ASIA STOCKS: Wider Asian Equities Mixed On Tariff & German Fiscal News

Oil prices are lower again today with WTI down 1.1% to $72.37/bbl and Brent -0.5% to $75.55/bbl, holding above initial support levels. The 30-day postponement on US tariffs for Canada and Mexico has weighed on crude during APAC trading today. Talks are ongoing regarding the 10% on imports from China scheduled from midnight NY time today. The USD index is 0.1% lower. 

• Crude has risen on news of trade taxes but the outlook continues to worry the market. The strength of demand from China, the world’s largest oil importer, remains a concern plus the impact of an increase in trade tensions on global demand generally. On the supply side, President Trump plans to increase US production, while OPEC kept its quotas unchanged at its review yesterday but is still scheduled to begin normalising output from April.
• Another uncertainty is the sanction environment with US talks with Venezuela opening the possibility of an increase in its supply, while Iran and Russia could be hit with tighter measures.
• Today industry-based data on US crude inventories are released for last week. They rose sharply the previous week as Canadian producers have lifted flows to the US sharply ahead of possible tariffs. That trend may continue for the next month or until it is clear whether taxes will actually be imposed.
• The Fed’s Bostic and Daly speak later and US December JOLTS job openings and orders print. France’s December budget statistics and January Spanish unemployment are also out.

As we noted in the earlier bullet, the elevated level of US real yields is still providing support for the broader USD backdrop, even if tariffs are a key near term sentiment driver. The elevated US real yield backdrop, and uncertainty around degree of US easing this year is supported, at the current juncture by relative data outcomes and the US growth outlook. 

• The first chart below presents the Citi EASIs for major economies/regions. The US, which is the orange line has mostly been positive and at higher levels relative to other the major economies over this period. 

Fig 1: Major Economy Economic Activity Surprise Indices (Citi)

Source: Citi/MNI - Market News/Bloomberg   

• The second below plots the J.P Morgan economic growth forecast revision indices, again for major economies/regions. These indices measure the extent to which J.P. Morgan economists are either revising up or down their growth projections for a particularly economy or region (this can be for the short term or the longer term).
• In the past 12 months, the bias has been for US economic growth forecast upgrades, while other major economies/regions have largely flatlined. The exception was the UK, although since October its forecast revision line has been pushed lower.
• To the extent growth expectation revisions will reflect upside/downside data surprises, these metrics are likely to be watched in terms broader USD risks as we progress through the first half of 2025. 

Fig 2: J.P. Morgan Economic Forecast Revision Indices, By Major Economy/Region 

Source: J.P. Morgan/MNI - Market News/Bloomberg   

Broader USD sentiment remains closely aligned to the near term tariff outlook, particularly as the China deadline approaches as we tick into US time Tuesday (currently close to 10:55pm Monday time in Washington).

• A delay in tariff implementation for China is likely to weigh on near term USD sentiment, all else equal. The USD BBDXY index, current above the 20-day EMA, albeit just, while further south is the 50-day day around the 1297 level. The chart below presents the index against all key EMAs. 

Fig 1: USD BBDXY Index Versus Key EMAs 

Source: MNI - Market News/Bloomberg 

• The drift lower in US real yields is another near term USD headwind. The real 10yr has moved off Jan highs of 2.34% to be back at 2.09%. Still, if we look at the US-EU real yield differential (proxied by the German real 10yr rate), it is hardly giving a bearish USD backdrop, see the second chart below.
• At +175bps in favour of the USD (relative to Germany), this is not suggesting a sustained turn higher in EUR, at least based off this metric
• The elevated US real yield backdrop is still a source of support for the USD, and as we argue in the next bullet remains supported by the broader macro backdrop. 

Fig 2: EUR/USD Versus US-GE Real 10yr Yield Differential. 

Source: MNI - Market News/Bloomberg