Jan 28 ,2025
Synopsis:
Asia stocks ended mostly lower Tuesday in a truncated and quiet session. More steep losses for Japan's Nikkei while the Topix also fell by a few points. New Zealand, Australia and those markets in Southeast Asia still open were also lower. Hang Seng a smidge higher in light volumes, strong gains for India. Mainland China, South Korea, Taiwan, Indonesia all closed. US futures mixed having turned more positive over the day, Europe opened with small gains. Dollar catching a bid on Trump tariff comments, Asia currencies notably weaker. Treasury yields higher across tenors, JGB yields lower, IGB 10Y yield at three-year low. Crude oil off overnight lows, precious and base metals mixed. Cryptocurrencies higher.
Asia markets seeing come continued weakness following the technology market selloff on Wall Street Monday. Tech-led benchmarks in Japan and Australia again lower but South Korea and Taiwan again closed to dull the impact of the selloff. Plenty of discussion on impact of DeepSeek as a viable alternative to US-developed AI chips with further debate over the effectiveness of US trade sanctions against China, both of which are yet to reach a conclusion. Trump today hinted at universal tariffs "much bigger" than 2.5%, and said several commodities including semiconductors will see additional tariffs in near future.
In other developments, Japan corporate services inflation unexpectedly eased though remained elevated near 3%. Australian business confidence remained negative though business conditions improved. New Zealand filled jobs stabilized, signaling early labor market recovery. India's central bank injected $18B into the financial system, easing the liquidity crunch and giving the biggest indicator yet it was preparing for a rate cut next week.
Advantest (6857.JP) and Tokyo Electron (8035.JP) stocks extended their losses to a second day in the wake of the DeepSeek development. China Vanke (2202.HK) said its president and CEO had resigned for health reasons; to sell 49% stake in regional project to Shenzhen regional government entity. Mahindra & Mahindra (500520.IN) and Volkswagen's partnership is in jeopardy after companies have been unable to resolve their differences on development costs.
Digest:
Trump flags tariffs on chips, commodities; starting tariff rate "much bigger" than 2.5%:
Addressing Republicans on Monday, President Trump flagged tariffs on chips, steel, aluminum and copper in near future (Bloomberg). Trump's remarks were his most specific yet on which items his administration is targeting, particularly semiconductors. Speaking to reporters later Trump's said while has not settled on universal tariff rate he intends to impose, it will be "much bigger" than initial 2.5% Treasury Secretary Bessent reportedly favored. FT sources earlier noted Bessent was pushing for a starting tariff rate of 2.5% that would rise by the same amount every month, part of a gradual approach to boost negotiating leverage while avoiding inflation spike. Recent press reports have noted growing push within his administration to impose tariffs very soon. Politico sources noted how tariffs will be broad based and universal while another report highlighted push by Trump aides to impose 25% tariffs on Mexico and Canada as soon as 1-Feb. On Monday Trump \repeated his threat to semiconductor and other companies to manufacture in US or face punitive tariffs.
DeepSeek development presents challenges and opportunities:
DeepSeek the big story in markets with its low-cost AI model sparking wide ranging discussion about extent of US tech spending on their AI models, pricing power, and broader questions about America's lead in global AI race (Reuters). Bloomberg discussed how DeepSeek breakthrough challenge assumptions about cost of AI, though while it heightened scrutiny on outsized capex ramp it was also seen encouraging push for efficiency and innovation. President Trump viewed development as a positive that should incentivize American tech firms to build their AI models more cheaply (Reuters). Open AI and Nvidia also praised DeepSeek and saw opportunities (Reuters, Bloomberg) while Bloomberg sources noted both OpenAI and Meta directing efforts to better understand DeepSeek's breakthrough. With that said, DeepSeek not without its skeptics amid doubts over its cost claims and app's capabilities, to what extent DeepSeek relied on western technology and whether that prompts US to tighten China export controls. China government influence and censorship another factor seen limiting DeepSeek's adoption outside China.
DeepSeek breakthrough could see US tighten chip restrictions on China:
DeepSeek breakthrough raising questions about effectiveness of US strategy to curb China's technological development (Bloomberg). Biden administration progressively tightened restrictions on sale of NVDA chips to China, though DeepSeek claimed to have used less advanced H800 chips that were not subject of restrictions until Oct-2023, prompting NVDA to praise a breakthrough it said complied with US export controls. Now thoughts that with Trump having vowed to ensure America leadership in AI, US may impose more restrictions on China. Development quickly gained attention of US lawmakers on Monday with GOP co-chair of House select committee on China urging stricter export controls on technology critical to DeepSeek's AI infrastructure. Measures discussed in press could include widening export controls to more NVDA chips. Note Trump's memorandum ordering trade investigations extended to reviewing US export controls with a specific aim of eliminating loopholes. Trump also has power to ban DeepSeek on national security grounds under TikTok ban or sale law that extends to any 'foreign adversary-controlled applications.'
Koeda's nomination to BOJ board seen diminishing reflationist presence:
Limited reactions to the government's nomination of Waseda University professor Junko Koeda to the BOJ board, poised to replace Seiji Adachi, whose term ends 25-Mar. Reuters cited analyst views that Koeda would be a good fit with Governor Ueda and has been on the record as supporting policy normalization. Echoed Nikkei's take, noting the replacement of Adachi would leave only one known reflationist in the nine-member policy board (Noguchi). Koeda would be the second female among sitting members, unprecedented since the 1998 BOJ Law was enacted. Koeda's past publications conveyed a balanced view heading into the end of NIRP. BOJ sources indicated Koeda could offer insights amid uncertainty over neutral rate estimates. Koeda was a panel member presiding over the BOJ's long term policy review. Also gained international experience as an IMF economist and was known to possess expertise in fiscal policy and as a proponent of fiscal austerity. Article noted Noguchi's term expires Mar-26 while Nakamura, who dissented the January rate hike and scrapping NIRP, finishes in June this year, raising the possibility that those not sharing the same view as the executive members may be phased out as the MPC focuses on navigating the normalization path.
RBI to inject $18B into financial system to see off cash shortage raising hopes for a rate cut:
India's central bank late Monday launched measures to inject INR 1.5T ($17.4B) into financial system amid ongoing cash crunch which has pushed overnight, other short-term lending rates higher. Arrangement to include bond purchases and dollar/rupee swaps, which analysts cited by Reuters and Mint said could be precursor to rate cut next week as RBI will seek to reduce price of money. RBI said it will purchase almost $7B of government securities (G-Secs) through open market operations in three tranches, conduct a $5.8B 56-day variable rate repo auction on 7-Feb (day RBI decides on rates), and a dollar-rupee 6M swap auction of $5B. Measures will ensure sufficient bank liquidity to 31-Mar. Liquidity drained from banking system on RBI forex intervention over past two years, accelerated from September amid foreign investor outflows, stepped down again last week on GST payment outflow.
Notable Gainers:
+6.6% 3635.JP (Koei Tecmo Holdings): reports 9M earnings; confirms FY guidance
+4.6% 8473.JP (SBI Holdings): SBI Shinsei Bank reportedly to complete repayment of public funds, seek listing in Tokyo in FY25
+3.4% 6305.JP (Hitachi Construction Machinery): reports 9M results; raises FY net income attributable guidance
+2.1% 2202.HK (China Vanke): president and CEO Zhu Jiusheng resigns due to health reasons, chairman Yu Liang resigns due to work adjustment; to sell 49% stake in Shenzhen's Mangrove Bay project to Shenzhen Metro for CNY1.29B; Shenzhen SASAC reportedly says it will help Shenzhen Metro stabilize China Vanke's operation
Notable Decliners:
-11.1% 6857.JP (Advantest): Japanese semiconductor-related firms extend Monday losses on Deep Seek news
-3.3% 500469.IN (Federal Bank Ltd (India)): reports Q3 standalone EPS INR3.85 vs FactSet INR4.28
-2.9% 6146.JP (DISCO Corp.): Japanese semiconductor-related firms extend Monday losses on Deep Seek news
Data:
Economic:
Japan
December services PPI +2.9% y/y vs consensus +3.2% and +3.0% in prior month
Australia
December NAB business confidence (2) vs (3) in November
Business conditions +6 vs revised +3 in November
Markets:
Nikkei: (548.93) or (1.39%) to 39016.87
Hang Seng: 27.34 or +0.14% to 20225.11
Shanghai Composite: Closed
Shenzhen Composite: Closed
ASX200: (9.80) or (0.12%) to 8399.10
KOSPI: Closed
SENSEX: 835.79 or +1.11% to 76201.96
Currencies:
$-¥: +1.15 or +0.75% to 155.6620
$-KRW: +12.42 or +0.87% to 1447.2500
A$-$: (0.00) or (0.68%) to 0.6250
$-INR: +0.19 or +0.22% to 86.5379
$-CNY: (0.00) or (0.01%) to 7.2502
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