CN-Trump climb-down on threats sees 50% bounce back for US equity FUTs

Asia market update: CN-Trump climb-down on threats sees 50% bounce back for US equity FUTs; JP holiday as Asia stocks fall on tensions.

Recapping Friday and weekend China-US events

- National Security concerns “trumped” trade as sky-high markets sold off amid US-CN trade war re-conflagration. [** For a chronological breakdown on the CN-US events Thurs through Sun, see today’s alert: (CN) TTN Research Alert: National Security concerns “trump” trade as sky-high markets sold off amid US-CN trade war re-conflagration; However, China’s actions and walk-back may be part of internal power struggles more than a coordinated economic strategy].

- With regular markets closed prior to Trump’s 100% additional tariff threat, the 24-hour crypto markets bore the brunt of the initial shock, with coins such as XRP, Cardano, Stellar losing all liquidity and cratering down 50-65% at their worst, while majors Ethereum and Bitcoin plunged a further 12-13% in mere minutes. (Bitcoin earlier in the day was ~$122K and on some illiquid exchanges bottomed out at $101K while falling to $108K on more liquid exchanges). Overall, crypto suffered by far its biggest ever liquidation event of $19B in mere minutes.

- Semi-walk backs from first China and then Trump over the weekend saw US equity FUTs pull back >1% at the Asian open, and had clawed back 50% of Friday’s losses by mid-session. China MOFCOM said that the export controls are not export bans, civilian use will be approved; Then Trump chimed in earlier today, saying “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment”.
[** Note: The entire episode may be more emblematic of an internal power-play between Xi and various CCP factions, creating confusion and mixed messaging. The upcoming 4th Plenum (Oct 20-23) will be keenly watched for any sign of Xi losing any titles or alternatively consolidating power even as he has suffered the dismissal of many of his closest allies over the past year or two, followed by who then attends APEC in South Korea at end of October and finally any outcome between a potential meeting between Trump and Xi – or no meeting at all.]

Market update for Monday

- Metals retain strength: Amid the sell-off in risk assets on Friday, Gold and Silver notably held their levels, with Gold and Silver indeed hitting further records high early in the Asian trading session today. Platinum +3% while US Copper +3.7% as it continues to claw back the 20% losses at end-July.

- Shanghai -1.3% as Hang Seng fell steeply -3.4%, with tech names such as Alibaba and Tencent down.

- Kospi fell -1.7% at the open as South Korea chipmakers Hynix -4.2% and Samsung -3.8% (Japan chip-relateds Tokyo Electron, Advantest, Renesas no trading on a Nikkei holiday). Taiwan’s Taiex also fell -3%.

- [**Note: South Korea chip-makers are in a particularly vulnerable position, dependent on the US and Taiwan markets for their product sales but up to 90% dependent on China for their rare earths supply. Conversely, Japan was frozen out of rare earths supply by China for a period back in 2010 and has since steadily built increasing amount of rare earth supplies sourced outside of China, although still has significant China supplies. Over the medium- to long-term expect global supply chains to accelerate out of Chinese-sourced rare-earths, while experiencing volatility in the short-term].

- China’s Sept trade surplus >10% less than expected, even as its US trade surplus rose 10% compared to the prior month. To rub salt into US soybean farmers’ wounds, soybean imports hit a record high even with no purchases from the US. Meanwhile China’s CSI Rare Earth Index +4.7% to fresh record high.

- Korean exports in first 10 days of Oct fell steeply -15% and imports fell even more, -22%, however, Decline was largely attributed to the long Chuseok holiday, which this year extended through last Thursday, reducing the number of working days to 3 1/2, compared to 5 1/2 days in the same period last year. US exports -43% y/y, China exports -19% y/y.

Update on Japan’s dicey Political Situation: Following the initial market glow of Takaichi winning the LDP leadership, the LDP party must now dig deep in a search for Coalition partners in order to 1) maintain power, and 2) push through its legislative agenda as a minority government after its more liberal partner Komeito ditches their 26-year coalition on Friday (and notably following a Komeito meeting with the Chinese Ambassador to Japan). The conservative Japan Innovation party’s (Ishin no Kai) Fujita said he was open to discussions even as DPP head Tamaki said he wanted to join with Komeito for ‘realistic solutions’ while Komeito scheduled to again meet with the LDP on Oct 14th (tomorrow).

- At the close of cash trading in Japan on Friday OIS chances of a 25bps hike at the end of Oct by the BOJ fell to 20.0% (vs 23.5% Thurs) and by Dec fell to 63.0% (vs 66% Thurs).

- After a few weeks of relatively weaker fixes, China PBOC once again set the Yuan reference at the strongest level since Nov 6th, 2024.

- Pres Trump arrives in Israel today (Monday), to deliver remarks Israeli Knesset (parliament), delivering remarks as Israeli hostages and Trump’s peace plan begins to be implemented.

- Note: US stock markets open later today, Oct 13th on Columbus Day, but the US govt bond market, banks and federal offices will be closed for the Federal holiday.

- US CPI for Sept to be released Fri, Oct 24th at the usual time of 08:30am ET. [Other govt-produced economic data such as jobs and retail sales unlikely to be released until govt shutdown ends].

- US equity FUTs +1.2% to +1.6% during Asia trading.

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

- Tue Oct 14th AU Sept NAB Business Conf, AU RBA Meeting Minutes, (Tue night Fed’s Powell speech).

- Wed Oct 15th CN Sept CPI/PPI.

- Thu Oct 16th AU Sept jobs.

- Fri Oct 17th KR jobs.

Note: US releases originally scheduled for this week but postponed due to the govt shutdown: Sept PPI, Sept Retail Sales, Sept Housing Starts, Sept Building Permits.

Holidays in Asia this week

- Mon Oct 13th Japan, Thailand, US bond markets closed (US stock markets remain open).

Headlines/economic data

Australia/New Zealand

- ASX opens -0.5% at 8,916.

- New Zealand Sept Performance Services Index: 48.3 v 47.6 prior - update.

- New Zealand Aug Net Migration: 0.46K v 2.1K prior.

China/Hong Kong

- Hang Seng opens -2.5% at 25,634; Shanghai Composite opens -2.5% at 3,800.

- China Sept trade balance: $90.5B V $98.2BE.

- China Sept trade balance (CNY-denominated): 645.5B V 730.0B prior.

- China Sept rare earth exports -31% m/m.

- China Customs Vice Min: Great efforts are needed to stabilize foreign trade in Q4; in Q1-Q3 China foreign trade has shown resilience with improving structure.

- China Q3 Yuan-denominated imports +4.7% y/y.

- China September stock market trading turnover CNY52.6T vs CNY47.9T m/m.

- Shanghai Securities News: China seen to boost investment, consumption in Q4 - cites analysts.

- US Pres Trump: 'Very strange things' happening in China, sending letters on rare earths and more sectors that would 'clog' markets, calls it trade hostility; Probably won't meet with China Pres Xi at APEC summit (Oct 28-31); Threatens 'massive tariffs' on Chinese imports - Truth Social post.

- China MOFCOM: Export controls are not export bans, civilian use will be approved; Countermeasures are legitimate defense actions; Hopes to correct wrong process.

- FCC Chair Carr: US e-commerce websites removing millions of prohibited items from companies like Huawei.

- *(US) S&P Global's Sept GEP Global Supply Chain Volatility Index shows Chinese manufacturers sharply increased purchasing in September, propelling Asia's supply chains to their busiest level since June 2022; In sharp contrast, North American supply chains lost momentum.

- Reportedly Chinese team makes ‘decisive step’ towards holy grail of next-gen batteries; The team, led by researchers from the Chinese Academy of Sciences, developed a self-healing interface that works like a liquid seal – SCMP.

- China PBOC sets Yuan reference rate: 7.1007 v 7.1048 prior (strongest since Nov 6th, 2024).

- China PBOC Open Market Operation (OMO): Injects CNY138B in 7-day reverse repos; Net injects CNY138B v drains CNY191B prior.

Japan

- Nikkei 225 closed for holiday.

- Former BOJ official said Japan may intervene if USD/JPY rises toward ¥160 - financial press [update].

- Japan's Nippon Ishin no Kai party's Fujita: If asked, to deal sincerely in unifying on PM vote [weekend update].

- LDP and Komeito parties said to hold meeting on Oct 14th over withdrawal - Japanese press [weekend update].

- Japan DPP Head Tamaki (opposition party); Want to join with Komeito for realistic solution [weekend update].

- TTN Research Alert: Komeito’s walkout tears up a 26-year machine that normally converts LDP leadership into the premiership; LDP may lack the votes and an opposition-backed nominee could be designated instead; Even if Takaichi is designated, governing without a stable majority invites immediate no-confidence gambits that would force either cabinet resignation or Lower House dissolution within 10 days [weekend update].

Korea

- Kospi opens -1.7% at 3,550.

- South Korea Oct 1-10 Exports Y/Y: -15.2% v +3.8% prior; Imports Y/Y: -22.8% v +11.1% prior.

- South Korea Fin Min Koo: Will stably manage the forex market - financial press.

- LG Energy Reports prelim Q3 (KRW) Op 601.3B v 515.9Be, Rev 5.70T v 5.62Te.

- LG Electronics reports prelim Q3 (KRW) Op 688.9B v 641Be, Rev 21.9T v 21.7Te.

- South Korea Industry Ministry: To work with US, Chinese authorities to support stable supplies of AI chips and rare earths.

Other Asia

- (TW) China Taiwan Affairs Office: Will unite number of Taiwan compatriots and resolutely oppose Taiwan independence separatism and foreign interference – CCTV [weekend update].

North America

- (US) Follow up: Jefferies provides letter from CEO regarding First Brands and Point Bonita Capital.

- US President Trump tariff announcement and Nov 1 effective date could suggest room for negotiation - FT [update].

- (US) Nasdaq FUTs open +1.3%, S&P Futs +0.9%.

- (US) Pres. Trump: Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!! President DJT.

- (US) Trump: To impose a tariff of 100% on China; China tariff is starting on Nov 1st; USTR proposes additional 150% tariff on certain cargo equipment [weekend update].

- (US) OCT preliminary University of Michigan Confidence: 55.0 V 54.0E [weekend update].

- (US) Reportedly Fed Chair candidates list has been narrowed down to 5: Waller, Bowman, Hassett, Warsh and Rieder; Fed Chair finalist likely to be nominated as Gov by Jan 2026 – CNBC [weekend update].

- (US) BOFA institute: Sept total card spending +2.0% Y/Y V +1.7% on average in Aug; [weekend update].

- (US) Fed's Waller (voter, reported finalist for Chair): Fed needs to cut rates but be cautious about it; Fed is not going to be aggressive or fast, will move in 25bps steps; Do not know if I am Fed Chair finalist – CNBC [weekend update].

- (US) Fed's Musalem (voter in 2025; non-voter in 2026): Fed's mandates seem like they are in tension; Inflation is running high and labor market showing signs of potential weakness; Inflation is materially above target - speech text [weekend update].

- Early OCT TTN innovation & corporate confidence index (ICCI): 113.6 V 113.5 prior (third straight very minor uptick; AI-cloud & innovation pipeline lift; tariff/FX & housing still cap upside) [weekend update].

Europe

- (DE) Germany Fin Min Klingbeil: Seeking €34B in savings by year-end to balance 2027 Federal Budget - German press.

- (FR) Reportedly French President Macron renames former PM Lecornu as the French PM – press [weekend update].

- (FR) France Pres Macron administration: Macron considering delaying some of pension reform effects by one year; Meeting with leaders of political parties shows it remained possible to find compromise and avoid dissolution of parliament [weekend update].

- (FR) France Green party's Tondelier: We have left meeting with Pres Macron in state of shock; Macron said he may delay pension age increase, but that's not enough; Believe next PM won't be from our (leftist) camp [weekend update].

- (UR) Ukraine Pres Zelenskiy: Trump has not yet made a decision on supplying Tomahawks to Ukraine; Waiting for Trump's decision, we are working on it [weekend update].

Levels as of 01:20 ET

- Nikkei 225 closed, ASX 200 -0.9%, Hang Seng -3.0%; Shanghai Composite -1.3%; Kospi -2.0%.

- Equity S&P500 Futures +1.2%; Nasdaq100 +1.6%; DAX +0.4%; FTSE100 flat.

- EUR 1.1592-1.1628; JPY 151.75-152.28; AUD 0.6492-0.6533; NZD 0.5722-0.5748.

- Gold +1.9% at $4,077/oz; BTC +2.5% at $114,920; Crude Oil +1.5% at $59.76/bbl; Copper +2.2% at $5.000/lb.