ASIA STOCKS: Equities Track Wall Street's Sell-Off Following Tariffs Headlines
Asian equities fell sharply as trade tensions escalate, doubling tariffs on Chinese imports to 20% and imposing 25% levies on Canada and Mexico. This sparked fears of a broader trade war, with Japan's Nikkei and Hong Kong’s Hang Seng leading declines. Indian equities extended their selloff, with the NSE Nifty 50 Index nearing a record 10-day losing streak as global funds continued to pull out. Auto and chip stocks were hit hardest, particularly in Japan and South Korea, while Chinese EV makers slumped following BYD’s large share placement. Investors are closely watching China’s National People’s Congress for potential stimulus measures and trade responses.
- Japan's Topix -1.05% and Nikkei -1.90% amid trade war concerns, with major auto stocks like Toyota, Honda, and Mazda falling. A stronger yen and exposure to Mexican tariffs also weighed on sentiment.
- China's CSI 300 -0.25% and Hong Kong's HSI is -0.45% as investors reacted to higher US tariffs. EV makers like BYD declined sharply after a large share placement, while robotics-related stocks gained on government support. UBS expects Chinese stocks to outperform in the long run due to resilient domestic flows.
- South Korea's Kospi is unchanged with Hyundai and HL Mando dropping due to auto tariff risks. Battery stocks like CATL and Eve Energy slumped ahead of a European policy announcement. Defense stocks gained on expectations of higher European military spending.
- Taiwan's TAIEX is 0.45% lower after TSMC slid 2.4% despite announcing a $100b US investment.
- Australia ASX200 is 0.65% lower while New Zealand's NZX 50 dropped 0.65%, tracking global weakness. Australia’s GDP data release is in focus.
- India's Nifty 50 down 0.30% neared a 10-day losing streak as global investors pulled nearly $14b this year, citing high valuations and slowing growth. Technical indicators suggest a possible rebound.
- Indonesia’s JCI tumbled 1.3%, Malaysia’s KLCI lost 0.8%, and Vietnam’s VN Index fell 0.8%, while Thailand and the Philippines saw slight gains.
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FED: Powell To Deliver Semi-Annual Testimony In Mid-Feb
The House Financial Services Committee's website confirms that Fed Chair Powell will deliver his semi-annual Monetary Policy Report on Wednesday Feb 12 at 1000ET.
- The Semi-annual testimony will be closely eyed as Powell's first scheduled appearance since the January FOMC - and the House testimony on the 12th is the same day as the release of January CPI (and the week after nonfarm payrolls and benchmark revisions) so will be of particular interest.
US OUTLOOK/OPINION: Nonfarm Payrolls, Revisions Highlight Next Week In US Macro
Friday’s nonfarm payrolls for January highlights the US macro week. It's a highly anticipated report that could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- The preliminary estimate for the benchmark revision pointed to the level of payrolls being some 818k lower than currently reported for back in March 2024. There’s a broad expectation from what we can gather that the hit seen next week won’t be as large but it could still be significant. We also watch the seasonal revisions closely, as whilst they should have a zero-sum impact over the calendar year, we’ve noted some particularly favorable seasonal factors in recent months that have biased seasonally adjusted jobs growth higher.
- With these considerations in mind, the early days of the Bloomberg consensus points to nonfarm payrolls growth of 150k after a solid three-month average of 170k. Note that the unemployment rate from the separate household survey won’t be affected by these revisions, having already seen its own seasonal factor revisions last month. A population control will complicate month-on-month changes in the levels of employment and unemployment but shouldn’t be significant for the rate, which is seen unchanged at 4.1% having surprised lower with 4.09% in December. The recent high is technically 4.23% in November having first popped to 4.22% back in July.
- Two other special mentions for the week are: 1) rare remarks from FOMC Vice Chair Jefferson speaking on the economic outlook and monetary policy late on Tuesday with both text and Q&A, having last spoke on Oct 9. 2) ISM services on Wednesday after its priced paid series jumped 5.9pts to 64.4 in December for the highest since Feb 2023.
- Away from macro but still material, the coming week brings the US Treasury's quarterly refunding process - our preview is here.
MACRO ANALYSIS: MNI US Macro Weekly: Uncertainty Vindicates Fed’s Patience
In a largely positive week for economic activity data, including in core durable goods and MNI Chicago PMI, the Q4 GDP accounts stood out by showing a very strong end to 2024 for the consumer.
- As we go to press, though, President Trump has confirmed that tariffs would be imposed on Canada, Mexico, and China beginning this weekend – while also threatening further action against the likes of the European Union and across various import categories.
- The combination of solid growth and policy uncertainty, along with stubborn “supercore” PCE inflation for December, seemingly vindicated the Federal Reserve’s “hawkish hold” at its January meeting.
- A March rate cut is still a possibility but the bar for such an outcome has been set high.
- That gets us to the first key release between now and then: Friday’s nonfarm payrolls for January is the highlight of the US macro week, and could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- Other highlights in the upcoming week include ISM Services and the Treasury’s quarterly Refunding announcement (Wednesday), while FOMC Vice Chair Jefferson delivers commentary on the economic outlook and monetary policy Tuesday.
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