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Asian equities are mostly lower today as investors reacted to U.S. President Donald Trump’s announcement of 25% tariffs on steel and aluminum imports. Japan’s Nikkei 225 and Topix Index both fell 0.3% earlier as concerns over inflationary pressures and reduced expectations for U.S. rate cuts weighed on sentiment, though traders held back on aggressive selling following a trade meeting between Japan and the U.S, the Nikkei is now trading 0.10% higher. South Korea’s Kospi is trading -0.15%, Taiwan's TAEIX is 0.85% lower while both Australia's ASx 200 and New Zealand's NZX 50 trading 0.35% lower.

• Steel and aluminum stocks across Asia declined sharply, with South Korea’s Posco Holdings (-3.6%), Japan’s Nippon Steel (-2.6%), and Australia’s South32 (-1.4%) among the notable losers. The broader commodity market saw gains, as aluminum (+0.6%) and copper (+1.6%) rose on the London Metal Exchange, while zinc fell 0.4%.
• Chinese e-commerce stocks, including Alibaba and JD.com, outperformed as Trump delayed the suspension of de minimis exemptions, temporarily maintaining duty-free status for low-value imports from China. Meanwhile, analysts believe the overall economic impact of U.S. steel and aluminum tariffs on emerging Asia will be limited, as past experiences in 2018 showed little disruption to exports.

AUDUSD fell sharply to 0.6231 from just under 0.6270 following news of 25% US tariffs on all steel and aluminium imports. It has been recovering since then rising to around 0.6270 but is now at 0.6255 to be down 0.3% today, as the US dollar strengthened (USD BBDXY +0.3%).

• Australia’s overall aluminium exports accounted for only 4% of total exports in 2024 and so US tariffs are likely to have a minimal impact. Australia was the 10th largest source of US aluminium imports in 2023 but they were only 2.2% of the total. But the likely negative impact on global growth from increased trade protectionism is pressuring Aussie.
• AUDJPY is up 0.1% to 95.07 after falling to 94.32 following the tariff headlines. AUDNZD is 0.1% higher at 1.109 after a low of 1.104. AUDEUR is down slightly to 0.6070 and AUDGBP -0.15% to 0.5051.
• Equities are mixed with the ASX down 0.3% but the Hang Seng up 1.1% and S&P e-mini +0.2%. Oil prices have continued rising with WTI +0.7% to $71.46/bbl. Copper is up 0.35% but iron ore is lower at around $106/t.
• Later US January NY Fed 1-year inflation expectations print and ECB President Lagarde speaks.

Last Friday's CFTC positioning update showed leveraged funds cut back on USD longs. The table below presents the weekly change as at 4 of Feb (last Tuesday), along with outright positions by currency and investor type. 

• Leveraged contracts also rose for the currencies covered except for CAD. Such shifts are arguably not that surprising as broader USD sentiment faltered through Monday/Tuesday last week amid a tariff delay from Trump on Mexico and Canada.
• Broader USD sentiment mostly tracked sideways to slightly higher as the week unfolded, although the BBDXY index remained well off earlier highs from Monday Feb 3.  
• Outright positions from leveraged funds remain skewed in favor of the USD, with net outright shorts against all currencies except for GBP.
• The asset manager space, saw more mixed trends, with yen flipping back to a net long, with decent short covering last week. EUR longs were cut back, while AUD and CAD shorts were added.
• Yen momentum was mostly positive last week amid better data outcomes and hawkish BoJ rhetoric. 

Table 1: CFTC Positioning By Currency & Investor Type

Source: CFTC/MNI - Market News/Bloomberg