Global Market Quick Take: Asia – May 20, 2025

 Key points:

• Macro: US’s adjustment of chip controls undermines trade consensus
• Equities:  S&P500 recovers from early losses, closes +0.1%. United Health bounce 8.2%
• FX: Moody's downgrade weakened USD; G10 currencies gained
• Commodities: Gold rises and remains above $3,200 as US dollar weakens
• Fixed income: Treasuries rally after 30-year yield hit above 5%

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Disclaimer: Past performance does not indicate future performance.

Macro: 

• Fed officials Jefferson, Williams, and Kashkari highlighted tariff-related uncertainty. Bostic mentioned that the number of rate cuts depends on tariff details, leaning towards only one cut this year due to the time needed to assess tariffs.
• China accused the US of undermining the Geneva consensus on chip export controls, urging correction and warning of measures if the US persists, referring to the Trump administration’s warning that using Huawei Ascend chips violate export controls, according to Bloomberg.
• The UK and EU have agreed to reset post-Brexit relations, including energy, defence, and fishing rights until 2038. Investors await Thursday's PMI figures, expecting less contraction in manufacturing and services. April inflation may rise to 3.3%, with core CPI at 3.6%.
• China's industrial production increased by 6.1% year-on-year in April 2025, exceeding the expected 5.5% gain. This growth slowed from March's 7.7%, the highest since June 2021, when factories anticipated significant US tariffs.
• JPMorgan CEO Jamie Dimon warned that tariffs' effects hadn't fully impacted the economy and equities might fall due to rising supply costs. Solar energy shares dropped after House Republicans planned to end some clean energy tax credits early.
• The Euro Area's growth forecast is revised to 0.9% for 2025 and 1.4% for 2026, down from earlier predictions, due to tariffs and US trade policy changes. Inflation is expected to drop faster, reaching 2.1% by mid-2025 and 1.7% in 2026.

Equities:

• US - US equities recovered from early losses on Monday, with the S&P 500 closing 0.1% higher after a 1.1% drop, as Treasury yields eased. The Dow increased by 137 points, and the Nasdaq saw a slight gain, following Moody's downgrade of the US credit rating to Aa1 due to rising deficits and refinancing risks. The downgrade affected the 10-year yield, nearing 4.5%, and the 30-year yield, surpassing 5%, which previously pressured equities. Treasury Secretary Scott Bessent downplayed the impact and encouraged trade partners to engage during the 90-day tariff pause, while President Trump urged companies like Walmart to absorb trade costs. Mega-cap stocks like Apple (-1.2%) and Tesla (-2.2%) fell, while UnitedHealth climbed 8.2%, easing this year's selloff.
• EU - Frankfurt's DAX overcame early fluctuations to rise 0.7% on Monday, achieving a new record high of 23,935 and marking its third consecutive session of gains. It outperformed other European indices, bolstered by significant gains in Siemens Energy (+3.6%), Münchener Rück (+1.8%), Rheinmetall (+1.7%), Continental (+1.7%), and E.ON (+1.6%). The upbeat mood was fueled by a landmark agreement between the UK and EU, enhancing cooperation in energy, trade, defense, travel, and fisheries. Additionally, geopolitical attention focused on the phone call between US President Donald Trump and Russian President Vladimir Putin, which resulted in Trump saying both Ukraine and Russia would immediately begin discussions to end the war.
• HK - The Hang Seng closed nearly unchanged at 23,333 on Monday, rebounding from early losses as consumer stocks gained. New home prices in China fell minimally, marking the 22nd consecutive monthly decrease. Investors anticipated China's central bank's review of key lending rates today (Loan prime rates), which have stayed at record lows lately. Hong Kong's economy grew 3.1% year-on-year in Q1 2025, matching flash data and exceeding Q4's revised 2.5% growth, driven by strong exports before expected US tariff hikes. Nvidia plans an R&D site in Shanghai, highlighting China's strategic significance. CATL begins trading in HK today as 3750 HK with pricing set at HK$263 per share. Leading gainers were Pop Mart Intl. (5.7%), Meituan (2.7%), SMIC (2.2%), and Trip.com (2.0%), while Zhejiang Leapmotor (-3.5%), Sunny Optical (-2.8%), Li Auto (-2.7%), and Chow Tai Fook (-2.4%) fell.

Earnings this week:

• Tuesday: Home Depot, Lowe’s, Palo Alto Networks  
• Wednesday: Target, Snowflake, TJX  
• Thursday: Toronto-Dominion Bank, Analog Devices, Autodesk, Intuit, BJ’s Wholesale Club, Ralph Lauren  
• Friday: Booz Allen Hamilton, Workday

FX:

• USD weakened as Moody's downgraded the US credit rating, causing Dollar assets to be sold heavily. Federal Reserve officials spoke, with Bostic expecting one rate cut this year and Williams noting policy is 'slightly restrictive'. G10 currencies, especially Antipodeans, gained against the Dollar.
• ECB officials discussed interest rate cuts amid growth and inflation risks. US-EU trade talks face internal EU disagreements. The European Commission lowered its Eurozone GDP growth forecast for 2025 to 0.9%. EURUSD traded between 1.1172 and 1.1288.
• Safe-haven currencies JPY and CHF rose, benefiting from USD selling. SNB Chairman mentioned potential negative rates and FX market interventions. US-Japan trade talks are delayed over burden-sharing. USDCHF traded above 0.835 and USDJPY traded above 145.3.
• GBP briefly rose above 1.34, influenced by BoE's Dhingra advocating for a 50bps rate cut. The EU-UK Brexit reset deal had little impact.
• CNH relatively stable, trading at approximately 7.215 against dollar. Chinese data was mixed: Industrial Production beat expectations, Retail Sales fell short, and House Prices declined year-on-year. China criticised US chip export control adjustments, urging corrections and warning of countermeasures.
• Economic data – AU RBA Interest Rate Decision, CA Inflation rate, US Fed Speech, EU Consumer Confidence Flash

Commodities:

• Gold prices rose as the dollar weakened after Moody's downgraded the US's last top credit rating due to increasing debt. Recently, gold has been volatile, suffering its largest weekly loss since November due to easing geopolitical tensions.
• Oil prices steadied after a two-day rise, with Brent over $65 and WTI under $63, as traders noted Trump pulling back from Ukraine-Russia peace efforts. Ceasefire talks might start without US involvement or extra pressure on OPEC+.
• Aluminium prices dropped due to rising stockpiles and mixed Chinese data. LME inventories increased by 92,950 tons. Aluminium fell 1.3% to $2,450 a ton, with copper up 0.8% and zinc down 0.6%.

Fixed income:

• Treasury yields closed slightly lower across maturities. The selloff pushed the 30-year bond yield above 5%, its highest since November 2023, attracting dip-buyers. Meanwhile, Australian bonds are rising with the Reserve Bank of Australia expected to cut interest rates again, likely reducing the official cash rate by 25 basis points to 3.85%. Japan is set to auction ¥1 trillion in 20-year bonds maturing in March 2045.

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