Focus on US Dec JOLTS

Asia market update: Risk appetite worsens on sudden CN countermeasures against US after risk-on had initially returned to Asia with Canada and Mexico falling in line with Trump’s anti-Fentanyl demands; Focus on US Dec JOLTS.

General trend

- China turned an otherwise positive risk-on session on its head with unexpected counter tariffs against the US, right after the US-imposed China 10% additional tariffs had taken effect at midnight ET.

- Crude immediately lost 1.5%, EUR -1% AUD -0.8% CNH/USD only lost -0.2%, BTC -2.5%, Nasdaq turned around from +0.8% up earlier to be -0.7% after the shock news. Shares pared worst of the losses in the following minutes.

- This was a steep turnaround after markets were initially risk-back-on after yesterday’s steep market falls as Canada and Mexico’s Trump tariffs delayed by 30 days with each country committing to 10,000 personnel and/or troops to secure their US borders against Fentanyl. Pres Trump says he will further negotiate a trade and economic deal with each country over the interim 30 days.

- Markets welcomed the news as evidence that Trump is indeed always open for a deal, and any announcement of tariffs going forward may not be in effect for the long-term.

- Asian equities recovered a significant portion of yesterday’s losses with Hang Seng outperforming at one point +3.5% (Hang Seng Tech +5%), with HK markets also perhaps hoping for a last-minute Trump tariff reprieve. Hang Seng later pared gains to 2.1% as the midnight deadline (ET) approached.

- Currencies also recovered most if not all of their losses yesterday v USD, although the dollar maintained a positive bias.

- China’s additional 10% tariffs due to become effective at midnight, 4th Feb ET (30 minutes prior to this update). Watching for any Trump/Xi speak.

- A well-supported Japan 10 year JGB auction saw 10-yr bond yields rise to 1.257%, highest since May, 2010, with 2-yrs up to 0.74%, highest since Oct 2008 and 5-yr yields rose to 0.925%, highest since Nov 2008; BOJ Gov Ueda spoke in parliament but added no new insights.

- Australia weekly Consumer Confidence Index rose to a 32-month high.

- US equity FUTs pared gains during Asian trading, +0.2% to +0.5%.

Looking ahead (Asian time zone)

- Tue Feb 4th (Tue night US Dec JOLTS).

- Wed Feb 5th AU Trade Balance (Wed night US Jan ISM Services PMI).

- Thu Feb 6th (Thu eve UK BOE Rate Decision).

- Fri Feb 7th IN RBI Rate Decision (US Jan Non-Farm Payrolls, Michigan Prelim Feb Consumer Sentiment).

Holidays in Asia this week

- Mon Feb 3rd China (HK is open).

- Tue Feb 4th China (HK is open).

- Thu Feb 6th New Zealand.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens +0.4% at 8,409.

- Australia Dec Household Spending M/M: 0.4% v 0.3%e; Y/Y: 4.3% v 3.4%e.

- Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 88.5 v 86.0 prior (32-month high).

- AOFM [Australia debt agency]: Refines guidance for tomorrow’s 4.25% Mar 2036 Treasury Indexed Bonds (TIB) to 2.5 to 3.5bps (prior 2 to 5 bps).

- Australia Treasurer Chalmers: Australia is not immune to escalating global tensions, although remains confident to navigate the changes.

- New Zealand Dec Building Permits M/M: -5.6% v 5.3% prior.

China/Hong Kong

- Hang Seng opens +1.3% at 20.488.

- Shanghai Composite remains closed for holiday (reopens tomorrow) [**Reminder: China expanded market closures for Lunar New Year Holiday from 6 to 8 days [Jan 28th through Feb 4th], effective from Jan 28th 2025 - press].

- Reminder: (CN) US additional 10% tariffs on China due to become effective at midnight, 4th Feb ET (~25 min from now; 05:00 GMT).

- BYTEDANCE.IPO US Pres Trump: Great interest in TikTok; Would be wonderful for China, and all concerned - post on Truth Social.

- US Pres Trump: China tariffs [of 10%] were an opening salvo; They will go up if we can't make a deal; Nobody is out of tariffs - comments to press.

- China representative to UN: China firmly opposed to unwarranted increase in tariffs by Trump administration; Beijing may be forced to take countermeasures against US [on tariffs]; US is in violation of WTO rules, and China will be filing a complaint.

- (CN) US Sec of State Rubio confirms Panama to let Belt & Road deal with China lapse; 'Great step forward' in US relations.

- (US) Trump trade adviser Navarro: Its going to take some time to get where we need to go with Canada; Still to be determined what we will discuss with China.

- Hong Kong Q4 Advance GDP Q/Q: 0.8% v 0.9%e; Y/Y: 2.4% v 2.3%e [overnight update].

- Hong Kong Dec Retail Sales Volume Y/Y: -11.5% v -8.4% prior; Retail Sales Value Y/Y: -9.7% v -7.3% prior [overnight update].

Japan

- Nikkei 225 opens +1.5% at 39,078.

- Japan Jan Monetary Base Y/Y: -2.5% v -1.0% prior.

- Japan Bank of Japan (BOJ) Gov Ueda: Reiterates aiming for sustainable and stable 2.0% inflation.

- Japan PM Ishiba: Unclear if Japan won't return to deflation.

- Japan Chief Cabinet Sec Hayashi: Information Protection Commission has issued a notice regarding Chinese AI company DeepSeek - financial press.

- Japan Fin Min Kato: Will keep closely monitoring tariff policy in the US - financial press.

- Japan PM Ishiba said to announce cooperation with US regarding AI – Press.

- Japan sells ¥2.6T VS. ¥2.6T indicated in 10-year JGB bonds; AVG yield: 1.2600% V 1.1400% prior; bid-to-cover: 3.18X V 3.36X prior.

Korea

- Kospi opens +1.2% at 2,483.

Other Asia

- India PM Modi invited to White House next week for meeting with US Pres Trump - US.

- Singapore Jan Purchasing Managers Index (PMI): 50.9 v 51.1 prior (16th month of expansion [overnight update].

- Thailand Jan Business Sentiment Index: 48.5 v 48.4 prior [overnight update].

North America

- (US) El Salvador Pres Bukele: US deal to go beyond asylum; US Sec of State Rubio: Pres Bukele will take any US criminal deportees, including any illegal alien in the US who is a criminal from any nationality and house them in its jails; Bukele also offered to house criminals with US citizenship or US legal residency in his jails.

- (US) Fed's Goolsbee (voter): Uncertainties likely mean Fed needs to be a little more careful; There is risk that inflation could tick back up.

- (US) Interior Dept: Sec Burgum directs review of all IRA and Infrastructure Act appropriations; plans to eliminate at least 10 regulations for every new 1 introduced - financial press.

- (MX) Mexico Fin Min Ramirez: Reserves will cover shock in imports; Mexico remains resilient.

- (CA) Canada Jan Manufacturing PMI: 51.6 v 52.2 prior (5th month of expansion).

- (US) US Pres Trump: Canada doesn't even allow US banks to do business there; Just spoke with Canada's Trudeau.

- (MX) Mexico President Sheinbaum: Had a good conversation with US Pres Trump, which led to some agreements.

- (US) US Pres Trump confirms one-month delay of Mexican tariffs - Truth Social post.

- (US) Fed's Collins (voter): A lot of uncertainty how policies will unfold; Fed would try to look through a one-time price level [due to tariffs]; No urgency to change rates now - CNBC.

- (US) Pres Trump signing exec order to create sovereign wealth fund; TikTok could be placed in sovereign wealth fund.

- (US) Fed bank survey: US banks report net positive demand for commercial & industrial (C&I) loans for first time since 2022.

- (US) Treasury quarterly financing estimates: to borrow $815B in Jan-Mar quarter V $820BE and $823B prior estimate; Apr-June to borrow $123B V $275BE.

- (CA) Canada PM Trudeau: Attained 30-day reprieve on US tariffs on call with President Trump; To name a fentanyl czar.

Europe

- (FR) France Oat Bond FUTS -0.3%.

- (IE) Ireland Jan PMI Manufacturing: 51.3 v 49.1 prior (1st expansion in 3 months).

- (FR) France socialist party leadership decides against backing no-confidence vote against current govt (as speculated) - press [**note: implies pm Bayrou may survive no-confidence vote and pass the 2025 budget].

- OPEC+ members affirm commitment to production cuts to ensure price stability of oil market at joint ministerial monitoring committee (JMMC) meeting; Next JMMC meeting to be April 5th.

- (UK) PM Starmer: Aims to deliver ambitious security pact with EU; UK working hard to set path to 2.5% defense spending.

Levels as of 00:20 ET

- Nikkei 225 +0.5%, ASX 200 +0.7%, Hang Seng +1.3%; Shanghai Composite closed; Kospi +0.9%.

- Equity S&P500 Futures -0.2%; Nasdaq100 -0.3%; Dax -0.8%; FTSE100 -1.2%.

- EUR 1.0272-1.0351; JPY 154.70-155.41; AUD 0.6170-0.6134; NZD 0.5582-0.5641.

- Gold -0.4% at $2,846/oz; Crude Oil -1.5% at $72.09/brl; Copper -0.4% at $4.3205/lb.