Asia open: The Vietnam deal lights the tunnel — Markets chase the glow

Asian equities are in classic follow-through mode, drifting higher after the S&P 500 notched another record close—powered by Trump’s Vietnam trade announcement and the enduring “bad news is good news” dynamic, now practically the most-read chapter in the bullish stock market operator’s playbook. For now, risk markets are treating the deal as a net positive—less for its substance, and more because it offers a flicker of light at the end of the trade deal and supply chain tunnel.

The tariff terms are heavy—20% on Vietnamese exports, 40% on anything flagged as transshipped—but enforcement mechanisms remain vague. That’s key. Without clarity, the market is pricing it more as a political signal than a logistical overhaul. Still, the China angle looms. With Beijing in the crosshairs, the risk of retaliation can't be ruled out.

Cross-asset price action reflects cautious optimism. Treasuries edged up in Asia after selling off during UK hours on fiscal concerns tied to Chancellor Reeves. Japan’s long-end is under pressure ahead of today’s 30-year auction, a textbook case of supply-driven positioning.

But the real volatility trigger is tonight’s US payrolls print. Consensus expects a soft sub-100k number—well below the ~150k replacement rate—and an uptick in the unemployment rate to 4.3%. That fits the recent trend: higher jobless claims, weak ADP, and a market sniffing early-cycle labor softness. In theory, it feeds the dovish narrative and supports front-end rally calls.

But the deeper read is more complicated. A very weak print might fuel rate-cut pricing, but it also amplifies concerns over tax revenue shortfalls and the widening fiscal deficit—particularly with the Treasury preparing to ramp up supply. That undermines the duration bull case. You might get a knee-jerk bid in bonds, but sustained buying could run into the hard wall of issuance math.

Then there’s inflation. Tariff effects will start showing up in headline CPI as early as Q3, and with 10-year SOFR swaps parked around 3.70%, there’s room for reprice risk if CPI pushes toward 4%. That would steepen the curve for the wrong reasons—rising inflation and deteriorating fiscal optics.

So while equities are leaning into a soft-landing/Fed-cut combo, bonds are caught in the crossfire between deteriorating growth and deteriorating credit metrics. The macro says "buy duration." The deficit says "not so fast."