Global Market Quick Take: Asia – May 23, 2025

Key points:

• Macro: Japan Core CPI rises and US initial jobless claims inches down
• Equities: S&P 500 dipped slightly but solar energy sector underperformed after tax bill
• FX: USD strengthened to 99.90 on strong PMI data and tax bill progress
• Commodities: Oil dropped to its lowest closing price in nearly two weeks
• Fixed income: Treasuries surged across the curve after 30-year yield reached 5.15%

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Disclaimer: Past performance does not indicate future performance.

Macro: 

• Recent trade disputes and US tariffs may impact economic growth, but ECB officials expect disinflationary forces to dominate in the short term, aiding price stability. However, some warn that a prolonged trade war could lead to long-term inflationary effects by disrupting global supply chains.
• Fed's Waller highlighted market concerns over fiscal policy, stating the Fed won't buy bonds in primary auctions. He noted the economy's strong performance with minimal tariff impact and suggested potential rate cuts later if tariffs ease and stay near 10%.
• Japan’s annual inflation rate remained at 3.6% in April 2025, unchanged for the second month, matching the lowest level since December. Core inflation rose to 3.5% from 3.2%, exceeding expectations and reaching the highest since January 2023.
• The S&P Global US Composite PMI rose to 52.1 in May from 50.6 in April, showing modest growth, the fastest since March but still weak historically. Business optimism improved slightly despite tariffs affecting demand, supply chains, and prices. Export orders fell, especially in services, and supply chain delays worsened.
• US initial jobless claims decreased by 2,000 to 227,000 for the week ending May 17th, below the expected 230,000, indicating labour market strength despite high interest rates. Unemployment claims increased by 36,000 to 1,903,000, above the expected 1,890,000, reflecting challenges in finding employment.

Equities:

• US - US stocks ended mostly flat on Thursday as investors assessed President Trump's new tax-and-spending bill amid concerns about the rising US deficit. The S&P 500 and Dow dipped slightly, while the Nasdaq 100 rose by 0.3%. The Congressional Budget Office estimates the cost of this new tax bill at nearly $4 trillion, raising fears of fiscal instability. Bond markets showed nervousness, with the 30-year Treasury yield briefly reaching 5.14%, a high since 2023. Solar energy stocks like Sunrun plummeted by 37%, impacting energy and utilities after the tax bill that will cut clean energy tax credits passes the House of Congress. Palantir on the other hand rose 1.4% after the Department of Defense awarded Palantir a contract modification that increases potential spending with the firm. Zoom reported strong Q1, driven by hybrid work trends and AI integration, including AI Companion capabilities and platform updates.
• EU - The DAX decreased by 0.8% to 23,925 on Thursday, continuing losses from the previous session and reflecting broader declines in European markets, as concerns over the US fiscal outlook impacted investor sentiment. Flash PMI data showed mixed results for the Eurozone and Germany, with private sector activity unexpectedly contracting, led by a sharper drop in the services sector, although the manufacturing downturn showed signs of improvement. Positively, business morale in Germany rose in May, lifted by improved expectations. On the corporate side, Porsche AG was one of the worst performers, falling around 5%, with Puma dropping 1.9% and Vonovia declining 1.6%.
• HK - HSI dropped 1.2% to 23,544, ending a two-day rise due to global stock losses amid US fiscal concerns from Trump's package. Tech, property, and consumer stocks fell. Morgan Stanley raised China's GDP forecast, citing easing trade tensions. Tencent plans AI upgrades. Nongfu Spring (-4.8%), Trip.com (-3.1%), Xiaomi (-2.4%), and SMIC (-2.0%) were major losers.

Earnings this week:

• Friday: Booz Allen Hamilton, Workday

FX:

• USD strengthened to 99.90, driven by a better-than-expected PMI report showing manufacturing and services growth. Focus was also on the US tax bill, which passed the House and awaits Senate Committee approval. Fed officials, including Waller, noted fiscal policy concerns and suggested potential rate cuts if tariffs ease later this year.
• EUR fell below 1.1300, impacted by weak PMI data and ECB Minutes indicating some members favoured a 50bps rate cut in April.
• GBP traded above 1.3400 amid mixed UK PMI data and limited catalysts.
• Japan's annual inflation rate held at 3.6% in April 2025, while core inflation rose to 3.5%, exceeding expectations. This sustained inflationary pressure suggests continued BOJ monetary tightening. USDJPY traded below 144, amid concerns over US tariffs' impact.
• Economic data – UK Retail Sales, EU Negotiated Wage Growth, CA Retail Sales, US New Home Sales, US Fed Cook Speech

Commodities:

• Gold stabilised near $3,300 an ounce after its first drop of the week, as traders shifted to US bonds and the dollar. Despite reversing Thursday's gains, it's up nearly 3% this week following Moody's US downgrade amid fiscal challenges.
• Platinum stayed near a one-year high, with an 8% rise over three days, amid an uncertain demand outlook. The World Platinum Investment Council forecasts a shortage of nearly 1 million ounces and a 4% decline in global supply this year.
• Oil neared a weekly decline as OPEC+ considered increasing production amid surplus concerns. Brent fell towards $64, losing about 2%, while WTI was below $61. OPEC discussed a 411,000 barrel per day increase for July, with no agreement.

Fixed income:

• Treasuries ended the session stronger across the curve after an initial bear steepening pushed 30-year yields to 5.15%, attracting dip-buyers and flattening the curve into gains. Swap spreads reversed an early drop due to the Treasuries bid. Australian bonds are expected to rise alongside Treasuries in early trading before a three-year note auction, with Australia planning to sell A$800 million of bonds maturing in November 2028.

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