Concern on US tariffs continue while eyes on JP inflation as Nikkei lags amid strong Yen

Asia Market Update: Concern on US tariffs continue while eyes on JP inflation as Nikkei lags amid strong Yen; Focus on US Feb NFP.

General trend

- Market concerns about Trump tariffs and overall volatility across asset classes drove losses in semi’s (SMH) which helped fuel as much as a 3% decline in the Nasdaq, with Nvidia trading down at $110

- Japanese tech stocks joined the negativity in Asia, (Sony -6% Nintendo 8%, Tokyo Electron and Fast Retailing both -3%), while the ASX in Australia fell a further -1.8%, to levels last seen in Sept 2024, but the Nikkei under-performed worst, -2.3%. CN/HK markets fared better, turning around earlier losses to green as the session continued.

- Mood in Japan was not helped overnight by its largest trade union (Rengo) seeking a general wage hike of 6.09% for 2025, higher than even last year’s 5.85% (which itself was the largest wage hike demand since 1993). Yen strength continues, with USD/JPY below 148 for first time since Oct 2024.

- Japan Fin Min Kato today tried put a pause on Yen strength by warning of “seeing one-sided and rapid moves in FX”. Japanese yields continued up on 15-year highs, with JP 20-year JGB yields +5bps to 2.25%, the highest since July 2008.

- Financial press sources speculated that Japan inflation risks may see another BOJ hike in H1 this year, but not until the Apr/May decision, as in March (next week) the BOJ may concerned about any upcoming US tariffs against Japan.

- Pres Trump indeed turned out to exempt Canada and Mexico USMCA-compliant goods and services from the fentanyl tariffs even while pointing strongly to the start of reciprocal tariffs on Apr 2nd.

- ECB cut rates as expected by 25bps last night, but talk of “restrictive rates” may pale in comparison to a potential >€800-900B total spending package on German defense (€400B) and infrastructure (€500B) increasingly anticipated by the German govt (coincidentally approx. the amount of overall spending called for by the Europe in Draghi’s EU report last year).

- China bond yields also continued their recent turn northwards, +6.6bps to 1.835% for its biggest one-day increase this year.

- Very anemic import figures for Jan-Feb out of China, -7% in USD- and -8% in CNY-denominated, placing more pressure on Chinese authorities to find ways to try and stimulate the economy.

- Bitcoin -5% and other crypto coins (ETH -5%, ADA -13%, SOL -6%, XRP -2%) - which were floated as potential components of the new US Crypto Strategic Reserve f- ell as Trump’s new Exec Order establishing the Reserve confirmed that it will (for now) be capitalized ONLY with Bitcoin owned by the Fed govt that was forfeited as part of criminal proceedings or civil asset forfeitures.

- US equity FUTs pared back some losses, +0.3% to 0.5% during Asian trading.

Looking ahead (Asian time zone)

- Fri Mar 7th (Fri night US Feb NFP).

Holidays in Asia this week

- Mon Mar 3rd South Korea.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.4% at 8,062.

- Australia Jan Household Spending M/M: 0.4% v 0.5%e; Y/Y: 2.9% v 3.4%e.

- Australia sells A$700M v A$700M indicated in 1.00% Dec 2030 bonds, Avg Yield: 4.0469% v 4.0856% prior, bid to cover 4.64x v 2.71x prior.

China/Hong Kong

- Hang Seng opens -0.8% at 24,182; Shanghai Composite opens -0.2% at 3,373.

- CHINA FEB YTD TRADE BALANCE YTD: $170.5B V $147.5BE.

- CHINA FEB YTD TRADE BALANCE YTD (CNY-DENOMINATED): 1.22T.

- China Foreign Min Wang Yi: Reiterates international situation in 2025 remains full of challenges - briefing.

- Walmart reportedly asks Chinese suppliers for "major" price cuts amid tariff war - press.

- China Commerce Min Wang: If US goes further on tariffs, we will respond; China and US sides can meet at a suitable time.

- Several top Chinese officials spoke from the National People’s Congress overnight:

1) NPC deputy Liu Hanyuan: China could stop importing crude oil in 20 years as the country accelerates the installation of renewable energy capacity and energy storage - SCMP.

2) China Fin Min Lan Foan: Must adjust policy based on 'real' conditions; reiterates policy will continue to be strengthened - comments from China Economic press conf

3) China PBOC Gov Pan Gongsheng stated that made multiple policy adjustments in 2024 and would implement a moderately loose monetary policy. Would cut interest rates and RRR at the appropriate time. To use a wide range of tools to keep liquidity sufficient.

4) China Commerce Min Wang noted that weak demand was main issue for goods consumption. To make all efforts to stabilize trade.

- China MOF sells 1-year, 10-year Bonds.

- China PBOC sets Yuan reference rate: 7.1705 v 7.1692 prior.

- China PBOC Open Market Operation (OMO): Injects CNY185B in 7-day reverse repos; Net drains CNY100B v prior drains CNY111B.

Japan

- Nikkei 225 opens -1.3% at 37,198.

- Japan Feb Total Reserve Assets: $1.25T v $1.24T prior.

- Inflation risks may 'stir' BOJ discussion of rate hike in May, cites 'sources' - financial press.

- Japan 20-year JGB yield rises to 2.22%, the highest since Oct 2008.

- Japan Fin Min Kato: Recently seeing one-sided and rapid moves in FX, will not comment on FX levels.

- Rengo: [LARGEST TRADE UNION IN JAPAN] SEEKS WAGE HIKE OF 6.09% IN 2025 V 5.85% Y/Y (demanding the largest wage hike since 1993) - overnight update.

- Japan sells ¥4.5T vs. ¥4.5T indicated in 3-Month Bills; Avg Yield: 0.3404% v 0.3255% prior; bid-to-cover: 3.27x v 2.73x prior.

Korea

- Kospi opens -0.9% at 2,553.

- South Korea Jan Current Account: $2.9B v $12.4B prior.

- *(KR) South Korean court said to cancel arrest of impeached Pres Yoon; Approves Yoon's release - Financial press.

- South Korea National Sec Advisor: Requests consultation over tariffs during trip to Washington DC - South Korea Presidential Office.

- South Korea acting Pres Choi: To closely monitor global economy, market trends - financial press.

Other Asia

- MALAYSIA CENTRAL BANK (BNM) LEAVES OVERNIGHT POLICY RATE UNCHANGED AT 3.00%; AS EXPECTED.

- Taiwan Semi CEO: US expansion is due to increasing demand; Capacity is fully booked for 2025; Our US production lines in 2025 and for next two years are fully booked.

North America

- (US) Trump's AI & Crypto Czar David Sacks: Pres Trump signs EO for Strategic Bitcoin Reserve; Will be capitalized with Bitcoin owned by Fed govt that was forfeited as part of criminal proceedings or civil asset forfeitures - financial press.

- (US) Fed's Bostic (non-voter for 2025): Economy is in 'remarkable flux'; Difficult to know where economy will land - financial press.

- (US) Feb Challenger Job Cuts: 172.0K v 49.8K prior; Y/Y: +103.2% v -39.5% prior (highest since July 2020); Notes it remains to be seen how many more workers will lose their Federal Government roles.

- (US) Follow up: Trump Admin Official: 25% Tariffs on most goods from Mexico and Canada are Not retroactive - financial press.

- (US) Redfin: Pending U.S. home sales fell 6.4% from a year earlier during the four weeks ending March 2, the second-biggest decline since Nov 2023; Some prospective buyers are wary about making a big purchase amid economic uncertainty, including concerns about tariffs, slowing economic growth and layoffs.

- (US) Q4 FINAL NONFARM PRODUCTIVITY: 1.5% V 1.2%E; UNIT LABOR COSTS: 2.2% V 3.0%E.

- (US) JAN TRADE BALANCE: -$131.4B V -$128.8BE (record deficit).

- (US) INITIAL JOBLESS CLAIMS: 221K V 233KE; CONTINUING CLAIMS: 1.897M V 1.88ME.

- (US) Fed's Harker (non-voter): Doesn't comment on monetary policy or economic outlook.

- (US) Commerce Sec Lutnick: The 1-month carve out for Mexico and Canada tariffs is not likely to be just the automakers, will likely include all USMCA compliant goods and services; Hope to make an announcement today; ~50% of products coming from Mexico and Canada are USMCA compliant; Looking at accelerated depreciation for companies coming back to US - CNBC.

- (US) WEEKLY EIA NATURAL GAS INVENTORIES: -80 BCF VS. -96 BCF TO -98 BCF INDICATED RANGE.

- (CA) Trump signs order excluding Canada's USMCA compliant goods and services from tariffs, as well as a carve out for potash, for one month (after announcing a 1-month delay on Mexico tariffs earlier).

- (MX) Pres Trump: Confirms extends tariff exemption on all USMCA compliant goods until April 2nd for Mexico (does not mention Canada).

- (US) US Treasury Sec Bessent: US will close Iran's access to global financial system; Won't hesitate on Russia sanctions if needed - speech text.

- (US) Atlanta Fed GDPNow: Raises Q1 GDP from -2.8% to -2.4%.

- (US) President Trump said to be considering major shift in NATO membership; Will not defend members at war if they do not meet spending threshold - press.

- S&P 500 CASH BREAKS BELOW 200-DAY MOVING AVERAGE.

Europe

- (EU) ECB CUTS KEY RATES BY 25BPS; AS EXPECTED; Notes monetary policy becoming meaningfully less restrictive.

- (EU) ECB MARCH STAFF PROJECTIONS: Cuts near term GDP forecast with mixed CPI expectations.

- (EU) ECB Chief Lagarde: Disinflation process remains on track; Reiterates stance to follow data-dependent and meeting by meeting approach given global uncertainty - Prepared Remarks.

- (UR) President Zelenskiy: Hopes Ukraine, US to have 'meaningful' meeting next week; Seeks truce for air strikes, sea ops.

- (RU) Russia Govt Spokesperson Peskov: Agree with US Sec of State Rubio that Ukraine conflict is a proxy conflict and must be ended.

Levels as of 00:20 ET

- Nikkei 225 -2.3%, ASX 200 -1.8%, Hang Seng +0.9%; Shanghai Composite +0.1%; Kospi -0.4%.

- Equity S&P500 Futures +0.3%; Nasdaq100 +0.5%; Dax -0.3%; FTSE100.

- EUR 1.0781-1.0815; JPY 147.45-148.17; AUD 0.6300-0.6338; NZD 0.5712-0.5742.

- Gold -0.3% at $2,918/oz; Crude Oil +0.1% at $66.43/brl; Copper -0.2% at $4.7670/lb.