Morning Wrap (14.05.2025)

Asian markets rise on US-China tariff deescalation with Japan's Nikkei 225 and TOPIX leading regional gains, rallying 1.7% and 1.2% respectively. Singapore's Straits Times added 0.7%, Australia's ASX 200 rose 0.7% to its highest level since late-February, and South Korea's KOSPI gained 0.4%. Regional markets followed Wall Street's stellar overnight performance, with the S&P 500 surging 3.3% on Monday.

US-China slash trade tariffs in major breakthrough as Washington agreed to reduce tariffs on Beijing from 145% to 30%, while China cut its retaliatory tariffs from 125% to 10%, both for a 90-day period. China also agreed to roll back non-tariff measures such as rare earth export controls. The announcement came via a rare joint statement following high-level talks in Geneva over the weekend.

Chinese markets lag regional rally as mainland Shanghai Shenzhen CSI 300 and Shanghai Composite indexes rose only about 0.2% each despite the trade breakthrough, while Hong Kong's Hang Seng slid 1.7% from a one-month high. Analysts cited profit-taking after recent gains and speculation that lower trade tensions may reduce Beijing's urgency to implement additional stimulus measures.

India-Pakistan ceasefire holds despite tensions with Indian markets taking a breather after Monday's 4% rally. The Nifty 50 fell 0.5% while the BSE Sensex 30 lost 1.1% in early trade Tuesday. Indian PM Modi warned Pakistan that India would strike cross-border "terrorist hideouts" again if attacked, dismissing Islamabad's "nuclear blackmail," though the US-brokered ceasefire appeared to be holding.

China signals openness to further trade talks with commentary in the People's Daily, the Communist Party's official newspaper, welcoming the tariff deescalation and expressing readiness for continued negotiations. The commentary noted that "the road ahead may not be smooth, but China is ready to work with the US side," while also stating that Washington needed to "thoroughly" correct its practices of unilateral tariff increases.

US stock futures retreat after Monday's rally with S&P 500 Futures falling 0.4%, Nasdaq 100 Futures declining 0.5%, and Dow Jones Futures dropping 0.3%. The pullback comes as markets await key US consumer inflation data due later Tuesday, with CPI expected to remain sticky amid concerns that even reduced tariffs could keep inflation elevated.

Gold steadies after safe-haven selloff with spot gold flat at $3,259 an ounce after Monday's sharp decline. The precious metal found support as markets remained cautious ahead of US inflation data, though dollar strength limited any major recovery. Other precious metals rebounded with silver futures jumping 1.7% to $33.02/oz, while industrial metals remained upbeat on improved economic outlook.

Oil prices ease from two-week highs with Brent crude dropping 0.3% to $64.74 a barrel and WTI falling 0.3% to $61.77. Markets remain concerned about rising supplies, with OPEC having boosted output by more than expected since April. ING analysts noted that "while a thawing in trade tensions between China and the US is helpful, there's still plenty of uncertainty over what happens in 90 days."

Asian currencies strengthen as dollar retreats with the Japanese yen's USD/JPY pair falling 0.4%, both Chinese yuan's offshore and onshore pairs declining 0.2%, and the Singapore dollar's USD/SGD ticking down 0.2%. The dollar index edged 0.2% lower in Asian trade after sharp gains in the previous session, providing relief to regional currencies.

Bank of Japan maintains rate-hike stance as Deputy Governor Shinichi Uchida stated that wages and prices are expected to keep rising despite uncertainty over US tariff policy. While acknowledging that US tariffs are likely to hurt Japan's economic growth, Uchida signaled the BOJ's readiness to raise interest rates if the economy improves after a period of stagnation, as the board projects.