MALAYSIA: Weak Exports Sees Trade Surplus Fall

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%

It has been a volatile session, following the Inauguration of Trump he has been busy signing executive orders, however the market has really only reacted to comments surrounding Canada & Mexico tariffs. Asian equities are trading higher with Hong Kong stocks the top performer following positive TikTok comments from Trump. Tsys futures volumes have surged, while the cash tsys curve has flattened slightly.

• Tsys futures are holding near session's best levels now, brushing off earlier weakness following headlines around 25% tariffs on Canada & Mexico. TU is +02¾ at 102-26¼ while TY is trading +16 at 109-01+, Resistance is seen at 109-06 (Dec 31 high) but gains are deemed corrective from a technical perspective, against a medium-term bear trend with support at 108-00 (Jan 16 low).
• Cash tsys curve has twist flattened, with the belly out-performing, the 7yr leads the way trading -9.5bps to 4.436% just off the ytd lows of 4.413%, while the 10yr is -9.1bps at 4.536%
• Long-end bonds have outperformed recently, flattening yield curves as markets downplayed Donald Trump's tariff threats against Canada and Mexico. The 2s10s spread fell to 31bps, its tightest level since January 3, with technical resistance and charting suggesting a double top may have formed at 42bps, which could limit further steepening for now.
• Fed Funds futures have seen cut expectations build during the Asian session to 43bp for 2025 vs 38bp at the US crossover on Monday and 32bp prior to last week’s CPI report. A next 25bp cut from the FOMC is seen around June/July.
• It is another quiet data session today with just Philadelphia Fed Non-Manufacturing Activity expected out.