Muted market response to confirmed CN/US talks, long-awaited easing announcement by PBOC

Asia market update: Muted market response to confirmed CN/US talks, long-awaited easing announcement by PBOC; IN-PK tension turns kinetic; Focus on US FOMC Rate Decision + Powell.

General trend

- US and China confirmed to meet for trade talks in Geneva, Switzerland this weekend, May 10th and 11th. US equity FUTs initially popped 1% on the news, but later pared gains while USD/JPY recovered one big figure back to 143 handle. Gold fell 2%. Asian equities mildly positive with Nikkei and Kospi back after holidays. CN and HK equities only up +0.5% to +0.6% even with CN stimulus and trade talks.

- Chinese authorities announced a series of stimulus measures that included finally cutting the RRR rate 50bps to 9.0% (promised since last Oct), which they again estimate will release CNY1T of liquidity; The 7-day reverse repo Policy Rate will be cut tomorrow by 10bps to 1.40%, which will lead to the LPR being cut by 10bps. Overnight SLF to be cut to 2.25%. Will also raise total quota of two monetary policy tools to support capital markets to CNY800B, effective immediately.

- USD/CNY recovered from 7.18 after the China stimulus announcements back to 7.22.

- India-Pakistan tensions went kinetic after India bombed what it said were terrorist camps in Pakistan. Pakistan returned fire across the Kashmir line, and both sides exchanged live fire up and down the line. Pakistan said it had no intention of using nukes.

- The second large Aussie bank to report this week, NAB, +3.6% on H1 earnings beat.

- NZ Q1 employment improved, but wages were down as was participation rate.

- Aussie dollar regained 65c briefly for first time since early Dec.

- With a Fed pause tonight at 95% probability, focus on whether Fed Chair Powell makes any hints toward a dovish pivot moving forward, or whether last week’s strong US NFP jobs numbers give the Fed cover to hold the line for longer.

- US equity FUTs +0.5% to +0.6% during Asian trading.

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

- Wed May 7th (Wed night US FOMC Rate Decision + Powell).

- Thu May 8th JP BOJ Minutes, (Thu eve UK BOE Rate Decision).

- Fri May 9th JP Mar Cash Earnings, CN Apr Trade Balance.

- Sat May 10th CN Apr CPI.

Holidays in Asia this week

- Mon May 5th China, Hong Kong, Japan, South Korea, Thailand.

- Tue May 6th Japan, South Korea.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens +0.1% at 8,161.

- RBA Gov Bullock plans to visit the RBA's China office later in May, to hold meeting with China counterparts May 28-30th - Press.

- Australia sells A$1.0B vs. A$1.0B indicated in 3.75% Apr 2037 bonds; Avg Yield: 4.3899% v 4.666% prior; bid-to-cover: 4.64x v 3.67x prior.

- New Zealand Q1 Unemployment Rate: 5.1% v 5.3%e.

- New Zealand Central Bank (RBNZ) Financial Stability Report; US tariffs pose material risk to global economic activity; Publishes terms of reference for review of capital setting.

- RBNZ announces Exec leadership team changes; To reduce Exec leadership team to four Asst Governors.

- RBNZ Hawkesby: Threat of trade war has decreased recently, but still considerable uncertainty on how things will play out.

- Follow Up: New Zealand Fin Min Willis said to have sought meeting on bank capital before Orr quit the RBNZ - Press.

- Fonterra Global Dairy Trade Auction Dairy Trade price index: +4.6% v +1.6% prior.

China/Hong Kong

- Hang Seng opens +2.2% at 23,169; Shanghai Composite opens +1.2% at 3,354.

- Hong Kong Apr PMI (whole economy): 48.3 v 48.3 prior.

- CHINA PBOC: TO CUT POLICY RATE [7-day reverse repo rate] BY 10BPS TO 1.40% FROM 1.50% [this rate was last cut during Sept 2024], effective from May 8th.

- CHINA PBOC TO CUT RRR by 0.5% from 9.5% to 9.0% to release CNY1.0T of liquidity.

- PBOC: To cut overnight SLF rate to 2.25%; effective May 8th [Thurs].

- China PBOC Gov Pan, China CSRC: China macro data for prices, credit are performing well - joint press conference on anticipated policy package to stabilise market and expectations.

- China Press: Notes improving demand in the property market.

- (US) Treasury Sec Bessent: Confirms to meet China on May 10th and 11th, "China has been the 'missing piece' in negotiations" - financial press.

- China MOFCOM releases Q&A, confirming China-US trade talks with Vice Premier He Lifeng in Geneva, Switzerland on May 8th - financial press.

- (US) Treasury Sec Bessent and USTR Geer to meet with China's lead economic official (likely Vice Premier He Lifeng) in Geneva on May 8th "to launch trade talks" - financial press.

- China to impose anti-dumping duties on cypermethrin originating from India - press.

- Hong Kong Monetary Authority (HKMA) Chief Executive Yue: Been reducing duration in US treasury holdings; Hong Kong’s Exchange fund has been diversifying into non-US assets [overnight update].

- China and EU parliament reportedly lift curbs on mutual (person-to-person) exchanges – press [overnight update].

- China PBOC sets Yuan reference rate: 7.2005 v 7.2008 prior.

- China PBOC Open Market Operation (OMO): Injects CNY196B in 7-day reverse repos; Net drains CNY335B v drains CNY682B prior.

Japan

- Nikkei reopens +0.2% at 36,886.

- Japan Apr Final PMI Services: 52.4 v 52.2 prelim (confirms 6th month of expansion).

- Japan Chief Cabinet Sec Hayashi: Watching US-China trade talks with strong interest.

Korea

- Kospi reopens +0.7% at 2,577.

- South Korea Foreign Ministry: Korean and US Foreign Ministers spoke by phone to discuss economic cooperation and alliance.

- South Korea submits opinion document on US security probe related to chip imports - financial press.

Other Asia

- Taiwan regulator has received proposals from insurers related to FX losses - Local press.

- Indonesia: - Indonesia has come with very strong trade offers, willing to take off tariffs and non-tariff barriers.

- *(IN) Indian army official: Carried out strike at terrorist camps in Pakistan; targeted 9 sites in Pakistan and Pakistan-occupied areas - press.

- Taiwan Central Bank (CBC): 80% of our FX reserves are US bonds [overnight update].

North America

- US said to order US spy agencies to 'step up' their efforts in Greenland - WSJ.

- (US) US Pres Trump: We'll possibly start to renegotiate USMCA; Not sure as of yet if it's necessary to renegotiate the USMCA; USMCA is fine, it's there and good; We'll be friends with Canada; The announcement over the next few days is not necessarily on tariffs.

- (CA) Canada PM Carney spokesperson: There were no decisions on tariffs today; Both sides want to move forward on the 'complex situation of trade talks; Agreed to have discussions in the coming weeks and at the G7 meeting.

- (US) Treasury Sec Bessent: Perhaps as early as this week we'll be announcing trade deals with some of our largest trading partners - testimony to Congress Appropriations committee.

- (US) Mar trade balance: -$140.5B V -$137.2BE.

- (CA) Canada Mar INT'L merchandise trade (CAD): -0.5B V -1.6BE.

- (US) Fed's Kashkari to vote as alternative for KC Fed Pres Schmid at next FOMC meeting (May 6-7) following death of Schmid's wife.

- (IR) Oman Foreign Min: US and Houthis have reached a ceasefire deal; Neither side will target the other in the Red Sea - press.

- (US) Reportedly Trump aims to hasten nuclear power with EO - Axios.

- (US) Treasury's $39B 10-year note auction draws 4.342% V 4.632% prior; bid-to-cover ratio: 2.60 v 2.58 prior.

Europe

- (UK) US and UK said to sign trade deal this week, which would include lower tariff quota for cars and steel - FT.

- German CDU Leader Merz failed to secure Chancellor position on 1st try, falling short by 6 votes.

- Germany CDU LEADER Merz wins second parliamentary vote (325 voting for) to become new chancellor.

- Package to stabilise market and expectations - press.

- (RU) Russia govt spokesperson: Have been working with OPEC+ members to maintain optimum price levels.

- (UK) Govt Official: FTA with India to lock in reductions on 90% of tariff lines - emailed statement.

Levels as of 01:20 ET

- Nikkei 225 +0.1%, ASX 200 +0.4%, Hang Seng +0.6%; Shanghai Composite +0.5%; Kospi +0.6%.

- Equity S&P500 Futures +0.5%; Nasdaq100 +0.6%; DAX +0.2%; FTSE100 +0.4%.

- EUR 113.25-1.1375; JPY 142.42-143.33; AUD 0.6477-0.6515; NZD 0.5989-0.6023.

- Gold -0.9% at $3,393/oz; Crude Oil +1.1% $59.74/bbl; Copper -0.7% at $4.7720/lb.