Trump drops 50% tariff on Brazil

Asia market update: JP equities lag amid strong Yen as rest of Asia follows US rally; Trump drops 50% tariff on Brazil; BOJ rate probs vol; BOK holds rates; Trump confirms 50% copper tariff as Aug 1st.

General trend

- The US session saw equities continue the bull market that has been unloved by many analysts and institutional investors, with the NASDAQ hitting a fresh all-time high (Nvidia reached $4T market cap), while bond yields receded globally. USTs helped by a solid 10-year auction. FOMC Minutes underscored a couple of Fed officials want to start cutting rates, potentially this month, while the bulk of rate setters would rather wait to make sure "persistent" impacts on inflation do not develop from tariffs.

- Nikkei lagged -0.6% on an otherwise positive day for Asian equities as JPY gained back one big Figure vs USD. Kospi outperformed +1.3%, once again approaching all-time highs of 2021.

- Pres Trump imposed higher tariffs on several lower-tier nations today; For Asia that included Philippines (20%, prior 17%) and Sri Lanka (30%, prior 44%).

- Then after the US close Trump dropped a 50% tariff on Brazil (prior 10%), one of the USA’s top 20 trading partners, citing the treatment of former Pres Bolsanaro (“a witch-hunt trial”) and censorship of American companies. [Brazilian plane maker Embraer -5.8% after-hours following Trump’s pronouncement while Brazil trade associations called it a major setback for Brazilian industry. Brazil’s Real -2.35% vs USD, and the "EZU" ETF was -2% in after-hours having already fallen -1.9% during regular trading due to foreshadowing by Trump].

- Peru also said ~5% of its copper exports could be affected.

- Brazilian Pres Lula later replied with fighting words on X, implying Brazil may choose to retaliate, as per the new trade barrier bill passed by Brazil’s Congress on Apr 2nd.

- Brazil’s response contrasts with a series of Asian nations continuing to emphasize they are working in good faith to sign agreements with the US ahead of the August 1st deadline.

- BOJ rate hike probabilities stay volatile: OIS chance of 25bp hike 29.0% vs 23.5% Tuesday, with a Dec hike at 52.0% vs 39% Tuesday. Meanwhile former board member Sakurai who previously expected a hike in May/Jun this year, now does not expect a BOJ hike until Mar 2026, due to the impacts of US tariffs.

- Japanese yield curve fell at the long end by ~5bps (30-yrs & 40-yrs). JPY/USD initially rebounded more than one big figure but USD pared back 1/3 of those losses as the session progressed.

- Japan offered only ¥800B (along with a 10bp higher coupon) in its 20-year JGB auction today (vs ¥1.0T offered back in June). Demand ratio was below the one year average but the tail was the narrowest since January. JP 20-yr JGB yields -3.5bps.

- Japan’s PPI prices for June came in even less than the -0.1% expected, with the biggest contribution to downward prices for producers being oil and coal.

- USD/KRW unchanged as Korea BOK kept rates on hold, as expected. [BOK faces a dilemma about the need to balance keeping a lid on skyrocketing house prices vs the potential negative impact of US tariffs on the domestic economy].

- Pres Trump announced the effective date for the 50% rate on copper exports to the US to be Aug 1st. US copper prices rebounded back up as much as 1.8%. (Conversely Copper prices in London and China hover near 3-week lows).

- US equity FUTs pared back about -0.2% of their earlier US session gains during Asian trading.

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

- Fri July 11th NZ Jun Business PMI, SG Q2 GDP.

- Sat July 12th CN Jun Trade Balance.

Holidays in Asia this week

- Thurs July 10th Thailand.

Headlines/Economic Data

Australia/New Zealand

- ASX 200 opens +0.4% at 8,575.

- Australia sells A$150M of indexed Aug 2035 bonds; Avg Yield: 2.1788% v 2.3924% prior; bid to cover 4.21x v 3.55x prior.

- Former top RBA official Ellis says the central bank risks falling into persistent policy error on interest rates - Press [update].

- New Zealand May Net Migration: 1.5K v 1.1K prior.

- New Zealand sells total NZ$450M vs. NZ$450M indicated in 2029 and 2035 bonds.

China/Hong Kong

- Hang Seng opens -0.1% at 23,865; Shanghai Composite opens -0.1% at 3,491.

- According to industry 'insiders' China is likely to 'ramp up' fiscal support during H2; officials could accelerate the implementation of existing policies, new reserve policies may be launched in a 'timely' manner - Shanghai Securities News.

- US Pres Trump: Reiterates has good relationship with China Pres Xi; China paying lots of tariffs to US; Will have more tariff numbers out today, including Brazil's.

- China State Council: To further enrich policy toolkit to stabilize employment; Will encourage companies to expand employment.

- China market regulator: To strengthen anti-monopoly law enforcement; Will increase efficiency in reviewing investment and M&A - Chinese state media.

- Nvidia CEO Huang plans Beijing trip ahead of new China AI chip launch – FT.

- China PBOC sets Yuan reference rate: 7.1510 v 7.1541 prior.

- China PBOC Open Market Operation (OMO): Injects CNY90B in 7-day reverse repos; Net injects CNY33B v drains CNY23B prior.

Japan

- Nikkei 225 opens -0.2% at 39,747.

- Japan Jun PPI (domestic CGPI) M/M: -0.2% v -0.1%e; Y/Y: 2.9% v 2.9%e.

- Japan Jun Tokyo Avg Office Vacancies: 3.4% v 3.6% prior [another multi-year low].

- Japan sells ¥800B VS. ¥800B indicated in 20-year JGB bonds; AVG yield: 2.4820% V 2.3640% prior; bid-to-cover: 3.15X V 3.11X prior (demand ratio below one year avg of 3.3x).

- Former Top FX Official Asakawa: Another Plaza Accord for US-led coordinated depreciation of USD is unlikely - financial press.

- Japanese Trade Negotiator Akazawa reportedly arranging a talk with US Treas Sec Bessent in Japan next week at Osaka 2025 World Expo - financial press.

- Bank of Japan (BOJ) Quarterly Regional Economic Report (Sakura): Maintains assessment on all 9 regions.

- Former BOJ board member Sakurai: BOJ will hold off rate hikes until Mar 2026 due to US tariff impact - financial press (update).

- Japan Jun Preliminary Machine Tool Orders Y/Y: -0.5% v +3.4% prior [lowest since -6.5% in Sept 2024] [overnight update].

Korea

- Kospi opens +0.3% at 3,144.

- Bank of Korea (BOK) leaves 7-day repo rate unchanged at 2.50%; as expected.

- Bank of Korea (BOK) Gov Rhee: Rate decision was unanimous; Confirms outcome of global tariff talks have impact on growth - post rate decision press conference.

- South Korea court approves the arrest of former Pres Yoon - press.

Other Asia

- Taiwan affirms still in talks with US on trade and tariffs - financial press.

- Indonesia Economy Ministry: Tariff talks with US cover tariffs, non-tariff barriers, economy and commercial partnerships; Both sides agree to achieve best results for both in next 3 weeks - financial press.

- Indonesia Economy Min Airlangga: Tariff talks with US Commerce Sec Lutnick and USTR Greer went 'positively'.

- Follow Up: Taiwan may cut US car tariffs to as low as zero - Local press.

- Philippines Envoy to the US Romuladez: To conduct additional negotiations with the US on trade - financial press.

- Thailand Govt to continue tariff talks with US before Aug 1st deadline; Plans measures to help private sector from US tariffs.

- Malaysia central bank (BNM) cuts overnight policy rate by 25bps to 2.75%; as expected.

- Thailand Dep Fin Min: Urges BOT to ease policy further.

- Taiwan Central Bank (CBC) requests foreign investors sell any Taiwan dollars received from stock sales within 1 day - press (to curb currency appreciation).

- (US) Pres Trump issues trade letters with tariff rates for Algeria, Iraq and Philippines, among others - Truth Social.

North America

- Tesla CEO Musk: To expand Robotaxi services in Austin area this weekend - post on X.

- (US) Follow up: Pres. Trump: I am announcing a 50% TARIFF on Copper, effective August 1, 2025 - post on Truth Social (confirms effective date)

- (BR) Trump sends trade letter to Brazil imposing 50% tariff, starting Aug 1st.

- (BR) Brazil Pres Lula: Any unilateral measure (by the US) to increase tariffs will be met with response in accordance with law in Brazil; Brazil is a Sovereign nation - posted on X in response to 50% tariff imposition by US Pres Trump].

- Peru Econ Min Contreras: 5% of copper exports could be affected by US tariffs.

- (US) White House trade adviser Navarro: Markets understand that trade letters are negotiations - Fox Business.

- (US) Pres Trump reportedly to visit UK at end of July or early Aug - Sky News.

- (BR) Brazil Central Bank (BCB) Gov Galipolo: No one wants rates cuts if that means faster inflation.

- (US) Pres. Trump: Our Fed Rate is AT LEAST 3 Points too high; “Too Late” is costing the U.S. 360 Billion Dollars a Point, in refinancing costs.

- (US) DOE CRUDE: +7.1M V -1.5ME; GASOLINE: -2.7M V -1.5ME; DISTILLATE: -0.8M V -0.5ME.

- (US) Pres Trump issues trade letters with tariff rates for Algeria, Iraq and Philippines, among others - Truth Social.

- (US) Treasury's $39B 10-year note reopening draws 4.362% V 4.421% prior; bid-to-cover ratio: 2.61 V 2.52 prior and 2.59 over last 8 reopenings; stopped through WI.

Europe

- (UK) Jun RICS House Price Balance: -7% v -9%e.

- (UK) Bank of England (BOE) Financial Stability Report (FSR): Risk of sharp falls in prices of risky assets remains high.

- (UK) BOE Gov Bailey: Risks and uncertainty remain elevated - FSR press conference.

- (TR) Turkey President Erdogan: Next general election to be in 2028.

- (UK) Chancellor (Fin Min) Reeves reportedly to launch permanent govt-backed mortgage guarantee scheme - FT.

- (IT) Italy Econ Min Giorgetti: ‘Very complicated’ talks on tariffs between the EU and US; Think they will continue until Aug 1st deadline.

- (EU) ECB's Holzmann (hawk/dissenter, Austria): No reason for further rate cuts; Rates are likely in expansionary territory - financial press interview.

Levels as of 01:20 ET

- Nikkei 225 -0.6%, ASX 200 +0.6%, Hang Seng +0.2%; Shanghai Composite +0.5%; Kospi +1.3%.

- Equity S&P500 Futures -0.1%; Nasdaq100 flat; DAX +0.1%; FTSE100 -0.2%.

- EUR 1.1717-1.1750; JPY 145.76-146.41; AUD 0.6530-0.6552; NZD 0.5997-6012.

- Gold +0.4% at $3,332/oz; Crude Oil +0.1% at $68.42/bbl; Copper +1.6% at $5.6295/lb.