JGBS: Sharply Richer Led By 7Y & 10Y, HH Spend Data Tomorrow

Asian equities fell sharply as trade tensions escalate, doubling tariffs on Chinese imports to 20% and imposing 25% levies on Canada and Mexico. This sparked fears of a broader trade war, with Japan's Nikkei and Hong Kong’s Hang Seng leading declines. Indian equities extended their selloff, with the NSE Nifty 50 Index nearing a record 10-day losing streak as global funds continued to pull out. Auto and chip stocks were hit hardest, particularly in Japan and South Korea, while Chinese EV makers slumped following BYD’s large share placement. Investors are closely watching China’s National People’s Congress for potential stimulus measures and trade responses.

• Japan's Topix -1.05% and Nikkei -1.90% amid trade war concerns, with major auto stocks like Toyota, Honda, and Mazda falling. A stronger yen and exposure to Mexican tariffs also weighed on sentiment.
• China's CSI 300 -0.25% and Hong Kong's HSI is -0.45% as investors reacted to higher US tariffs. EV makers like BYD declined sharply after a large share placement, while robotics-related stocks gained on government support. UBS expects Chinese stocks to outperform in the long run due to resilient domestic flows.
• South Korea's Kospi is unchanged with Hyundai and HL Mando dropping due to auto tariff risks. Battery stocks like CATL and Eve Energy slumped ahead of a European policy announcement. Defense stocks gained on expectations of higher European military spending.
• Taiwan's TAIEX is 0.45% lower after TSMC slid 2.4% despite announcing a $100b US investment.
• Australia ASX200 is 0.65% lower while New Zealand's NZX 50 dropped 0.65%, tracking global weakness. Australia’s GDP data release is in focus.
• India's Nifty 50 down 0.30% neared a 10-day losing streak as global investors pulled nearly $14b this year, citing high valuations and slowing growth. Technical indicators suggest a possible rebound.
• Indonesia’s JCI tumbled 1.3%, Malaysia’s KLCI lost 0.8%, and Vietnam’s VN Index fell 0.8%, while Thailand and the Philippines saw slight gains.

The USD BBDXY index is little changed in the first part of Tuesday dealings, with the index last near 1293. This has masked some divergent trends, with yen and to a lesser extent CHF outperforming higher beta plays, particularly the AUD. 

• USD/JPY got to lows 148.60, but sits back close to 149.10 in latest dealings. This is up in yen terms around 0.25%. We are close to 148.57, the Feb 25 low and bear trigger. Beyond that lies the Oct 9 low from last year at 148.01.
• Various Japan officials, including right up to the Prime Minister, have denied devaluing the yen. A comment that US President Trump made on Monday. We also various data prints, with capex softer than forecast for Q4, likely meaning downside Q4 GDP revisions.
• US yields continued lower in the first part of trade, before steadying. We were last slightly weaker for the 10yr at 4.14%. US-JP yield differentials are still arguing for more USD/JPY downside.
• AUD/USD is back under 0.6200, amid broader high beta FX weakness. The MXN is down 0.50%, last near 20.79. USD/CAD is up above 1.4500, although is sub recent highs. Tariffs on both Mexico and Canada look set to come into effect. Regional equity market sentiment is mostly weaker, although US futures are up a touch.
• For AUD/USD we are close to the Feb 28 low at 0.6193. NZD/USD is back near 0.5600. We had Australian data prints, ahead of Q4 GDP tomorrow, along with the RBA minutes. These outcomes didn't shift the AUD though. AUD/JPY is back under 92.40, fresh lows since early August last year.
• USD/CNH is back lower, last near 7.2830, testing 20 and 50-day EMA support. Like Japan, Trump accused China of devaluing its currency. To the extent a firmer yuan may be seen as helping prevent further trade escalation may be helping yuan today.
• Later the Fed’s Williams speaks and the euro area’s January unemployment rate prints.

Oil prices fell sharply on Monday after reports that OPEC will surprisingly go ahead with its output normalisation from April. They have continued declining during today’s APAC session. The IEA is forecasting a global oil surplus in 2025 even if OPEC left its production unchanged. The market is also worried about the impact of US tariffs and retaliatory measures on global demand. 

• WTI is down 0.4% to $68.11/bbl but off its intraday low of $67.96. It has broken below support at $68.36 opening $67.75. Brent is 0.7% lower at $71.09/bbl after falling to $71.04, remaining just above support at $70.96. The USD index is slightly higher.
• An additional 10% US tariff was imposed on China today but it didn’t provide details of any further retaliatory measures against the US. 25% will go on imports from Mexico and Canada today.
• Canada has responded with 25% tariffs on around C$30bn of US goods initially followed by C$125bn in three weeks. Ontario is threatening to stop energy and critical mineral shipments to the US. The US will impose 10% on Canadian energy imports, including oil. Canada has few options to divert its crude flows away from the US.
• Canadian oil producers have increased flows to the US to beat tariff deadlines resulting in stock builds. Industry data for last week are released later today.
• Later the Fed’s Williams speaks and the euro area’s January unemployment rate prints.