Markets spooked by trade war fears after Trump confirms tariffs on CN/MX/CA

Asia market update: Markets spooked by trade war fears after Trump confirms tariffs on CN/MX/CA; Also, more tariffs expected; [Trump]: “Will also put tariffs on chips; Had a good meeting with Nvidia CEO”; Focus on US Jan ISM Manufacturing PMI.

General trend

- Prior to the equity market opens in Asia, currencies showed the first fall-out of Pres Trump confirming 25% tariffs on Mexico and Canada and a 10% additional tariff on China. Mexican Peso -2.6%, Loonie -1.6% to 2003 lows; CNH down to 7.36 handle and threatening life-of-contract lows; AUD & NZD -2.0% to 2020 lows; BTC collapsed to $91K (was $106K just two days ago); EUR -1.3% back to 1.02 handle; GBP -1.0%; Yen also rose on safe haven status, but even so was down -0.3% v USD.

- Yuan later pared some losses back to 7.34 handle after WSJ reported that China reportedly will renew its pledge not to devalue the Yuan to helps its exporters as part of Trump trade negotiations.

- Equities fared no better; Kospi -3.1% (Hynix and Samsung -5-6%), Nikkei -2.5% (Fast Retailing -3.2% with exposure to China and likely Mexico), Hang Seng -2.2% (later paring to -0.5%) , ASX -2.0% with REITs -1.7%; Financials -1.3% while in Taiwan Semi -6.6% after extended holiday and Deepseek fallout.

- Japanese automakers Honda -6.7% lower, Nissan Motor -6.0% and Toyota -5.3%.

- Gold fell -0.9%, Copper -2.0% with Silver -1.6% while WTI crude oil opened up +3% but came back steadily during the session to be only 1.5% up.

- Further Trump effects following Venezuela’s backing down in January to receive its prisoners back from the US; Today Panamanian President vowed on TV to end China's Panama Canal deal, as part of also not renewing its 2017 Belt & Road Initiative memo with China. Also promised to “optimize” transit for US Navy ships.

- Also on the US trade front, Shopify’s Canadian Founder & CEO Lutke defended Trump’s tariffs on Canada while criticizing Canada PM Trudeau's response of retaliatory tariffs; "These are not crazy demands; America will shrug it off, Canada will decline”.

- China’s Jan Caixin Manufacturing PMI only just managed to stay in expansion, fueling further fears around the health of the economy amid a slowdown in export orders.

- South Korea Dec trade balance recorded its first deficit since May 2023, even worse than expected post-political tensions, with both exports and imports down heavily, and exports to both China and the US well down y/y.

- As of Fri close for BOJ rate level by July, 2025, OIS measured a 71% chance of a 25bp hike vs 65% the day before, following BOJ Gov Ueda comments on Friday.

- Softbank and OpenAI announced a 50/50 JV with OpenAI in Japan, rumored to perhaps receive up to $25B in funding from Softbank.

- US equity FUTs -2.0% to -2.5% during Asian trading.

Looking ahead (Asian time zone)***

- Mon Feb 3rd (Mon eve EU Jan Flash CPI, Mon night US Jan ISM Manufacturing PMI).

- 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.

- Thu Feb 6th New Zealand.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.9% at 8,458.

- Australia Dec Retail Sales M/M: -0.1% V -0.7%E; Q/Q 1.0% V 0.8%E.

- Australia Dec Building Approvals M/M: 0.7% v 1.0%e.

- Australia Jan ANZ-Indeed Job Advertisements M/M: 0.2% v 0.3% prior.

- Australia Jan Melbourne Institute Inflation M/M: 0.1% v 0.6% prior; Y/Y: 2.3% v 2.6% prior.

- Australia Jan Final Manufacturing PMI: 50.2 v 49.8 prelim (moves back into expansion after 11 months contraction).

- Australia Jan CoreLogic Home Value M/M: -0.2% v -0.2% prior (2nd straight decline after 22 months of increases) [weekend update].

China/Hong Kong

- Hang Seng reopens -0.9% at 20,048 (following extended Lunar New Year holidays).

- Shanghai Composite remains closed for holiday [**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].

- China Jan Caixin PMI Manufacturing: 50.1 V 50.6E (4th month of expansion, lowest since Sept).

- China reportedly to renew pledge not to devalue the Yuan to help its exporters as part of Trump trade negotiations - WSJ.

Japan

- Nikkei 225 opens -1.6% at 38,932.

- Bank of Japan (BoJ) summary of opinions for Jan 24th: Considering that both upside and downside risks are significantly large, the Bank should be extremely careful about suggesting the pace of policy interest rate hikes and the terminal policy rate.

- Japan Jan Final Manufacturing PMI: 48.7 v 48.8 prelim (confirms 7th straight contraction).

- Japan PM Ishiba said to ask US Pres Trump to visit Japan this year – Nikkei.

- Bank of Japan (BOJ) announcement related to outright bond buying operations: <1 Year; 1-3 Years; 3-5 Years, 10-25 Years (Reduced purchase amounts inline with Dec guidance).

Korea

- Kospi opens -1.9% at 2,468.

- South Korea Dec Industrial Production M/M: 4.6% v 0.3%e; Y/Y: 5.3% v 1.2%e.

- South Korea Jan PMI Manufacturing: 50.3 v 49.0 prior (moves back into expansion after one month contraction).

- South Korea acting President Choi: Exports expected to increase again in Feb; Will work on "emergency exports strategy" plans with relevant govt agencies - emailed statement after meeting with exporters in Seoul.

- South Korea Jan Trade Balance: -$1.9B v -$1.3Be (Exports Y/Y: -10.3% v -14.1%e, Imports Y/Y: -6.4% v -10.4%e).

- South Korea Constitutional Court delays decision on judge appointments - Local press.

Other Asia

- India Jan Final PMI Manufacturing: 57.7 v 58.0 prelim.

- Indonesia Jan CPI M/M: -0.8% v 0.4%e; Y/Y: 0.8% v 1.9%e.

- USD/INR Indian Rupee hits fresh record low past 87.

- Taiwan Jan PMI Manufacturing: 51.1 v 52.7 prior (10th month of expansion).

- Indonesia Jan PMI Manufacturing: 51.9 v 51.2 prior (second straight expansion).

- Malaysia Jan PMI Manufacturing: 48.7 v 48.6 prior (8th month of contraction).

- Philippines Jan PMI Manufacturing: 52.3 v 54.3 prior (17th month of expansion).

- Vietnam Jan PMI Manufacturing: 48.9 v 49.8 prior (second straight contraction).

- Thailand Jan PMI Manufacturing: 49.6 v 51.4 prior (moves back into contraction after 8 months of expansion) – update.

- India Finance Minister Sitharaman: set FY26 Net Market Borrowing at INR11.54T, gross market borrowing at INR14.82T; budget deficit target set at 4.4% of GDP - budget statement [weekend update].

North America

- (US) US govt DOGE's Musk comments on US spending; finding fault as he outlines DOGE initial efforts - financial press.

- (US) Follow up: Panama President Mulino: Vows to end China's Panama Canal deal and will also not renew its 2017 Belt & Road Initiative memo with China; To work with US to optimize transit for US Navy ships - TV address.

- (US) Wall Street is ‘nervous’ about Treasury Sec Bessent borrowing plans; 'some' are concerned that Bessent might increase the issuance of long-term Treasuries [duration] - WSJ [update]

- (MX) Mexico Fin Min to hold investor call at Monday 9am ET / 2pm GMT.

- *Currencies plunge against USD on Trump tariffs confirmed against China, Mexico & Canada; MXN -2.6%; CAD -1.5%; CNH TO 7.37 HANDLE; BTC TO $96K HANDLE; EUR -1.1% back to 1.02 handle; GBP -0.7%; Yen also rises on tensions against all currencies except USD (steady).

- *Nasdaq FUTS -2.9%; S&P500 FUTS -2.0%; DOW drops 500 points following trump tariff confirmation on Mexico, Canada and China.

- *WTI CRUDE +3% TO NEARLY $75BBL.

Europe

- (EU) US President Trump: Reiterates tariffs will 'definitely happen' with the EU [inline with comments from Fri].

- USD/ZAR (ZA) US Pres Trump: Will be cutting off all future funding to South Africa until investigation is done on human rights - Truth Social post; USD/ZAR -1.7%.

Levels as of 00:20 ET

- Nikkei 225 -3.0%, ASX 200 -2.8%, Hang Seng -1.8%; Shanghai Composite closed; Kospi -2.7%.

- Equity S&P500 Futures -2.0%; Nasdaq100 -2.6%; Dax -2.4%; FTSE100 -1.5%.

- EUR 1.0211-1.0271; JPY 154.80-155.89; AUD 0.6088-0.6167; NZD 0.5517-0.5594.

- Gold -0.7% at $2,816/oz; Crude Oil +1.9% at $73.93/brl; Copper -1.7% at $4.2052/lb.