX -0.10% while the Nikkei trades +0.10%, Hong Kong's HSI +1.20%, China's CSI 300 +0.25%, Taiwan's TAIEX +0.20%, South Korea's KOSPI +0.20%, Australia's ASX 200 +0.60%, New Zealand NZX 50 -0.30%