Global Market Quick Take: Asia – January 20, 2025

Key points:

• Macro: Risk is back on after Trump and Xi discuss trade over phone
• Equities: US stocks surged on tech sector rebound ahead of Trump inauguration
• FX: CAD weakened past 1.44 against USD, near 5- year low
• Commodities: WTI and natural gas prices fell on geopolitical and weather forecasts
• Fixed income: US yield curve bear flattened, with two-year yield up 5bps

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Disclaimer: Past performance does not indicate future performance.

Macro:

• Japan's November core machinery orders rose 3.4% m/m to 899.6 billion yen, marking the strongest growth in nine months, surpassing forecasts of a 0.4% decline. Manufacturing orders increased by 6% to 462.9 billion yen, and non-manufacturing orders grew 1.1% to 453.7 billion yen.
• US stocks rose on Friday, driven by optimism regarding US-China relations following a phone conversation between US President-elect Trump and China's President Xi. Both leaders expressed a desire for a positive start to their relationship with Trump's upcoming inauguration on Monday. China A50 futures were up as much as 1.4% on Friday.
• The WSJ reports that President-elect Trump's team plans to start large-scale deportations on Tuesday. Separately, it was reported that Trump's border czar Homan stated the incoming administration has yet to decide on launching immigration raids in Chicago in the coming week and Punchbowl states Trump will label drug cartels as foreign terrorist organizations.

Equities: 

• US - US stocks surged on Friday, driven by a tech sector rebound and broad gains across major indices. The S&P 500 rose 1%, the Nasdaq 100 advanced 1.6%, and the Dow Jones climbed 0.8% (334 points). Leading the rally were big tech stocks like Tesla (+3%), Nvidia (+3.1%), and Microsoft (+1%). Consumer discretionary stocks also performed well, with Amazon up 2.4% due to improved sentiments from easing inflation pressures and strong earnings from major banks.
• Europe - DAX rose 1.2% to a record 20,897.5, driven by strong earnings, cooling inflation, and China's growth. Siemens Energy, Heidelberg Materials, and Beiersdorf led gains. The DAX gained 3.4% for the week, its best since December 2024.
• Earning for this week – Netflix, Interactive Broker, P&G, Johnson & Johnson, Abbott, Texas Instruments, American Airlines, American Express

FX:

• USD regained strength ahead of Trump's inauguration after four days of losses. Gains were briefly reduced by Trump's positive remarks on a call with China's Xi. The DXY peaked at 109.40, supported by strong US industrial data.
• USDJPY is at the low 156 range, rebounding from 154.99 but failing the 50 DMA at 154.85. BoJ officials hinted at a rate hike due to strong inflation and wage data. Japan's Finance Minister pledged yen support, while cooling US inflation increased Fed rate cut expectations, strengthening the yen.
• GBPUSD fell below 1.22, marking its third consecutive weekly decline, pressured by disappointing retail sales, which dropped 0.3% in December. Poor food sales, the lowest since 2013, impacted supermarkets.
• EUR, AUD and NZD outperformed, with the latter supported by strong China data. NZDUSD held steady at $0.56, AUDUSD traded around $0.621. USDCAD peaked at 1.4474, marking CAD's weakest level against USD since March 2020.

Commodities:

• WTI crude oil fell 1% to $77.89 due to Gaza ceasefire hopes but posted a fourth weekly gain, up over 1%. Concerns over U.S. sanctions on Russian oil and potential Trump policies supported prices, alongside China's recovery and expected U.S. rate cuts.
• US natural gas futures fell over 6% to below $4/MMBtu as milder February weather forecasts reduced heating demand, following a rise on colder MLK Jr. Day expectations.

Fixed income:

• Treasury yields ended Friday with mixed results, leading to a notably flatter yield curve. A large block trade in 2-year note futures accelerated the ongoing flattening trend, driven by the stronger performance of long-term bonds. The 2s10s and 5s30s spreads closed near the session lows. Market-implied expectations for Fed rate cuts have slightly diminished, with OIS contracts now projecting 35 basis points of easing by the end of the year. In November, foreign holdings of US Treasuries increased as Treasuries rallied and the dollar strengthened, with gains seen in many regions. No global cash trading of Treasuries today due to Martin Luther King Day.

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