Global Market Quick Take: Asia – January 14, 2025

Key points:

• Macro: Speculation on slower tariff strategy led to late market rally.
• Equities:  Dow gained 358 points with investors shifting to non-tech sectors.
• FX: Pound pressured by UK rates, low confidence; GBPUSD hits 1.2100.
• Commodities: Natural gas futures stable at $4.0 /MMBtu after Monday's 10% rise
• Fixed income: US 10 year Treasury yield hits 4.8%

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Disclaimer: Past performance does not indicate future performance.

Macro:

• Recent reports indicate that the Trump team is considering a strategy to gradually increase tariffs, with the goal of enhancing negotiation leverage while preventing a surge in inflation. The idea involves increasing tariffs by 2% to 5% a month. This development triggered a risk-on rally in the markets, leading to USD selling and a rise in equity futures.
• The turbulence in the UK Gilt markets continued yesterday with 10-year yields hitting a high of 4.9%, last seen in 2008. GBPUSD traded to new lows of 1.21 in the evening. UK Prime Minister Starmer confirmed that the government will remain committed to the fiscal rules. He further expressed his full confidence in Chancellor Reeves, commending her for doing a fantastic job.

Equities: 

• US - US stocks ended mixed on Monday, with tech stocks sliding. The S&P 500 rose 0.1%, the Nasdaq 100 fell 0.3%, and the Dow gained 358 points as investors shifted to non-tech sectors. Nvidia and Palantir dropped further, while rising bond yields and a strong jobs report pressured growth stocks.
• Hong Kong – Hang Seng Index fell 1% yesterday with most losses from Haier Smart Home, down 6.8% and BYD Electronics down 4.7%.
• Earnings to watch this week: Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Bank of America 

FX:

• USD slightly strengthened at the start of the week, continuing its rise following the strong US payrolls report on Friday.
• CHF, EUR, and GBP underperformed among G10 currencies with minimal specific news. The Pound is pressured by rising UK rates and low consumer confidence ahead of key data releases, with GBPUSD hitting a low of 1.2100. ECB officials, including the chief economist, suggested more easing is likely for the Euro.
• CAD and JPY were stable, with the Yen briefly rising after a 6.9 earthquake in Japan. Markets are focused on the BoJ meeting, with a 25bps rate hike seen as a 50/50 possibility. USDJPY recovered above 157.50. The Loonie was buoyed by higher oil prices, with USDCAD trading narrowly between 1.4393 and 1.4447.
• NZD and AUD rose on CNH strength after the PBoC's actions but fell as the Dollar strengthened, with NZDUSD and AUDUSD dropping to 0.5542 and 0.6132 from earlier highs.

Commodities:

• Gold dropped to $2,660 as a strong U.S. jobs report lifted the dollar, impacting gold's appeal. Profit-taking also contributed. Investors await U.S. inflation data and economic indicators for Fed policy clues, as higher rates usually diminish gold's attractiveness.
• WTI crude surged 2.9% to over $78.8 per barrel due to new US sanctions on Russia's energy sector, causing supply concerns. Key buyers like India and China face disruptions, while falling US stockpiles and colder weather also support prices.
• US natural gas futures steadied at $4.0/MMBtu after a 10% rise, amid fewer freeze-offs and reduced Freeport LNG flows. Prices stay near two-year highs, with colder U.S. temperatures expected through January 25.
• Copper futures fell to $4.26 per pound as a stronger dollar, driven by robust US jobs data, reduced demand expectations. Despite this, copper surged nearly 6% last week on hopes for Chinese stimulus and supply concerns from aging mines.

Fixed income:

• Treasuries ended with modest losses after partially recovering from earlier session lows, which were mainly reached before U.S. markets opened. This was due to other regions responding to Friday's strong December jobs report. Contributing factors included rising oil prices and a busy corporate new-issue calendar. Dollar swap spreads widened significantly, indicating increased paying flows that added to the downward pressure. The 10-year yield increased briefly surpassing 4.80%. The front end performed slightly better, leading to a steepening of the 2s10s spread partially reversing Friday's flattening.

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