Fed Powell investigation unsettles US assets, JP Feb snap-election?

Asia Market Update: Fed Powell investigation unsettles US assets; JP Feb snap-election?; Traders focus on US Dec CPI Tue Jan 13th , SCOTUS IEEPA tariff decision delayed to Wed Jan 14th; Iran, VZ, Greenland keep geopolitics in mind.

General trend and developments

-US Federal prosecutors opened an investigation into Fed Chair Powell over renovations of the US Fed HQ in Washington DC. Action made spicier by a later statement from Powell saying that "the broader issue is whether the Fed will continue to set interest rates based on evidence and economics or be directed by political pressure and intimidation“.

-USD weaker by up to -0.4% on the Powell news, while -Silver +5% to fresh record high, Palladium, Platinum both up >3%, accelerating gains post-Powell news. Gold also +1.8% to fresh record high above $4,600.

-US Republican Senator Tillis injects more possible uncertainty into the process of selecting the new Fed Chairman. USD-denominated assets lag

-Prior to Powell news, USD/JPY briefly touched a one-year high at 158.20 in early Asian trading, just eclipsing Friday’s high. Interestingly the Yen struggled to get a safe-haven bid on the news, only the Swissie picking up safe-haven gains.

-US equity FUTs down -0.5% to -0.7% on Powell, but no such problems in Asia with all major indices up at least slightly, with the Nikkei on holiday. Hang Seng outperformed +0.8%.

- Japanese media reports over the weekend that PM Takaichi may take advantage of historically high approval ratings to call for a snap election as early as February, in order to potentially boost the LDP’s minority-government status in the Lower House. Rumors later given weight by coalition partner “Ishin no Kai” leader Yoshimura saying he would not be surprised.

-Chances of a Japan BOJ rate hike (as at Fri close) in April stands at 37%, while June stands at 63%. Little chance considered of a rate hike before April.

-Mixed data for Australia, with Household Spending for Nov up a strong 1.0% for the month and a yearly increase of 6.3%, well above expectations. However, Indeed Job ads fell for a sixth month.

-South Korea exports and imports unexpectedly fell in first 10 days of Jan, although chip exports remained strong but autos and ship exports weak. Exports to the US fell about 15% y/y, with exports to China rising by about the same amount.

-Ahead of the BOK rate decision on Thursday, Korean Won fell for an eighth session, now giving up 2/3 of the gains seen in late December, weakness also on news that South Korea said to be making 'certain checks' on increasing dollar deposits (for the first time in 3 months)

-Iran, Venezuela, Greenland keep geopolitics in mind, but overtaken by Powell news; as Trump keeps military options open against Iran as the death toll of protesters continues to rise, while saying he spoke with Iran on Saturday, US time.

- With the US Supreme Court declining to rule on the Trump Admin’s IEEPA tariff legality last Friday, the next potential date for a decision is Wed, Jan 14th. Treasury Sec Bessent later said that Treasury has adequate funds to pay any tariff refunds if SCOTUS rules against the tariffs.

-Australia looks to boost global supply of critical minerals with strategic supply reserve by end-2026 and to attend along with India the G7 meeting this week in the US at invitation of US Treas Sec Bessent to discuss critical minerals.

- Australia consumer firm Super Retail Group noted margins were hurt by promotions [Realised gross margins were lower due to higher levels of promotional activity. Store network activity was high in the period, with associated costs further weighing on profit before tax. A total of 7 store openings, 6 closures and 3 refurbishments/relocations were actioned in the period].

-China PBOC continued to set strongest Yuan fix in 15-months, as offshore Yuan threatens to break last week’s highs ~6.6995 to levels not seen since 2023.

- Chinese press remains focused on near-term policy easing. Prior press speculation has centered on Q1, possibly ahead of the NPC annual session [Mar 5th]

-Chinese solar names move higher after news related to the cancellation of export VAT rebates related to solar products [effective from Apr 1st] has led to speculation about higher prices for the industry; The move appears to be part of the anti-involution campaign in China. China's export tax rebates (a VAT refund to exporters) for solar products [in place since 2003] has been seen as one of the factors that was responsible for solar industry overcapacity and the resulting price pressures. Recall, the China competition regulator [SAMR] was said to have met with solar firms regarding monopoly risks and rectification methods [Jan 9th]
-HK-listed AI player, MiniMax continues to rally after its recent IPO [+31%, after rallying by >100% on Fri].

- Late Friday Pres Trump’s barnstorming run through all manner of domestic and foreign policy issues continued as he called for a one-year cap of 10% on US credit card interest rates from Jan 20th (currently averaging around 21-23%, with peak rates of up to 36%, with no Federal cap). Industry analysis suggests that a 10% interest rate cap could cost card issuers approximately $100B per year in lost interest income – with the losses accruing directly to customer savings. If implemented, lenders would likely impose stricter lending standards, particularly for individuals with credit scores of less than ~750. 10% cap may also send more higher risk consumers of credit to Buy Now Pay Later programs.

-Google [GOOGL]: Google Cloud unveiled Gemini Enterprise for Customer Experience (CX), an agentic solution designed to bring shopping and customer service together on a single intelligent interface for businesses, including retailers and restaurants; Businesses including Kroger, Lowe's, and Woolworths, will be using these agentic capabilities to deliver personalized experiences across the entire shopper journey.

- Drug companies’ releases from the JPMorgan Healthcare Conference continue.

- US equity FUTs -0.5% to -0.8% during Asian trading.

Looking ahead (Asian-weighted focus, using Asian time-zone)

- Mon Jan 12th IN Dec CPI.

- Tue Jan 13th AU Jan Consumer Confidence, JP Nov Current Account, (Tue night US Dec CPI).

- Wed Jan 14th CN Dec Trade Balance, JP 5-year JGBs, (Wed night US Oct & Nov PPI, US Nov Retail Sales, US Dec Existing Home Sales).

- Thu Jan 15th KR BOK Rate Decision, UK Nov GDP,

- Fri Jan 16th KR Dec Unemployment, JP Liquidity Enhancement Auction,

Holidays in Asia this week

- Mon Jan 12th Japan.

- Fri Jan 16th Indonesia.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens +0.2% at 8,731.

-Australia Nov Household Spending Y/Y: 6.3% v 5.5%e; M/M: 1.0% v 0.6%e.

- Australia Dec ANZ-Indeed Job Advertisements M/M: -0.5% v -1.5% prior (6th straight decline).

- (AU) US Treasury Sec Bessent: Australia and India have been invited to G7 meeting for critical minerals discussion (update).

-Australia Resources Min King: Critical Minerals Reserve will be operational by end-2026 - financial press.

-US Treasury Sec Bessent: Australia and India have been invited to G7 meeting for critical minerals discussion (update).

-Australia PM Albanese: Parliament to be recalled next Mon.

China/Hong Kong

- Hang Seng opens +0.6% at 26,376; Shanghai Composite opens +0.4% at 4,134.

- Former PBOC official Sheng Songcheng sees 'small steps' toward monetary easing 'in near future' - Shanghai Securities News.

-China said to purchase at least 10 US soybean cargoes for Apr-May shipment [late Fri update].

- China to cancel export VAT rebates for solar products from Apr 1st 2026 and battery products from Jan 1st 2027 - press [late Fri update].

-China PBOC sets Yuan reference rate: 7.0108 v 7.0128 prior (strongest since Sept 30th, 2024).

-China PBOC Open Market Operation (OMO): Injects CNY86B; Net injects CNY36B v injects CNY34B prior.

Japan

- Nikkei 225 closed for holiday.

- Japan PM Takaichi’s cabinet approval rating +2.3% to 78.1% - JNN.

- Ishin party leader Yoshimura (govt coalition partner): Spoke to PM Takaichi on Friday, and would not be surprised if she calls for a snap election as has been reported by the Japanese media[weekend update].

- Japan PM Takaichi reportedly considering dissolving the House of Representatives (Lower House) for a potential snap election in early to mid Feb – Yomiuri [late Fri update].

- China govt has begun curbing civilian use rare earth exports to Japan – Nikkei [weekend update].

- (US) Commerce Dept abandons plan to set restrictions on Chinese-made drones.

Korea

- Kospi opens +1.2% at 4,639.

- South Korea Jan 1-10th Exports Y/Y: -2.3% v 17.3% prior; Imports Y/Y: -4.5% v 8.0% prior.

- South Korea said to be making 'certain checks' on increasing dollar deposits amid decline in Won - financial press.

- North Korea's Kim Yo Jong (sister of Kim Jong Un): Appreciate South Korea govt's wise decision to announce its official stance that it has no intention of provocations; Any provocations would result in terrible results – KCNA [weekend update].

Other Asia

-Indonesia Nov Retail Sales Y/Y: 6.3% v 4.3% prior.

-Vietnam Central Bank cuts 2026 credit growth target to 15%, has asked financial firms to tighten controls related to 'risky' sectors; some economists have raised concerns about possible asset bubbles.

North America

-(US) Follow up: Pres Trump: Do not know anything about DOJ probe of Fed Chair Powell - financial press.

-US FED CHAIR POWELL: BROADER ISSUE IS WHETHER THE FED WILL CONTINUE SETTING INTEREST RATES BASED ON EVIDENCE AND ECONOMICS, OR BE DIRECTED BY POLITICAL PRESSURE AND INTIMIDATION - statement [responds to NYT report about inquiry by federal prosecutors].

-US FEDERAL PROSECUTORS SAID TO HAVE OPENED INQUIRY INTO FED CHAIR POWELL - NYT.

- US Pres Trump: Greenland should make the deal.

- (US) Republican Senator Tillis: Will oppose confirmation of any US Fed Nominee including the Chair until legal matter with Powell is resolved - financial press.

- (US) Fed's Daly (non-voter in 2025 & 2026): Fed is in period of 'fine-tuning' as economy evolves - financial press (update).

- (IR) US "steps up" planning for possible action in Iran; Aides of President Trump are expected to brief the President Tuesday on measures [including military, cyber and economic] - WSJ [update].

- (VE) Treasury Sec Bessent: We're de-sanctioning the Venezuelan oil that's going to be sold; Might remove more sanctions next week [weekend update].

- (VE) White House: Trump signed Executive Order declaring a National Emergency to safeguard Venezuelan oil revenue held in US Treasury accounts [weekend update].

- (US) DOJ to establish an AI taskforce that will challenge state regulations so that AI firms can "be free to innovate without cumbersome regulation" - CBS.

- (US) Treasury Sec Bessent: Treasury has adequate funds to pay any tariff refunds if the Supreme Court rules against the Trump Admin on IEEPA tariffs [weekend update].

- (US) Trump: we will no longer let the American Public be “ripped off” by Credit Card Companies; Calls for a one year cap of 10% on card interest rates [weekend update].

- (VE) US Pres Trump: We have sort of formed a deal with oil executives regarding Venezuela; A lot of money is going to be made [weekend update].

- (US) Fed’s Barkin (voter): Demand growth still seems quite healthy; Don't hear that cost of interest being cited as major problem for businesses; Narrowness of hiring is uncomfortable, hard to find firms outside of healthcare or AI that are hiring - speech text [weekend update].

- (US) Fed's Bostic (non-voter for 2026): High end consumers have been spending, economy has been resilient; In many ways, the US has long had K-shaped economy - radio interview [weekend update].

Europe

- WorldACD Weekly Air Cargo Trends (week 1): Revenues rise +3% in 2025 as tonnages grow to new record (update).

- (EU) Follow Up: Reportedly EU officially approves EU-Mercosur trade deal; With signing Jan 17th - sources (still needs ratification to enter into effect) [weekend update].

- (IR) President Trump: We are watching Iran very closely; We will get involved if Iran starts killing people, but that does not mean boots on the ground [weekend update].

Levels as of 01:20 ET

- Nikkei 225 closed; ASX 200 +0.5%; Hang Seng +0.8%; Shanghai Composite +0.7%; Kospi +0.5%.

- Equity S&P500 Futures -0.5%; Nasdaq100 -0.8%; DAX -0.1; FTSE100 -0.1%.

- EUR 1.1622.116.72; JPY 157.52-158.20; AUD 0.6679-0.6707; NZD 0.5727-5750.

- Gold +1.8% at $4,583/oz; BTC +1.5% at $92,138 Crude Oil +0.5% at $59.22/bbl; Copper +1.5% at $5.9905/lb.