PETER’S BUSINESS & FINANCE BRIEFING – Wednesday 8 January 2025, 06:00 Hong Kong
● Singapore & Malaysia Unveil Johor Joint Economic Zone ● Tencent & CATL consider legal action over inclusion on US blacklist ● Hong Kong equities extend 2025 decline to over 3%
Wednesday’s Opening Call
Hang Seng (Hong Kong) Projected Open: 19,360 -87 points -0.5%
Nikkei 225 (Japan) Projected Open: 39,795 -288 points -0.7%
Quick Summary - 4 Things To Know Before Asian Markets Open
The leaders of Singapore and Malaysia announced an agreement on Tuesday to form a joint special economic zone that is expected to attract up to 20,000 skilled jobs in the next five years. The Southeast Asian neighbours first agreed in principle to jointly develop the economic zone a year ago. The new special economic zone at 3,500 sq km will be more than four times larger than Singapore and nearly twice the size of China’s Shenzhen.
Tencent and CATL are planning legal action to challenge being placed on a Pentagon list as “Chinese military companies”, if talks with the US defence department fail to get their new designations dropped. The social media and gaming giant and the world’s largest electric vehicle battery maker both announced on Tuesday they would contest their inclusion on an annually updated list of companies determined to have links with China’s military machine.
Activity in the US services sector expanded more quickly than forecast in the final month of 2024, even as respondents to a survey indicated increased concerns about the potential impact of tariffs under the incoming Trump administration. The ISM US Services PMI rose to 54.1 in December from 52.1 in November, above economists’ expectations of 53.3 and marking the sixth month in a row the index has held above a threshold of 50, indicating the sector is expanding. A key driver of that beat was the PMI’s price index, which soared 6.2 points to 64.4, feeding investors’ fears about sticky inflation.
Nvidia is on the cusp of revolutionising robotics through artificial intelligence (AI), chief executive Jensen Huang said on Monday, as he predicted a “multi trillion-dollar” opportunity. Huang announced a range of new products, services and partnerships in the “physical AI” space, including AI models for humanoid robots and a major deal with Toyota to use Nvidia’s self-driving car technology. Huang also unveiled the firm's next-generation of gaming chips, known as the RTX 50-series. The new family of chips will use Nvidia's Blackwell AI technology to create movie-quality images.
Singapore & Malaysia Unveil Johor Joint Economic Zone
The leaders of Singapore and Malaysia announced an agreement on Tuesday to form a joint special economic zone that is expected to attract up to 20,000 skilled jobs in the next five years. The Southeast Asian neighbours first agreed in principle to jointly develop the economic zone a year ago. The new special economic zone at 3,500 sq. km will be more than four times larger than Singapore and nearly twice the size of China’s Shenzhen. Tuesday's agreement was announced during a visit to Malaysia by Singapore Prime Minister Lawrence Wong and senior cabinet ministers. "It’s an important project which was built on the complementary structure of Singapore and Johor so that we can both be more competitive, enhance our value proposition and jointly attract more investments to our shores," Wong told a joint press conference with Malaysian counterpart Anwar Ibrahim. "When negotiating the agreement, both sides have actively engaged stakeholders to ensure that the SEZ has the conditions to help our businesses grow together for the longer term."
The deal builds on the growing importance of Johor, the southern Malaysian state that has become a hub for data centres in recent years. Over 300,000 people cross the Johor-Singapore land border every day, most of them for work, and traffic on the two causeways linking the nations often cause hours-long delays. The two countries are aiming to attract high-value investments into Johor in sectors ranging from manufacturing and logistics to tourism and energy transition, Malaysia's Economic Minister Rafizi Ramli told reporters. Officials in Johor have previously said they expect the zone to create as many as 100,000 new jobs and add US$26 billion per year to the Malaysian economy by 2030. Malaysia will set up and manage an infrastructure fund to support companies looking to set up there, while Singapore will create its own fund to facilitate investments and support Singaporean companies operating in Johor.
Some analysts said it’s unclear if both countries have made enough progress on streamlining investment and tax policies to truly catalyse fresh investment. Singapore has the region’s lowest corporate income tax rate at 17%, compared to 24% in Malaysia. “The draw of the special economic zone is likely to be tax incentives,” said Yvonne Beh, a partner at Kuala Lumpur-based law firm Wong & Partners. “For companies looking to use Johor as a supply chain hub for the region, customs duties and sales tax exemptions would be the least that would be expected before they consider setting up a hub in Johor.”
Indonesia Formally Joins BRICS Group Of Emerging Economies
Indonesia has been accepted as a full member of the BRICS group of emerging economies, according to a statement from Brazil, the bloc’s presiding nation. The statement said Indonesia “shares with other members the support for the reform of the global governance institutions and contributes significantly to the deepening of Global South cooperation”. Indonesia's foreign ministry said in a statement on Tuesday that it welcomed the announcement and that "BRICS membership is a strategic way to increase collaboration and partnership with other developing nations."
Indonesia, the world's fourth most populous nation, had previously expressed its desire to join the group as a means of strengthening emerging countries and furthering the interests of the so-called Global South. BRICS leaders endorsed Indonesia’s candidacy in August 2023, but Jakarta formally notified its interest in joining the group only after President Prabowo Subianto came to power in October. The bloc was initially made up of Brazil, Russia, India, China and South Africa, but has expanded in recent years to include Egypt, Ethiopia, Iran and the United Arab Emirates.
Indian GDP Growth Lowest In 4 Years
India's economy is projected to grow by 6.4% in the 2024/25 fiscal year ending in March 2025, marking the slowest pace since the COVID-hit 2020/21 fiscal year and down from 8.2% growth in the previous year, according to preliminary estimates from the Ministry of Statistics. The figure also falls short of the government's earlier forecast of 6.5%. The slowdown is primarily attributed to weaker growth in gross fixed capital formation (6.4% vs 9%) and inventories (4.5% vs 5.9%), despite accelerated private spending (7.3% vs 4%) and government spending (4.1% vs 2.5%). Exports grew at a faster rate (5.9% vs 2.6%), while imports contracted (-1.3% vs 10.9%). On the production side, manufacturing growth is expected to slow significantly (5.3% vs 9.9%), while growth in two other major GDP contributors - trade and hotels (5.8% vs 6.4%) and financial services and real estate (7.3% vs 8.4%) also moderated, offsetting a stronger performance in agriculture (3.8% vs 1.4%).
Some economists say that even the latest lower forecast may be too optimistic. “A 6.4% GDP growth in fiscal year 2025 implies a robust 6.8% growth in the second half, which in our view is slightly ambitious,” said Anubhuti Sahay, an economist with Standard Chartered. Pressure is now building on new central bank governor, Sanjay Malhotra, to begin cutting interest rates and reverse the restrictive stance of his predecessor Shaktikanta Das. Under Das, the Reserve Bank of India has kept interest rates unchanged for almost two years despite growing calls, including from within the government, to ease.
Philippines Inflation Rate Rises To 4-Month High
The annual inflation rate in the Philippines rose to 2.9% in December from 2.5% in the previous month, surpassing economists’ expectations of 2.6%. This also marked the highest reading since August. Core inflation, which excludes selected food and energy items, rose to 2.8%, from 2.5% in the preceding month. On a monthly basis, the consumer prices edged higher to 0.6% in December, the most in five months, and up from a 0.4% increase in November.
Eurozone Inflation Rises In Line With Expectations In December
Eurozone inflation rose to 2.4% in December, complicating the European Central Bank’s attempts to boost the region’s flagging economy with interest rate cuts. The figure was in line with market expectations of a 2.4% rise, according to a survey of economists by Reuters, and marks an increase from November’s annual rate of 2.2%. The ECB has cut interest rates four times since June and is widely expected to lower the benchmark deposit rate from 3% later this month. Investors were hoping for a 50 bps cut to soothe concerns over weak growth in the eurozone. However, the increase in price pressures may make a smaller 25 bps cut more likely.
US Services Activity Rises More Than Expected
Activity in the US services sector expanded more quickly than forecast in the final month of 2024, even as respondents to a survey indicated increased concerns about the potential impact of tariffs under the incoming Trump administration. The ISM US Services PMI rose to 54.1 in December from 52.1 in November, above economists’ expectations of 53.3 and marking the sixth month in a row the index has held above a threshold of 50, indicating the sector is expanding. A key driver of that beat was the PMI’s price index, which soared 6.2 points to 64.4, feeding investors’ fears about sticky inflation and raising concern among investors about whether the Fed will be able to cut rates as much as Wall Street hopes
The Business Activity Index registered 58.2 in December, 4.5 percentage points higher than the 53.7 percent recorded in November, indicating a sixth consecutive month of expansion and finishing the year with its third-highest reading for 2024. The New Orders Index recorded a reading of 54.2 in December, higher than November’s figure of 53.7. The Employment Index remained in expansion territory for the fifth time in six months. The reading of 51.4 is a slight decrease compared to the 51.5 recorded in November. “Some of the increased business activity seems to have been driven by preparation for demand in the new year, or risk management for impacts from port strikes and potential tariffs,” said Steve Miller, chair of the ISM services business survey committee.
US Job Openings Rise More Than Expected
Demand for US workers rose above economists’ expectations in November. The number of job openings in the US increased by 259,000 to 8.1 million in November, from an upwardly revised 7.8 million in October and above analysts’ expectations of 7.7 million, suggesting the labour market stabilized somewhat after a summer slowdown. The number of hires and total separations were little changed at 5.3 million and 5.1 million, respectively. Within separations, the number of job quits in the US fell to 3.065 million in November, the lowest since August 2020, from a revised 3.283 million in the prior month. The quits rate, a metric that measures voluntary job leavers as a proportion of total employment, fell to 1.9% from 2.1% in the previous month. A lower quits rate suggests workers are reluctant to leave their current job for fear of being unable to find a new position.
US Exports Rise to Record High
Exports of goods and services from the United States rose 2.7% to US$273.4 billion in November, the highest on record. Goods exports increased US$6.2 billion to US$177.6 billion, driven by industrial supplies and materials (up by $4.3 billion). Exports of services increased US$0.9 billion to US$95.8 billion. Imports of goods and services into the US rose 3.4% to US$351.6 billion in November, the largest increase since March 2022, as companies rushed shipments ahead of a potential dockworkers’ strike and anticipated Trump administration tariffs.
The trade deficit in the US widened to US$78.2 billion in November compared to a revised US$73.6 billion gap in October and roughly in line with forecasts. The US deficit was little changed with China (-US25.4bn vs -US$25.5bn) and Mexico (-US$15.4bn) but widened with the European Union (-US20.5bn vs -US$17.1bn), as well as with Vietnam (-US11.3bn vs -US$11.0bn).
Trump Refuses To Rule Out Force To Take Greenland & Panama Canal
Donald Trump has refused to rule out using force to obtain Greenland or take control of the Panama Canal He also vowed to rename the Gulf of Mexico as the “Gulf of America”. Asked during a news conference Tuesday if he would rule out using military or economic force in order to take control of the strategically important island, he said, "No, I can't assure you on either of those two." "I can say this, we need them for economic security," he said. “We need Greenland for national security reasons.” At Tuesday’s press conference at his Mar-a-Lago estate in Florida, Trump vowed to “tariff Denmark at a very high level” unless the country gave up control of Greenland, which he had sought to buy during his first term of office. Trump also said he would use "economic force" against Canada and called the US-Canada border an "artificially drawn line".
Danish Prime Minister Mette Frederiksen told Danish TV that "Greenland belongs to the Greenlanders" and that only the local population could determine their future. She agreed that "Greenland is not for sale", but stressed Denmark needed very close co-operation with the US, a Nato ally. Greenland lies on the shortest route from North America to Europe and is home to a large American space facility. It also has some of the largest deposits of rare earth minerals, which are crucial in the manufacture of batteries and high-tech devices.
Since winning re-election Trump has repeatedly returned to the idea of US territorial expansion, including taking back the Panama Canal. During the news conference Trump said the canal "is vital to our country" and claimed "it's being operated by China". He previously accused Panama of overcharging US ships to use the waterway, which connects the Atlantic and Pacific oceans. Panamanian President José Raúl Mulino has rejected Trump's claims and said there is "absolutely no Chinese interference" in the canal. Hong Kong-based CK Hutchison Holdings manages two ports at the canal's entrances. The canal was built in the early 1900s and the US maintained control over the canal zone until 1977, when treaties gradually ceded the land back to Panama. "Giving the Panama Canal to Panama was a very big mistake," Trump said.
In a further broadside at a traditional ally, Trump said a US annexation of Canada “would really be something” but would occur through “economic force” rather than military action. “You get rid of that artificially drawn line, and you take a look at what that looks like, and it would also be much better for national security. Don’t forget, we basically protect Canada,” he said. During the news conference Trump said the US spends billions of dollars protecting Canada, and criticised imports of Canadian cars, lumber and dairy products. Citing US deficits with both Canada and Mexico and an influx of migrants across the US’s southern border, Trump said he was prepared to hit both countries with higher levies. “We’re going to put very serious tariffs on Mexico and Canada . . . then we want to get along with everybody,” he said as he lashed out at the US’s southern neighbour as a “very dangerous place”.
South Korean Court Extends Arrest Warrant For Impeached President
A South Korean court on Tuesday issued another warrant to detain impeached president Yoon Suk Yeol amid mounting public pressure to bring him into custody. The Seoul Western District Court extended Yoon’s arrest warrant, which expired on Monday, according to the country’s anti-graft agency. The agency’s chief Oh Dong-woon apologised earlier in the day for the failure to arrest Yoon, due to his security forces strong resistance, and vowed to arrest him in the second attempt. Yoon has been suspended from office after parliament impeached him last month over his failed attempt to impose martial law. The constitutional Court is holding a trial on whether to uphold the impeachment or reinstate him as president.
Mark Carney Considers Run To Replace Canada’s PM Justin Trudeau
Mark Carney, the former governor of the Bank of England and the Bank of Canada, is considering running for leadership of Canada’s Liberal party after prime minister Justin Trudeau’s resignation this week, according to media reports. Carney, 59, who has been serving in recent months as a special adviser to Trudeau, has long been considered a contender for the top job. Trudeau himself admitted that he had long been trying to recruit Mark Carney to his team, most recently as finance minister. "He would be an outstanding addition at a time when Canadians need good people to step up in politics," he told reporters on the sidelines of a Nato conference in July 2024. He also brings with him expertise on environmental matters through his role as the United Nations special envoy on climate action, recently calling the goal of net zero "the greatest commercial opportunity of our time". Conservative party leader Pierre Poilievre, who has consistently led Trudeau in the polls by 20 points, has labelled the former central banker “carbon tax Carney”, a reference to Trudeau’s controversial carbon levy.
However, Carney faces the challenge of low name recognition in Canada. In July, an Abacus Data poll found only 7% of Canadians surveyed recognised Carney’s picture. More recently, a poll by the Angus Reid Institute on Friday found that 11% named Carney as their preferred candidate to replace Trudeau.
As the governing Liberal Party looks for a new leader to compete in a general election in which polls suggest they are heading to defeat, other people are expected to enter the Liberal leadership race. They include former deputy prime minister and minister of finance, Chrystia Freeland, who resigned last year. Her criticism of Trudeau in her public resignation letter piled the pressure on him and made his departure seem inevitable. Anita Anand, the former transport minister, and Mélanie Joly, former minister of foreign affairs are also expected to throw their hats in the ring.
China 'Ready To Develop Ties With US Under Trump'
China said it attaches "great importance" to remarks by US President-elect Donald Trump on developing bilateral ties. "China is willing to promote the stable, healthy and sustainable development of Sino-US economic and trade relations," Foreign Ministry spokesman Guo Jiakun said in a media briefing on Tuesday, citing mutual respect and win-win cooperation. Trump on Monday said in an interview, "we've already been talking. We've been talking through their representatives. And I think we will probably get along very well, I predict. But you know, it's got to be a two-way street." Guo did not confirm that any exchanges had been made through the leaders' aides, but said the two countries have maintained communications through various means.
Meanwhile, US Treasury Secretary Janet Yellen spoke with Chinese Vice Premier He Lifeng and discussed economic developments. During the call, she raised issues of concern including China's non-market policies and industrial overcapacity, as well as expressing serious concern about “malicious” cyber activity by Chinese state-sponsored actors. She also underscored 'significant consequences' facing Chinese companies for material support to Russia, according to Reuters. According to Xinhua News Agency, the video call was candid, in-depth and constructive, and both nations agreed on the importance of maintaining communication. Xinhua added that the Chinese side expressed concern over US economic and trade restrictions on China, in particular clarifying Beijing's position concerning the recent trade investigation initiated by Washington.
Tencent & CATL Consider Legal Action Over Inclusion On US Blacklist
Tencent and CATL are planning legal action to challenge being placed on a Pentagon list as “Chinese military companies”, if talks with the US defence department fail to get their new designations dropped. The social media and gaming giant and the world’s largest electric vehicle battery maker both announced on Tuesday they would contest their inclusion on an annually updated list of companies determined to have links with China’s military machine.
Pony Ma, Tencent founder and chair, said in a statement that the company would “engage in discussions with the US Department of Defense” to be removed from Monday’s list, adding that “if necessary, Tencent will undertake legal proceedings”. He said Tencent was “neither a Chinese military company nor a military-civil fusion contributor to the Chinese defence industrial base”.
CATL said in a statement it had “never engaged in any military-related business or activities”, the move was a “mistake” and was “expected to have no substantially adverse impact on our business”. It also said it would “proactively engage” with the defence department “to address the false designation, including legal action, if necessary, to protect the interests of our company and shareholders as a whole”.
There is a precedent for being removed from the list if a company could prove wrongful designation. In 2021, consumer electronics group Xiaomi successfully removed itself from the Pentagon list when a federal court determined there was insufficient evidence for the designation. “We believe Tencent has a good chance to secure exclusion through US courts,” wrote Ivan Su, senior equity analyst at Morningstar, in a note to clients. On Monday, the Department of Defense also removed artificial intelligence group Megvii from the list.
Beijing on Tuesday accused Washington of "unjustified suppression". Foreign Ministry spokesman Guo Jiakun told a regular press briefing, "China is always firmly opposed to the US side's generalisation of the concept of national security, the establishment of various discriminatory lists, the unreasonable suppression of Chinese enterprises and the curbing of China's high-quality development. We urge the US side to immediately correct its wrong practices." Guo added that China would "take the necessary measures to resolutely protect the rights of Chinese companies".
A trade lawyer in Hong Kong who represents Chinese tech clients said the US move against Tencent marked an “escalation” in the US-China tech war “given that it is such a widely known company and one that is not clearly associated with the Chinese military”. They added that the move “raises the risk that the companies could be added to other more biting lists, such as the Entity List, which would bar them from procuring certain US technology”. The first Trump administration tried to ban Tencent’s messaging platform WeChat from operating in the US in 2020, arguing that the app provided a channel for the Chinese government to access information about Americans, to follow Chinese citizens living overseas and carry out misinformation campaigns. A federal judge issued an injunction against Trump’s executive order, saying it violated the constitution.
Shein Lawyer Refuses To Say If It Uses Chinese Cotton
Shein has been criticised by MPs for “not respecting” a cross-party UK parliamentary committee as the online fast-fashion retailer was quizzed about its working practices and plans to float on the London stock market. The company, which works with thousands of factories in China to make its garments, was questioned alongside rival Temu by the House of Commons business and trade select committee as part of a wider inquiry into employment rights in the workplace. A senior lawyer representing Shein, which was founded in China but is now headquartered in Singapore, repeatedly refused to say whether the company sells products containing cotton from China, prompting an MP to brand her evidence "ridiculous". Yinan Zhu, general counsel for the fast-fashion giant, confirmed its suppliers did manufacture products in the country, but declined to say whether they used Chinese cotton. Both Shein and Temu insisted to the committee that they adhered to the law in the markets they operate in.
Firms that source clothing, cotton, and other products from the Xinjiang region in the northwest of China in particular have come under pressure following allegations of forced labour and human rights abuses. Ms Zhu's refusal to answer questions was met with backlash from a committee of MPs, who accused her of "wilful ignorance". Shein has filed initial paperwork to list shares on the London Stock Exchange, which could value it at £50bn (US$62.5bn). Ms Zhu refused to provide answers on the potential listing.
Nippon Steel CE Warns Tariffs Alone Will Not Strengthen US industry
The chief executive of Nippon Steel has warned that tariffs alone would not create a stronger American steel industry. In his first public appearance since President Joe Biden blocked his company’s proposed US$15bn deal to buy US Steel last week, Eiji Hashimoto told reporters in Tokyo that the combination would enhance US national security by creating a stronger company. “We don’t think there is any other route that can strengthen the US steel industry more than this deal,” he said. “We never think that industry can become stronger through tariffs alone.” The comments came after the Tokyo- and Pittsburgh-based companies filed a pair of legal cases in the US on Monday, alleging Biden’s decision to block the deal amounted to “wrongful interference”.
Hashimoto’s remarks were aimed at Donald Trump as he tries to persuade the incoming administration to launch another review of the proposed deal. “This trial is to get them to accept my claims and to gain the right to another Cfius (the inter-agency body that screens overseas investment) review under a new administration,” he said. “This differs from usual court cases.” David Plotinsky, partner at the Morgan Lewis law firm, said Nippon Steel and US Steel’s litigation challenge to the Cfius process would be an “uphill battle” due to the expansive scope of what can constitute national security. But “the government is faced with some genuinely bad facts in this case”, he added.
Trump has argued against a sale of US Steel as he gears up to introduce protectionist measures for the sector. Trump posted on the Truth Social platform on Monday, “why would they want to sell US Steel now when Tariffs will make it a much more profitable and valuable company?”
Nvidia Boss Unveils Next-Generation Gaming Chips
Nvidia is on the cusp of revolutionising robotics through artificial intelligence (AI), chief executive Jensen Huang said on Monday, as he predicted a “multi trillion-dollar” opportunity. Huang announced a range of new products, services and partnerships in the “physical AI” space, including AI models for humanoid robots and a major deal with Toyota to use Nvidia’s self-driving car technology, during his more than 90-minute keynote speech at the annual Consumer Electronics Show in Las Vegas. He said cracking the technological challenges involved in deploying robots at scale will pave the way to “the largest technology industry the world has ever seen”. In the next two decades, the market for humanoid robots alone is expected to reach US$38bn, according to Nvidia.
As part of his address, Huang also unveiled the firm's next-generation of gaming chips, known as the RTX 50-series. The new family of chips will use Nvidia's Blackwell AI technology to create movie-quality images, he told a packed arena. The chips will range in price from US$549 to $1,999 and are twice as fast as their predecessors, he added. The new chips will start making their way to consumers starting in late January.
Founded in 1993, Nvidia was originally known for making the type of computer chips that process graphics, particularly for computer games. 31 years later, Nvidia now stands at the forefront of the development of chips that power AI, with a market value of almost US$3.7tn. However, Nvidia still faces some significant challenges, including from regulators around the world who have raised concerns about its growing dominance of the AI chip market.
Japan Stocks Lead Gains In Asia-Pacific
Asia-Pacific markets rose Tuesday, following an overnight rally in technology shares on Wall Street after Foxconn posted record revenue in the final quarter of 2024. Tech stocks boosted Japan’s Nikkei 225, which closed 2.0% higher at 40,083. Semiconductor equipment supplier Tokyo Electron surged over 11%. Other chip-related companies such as Lasertec and Advantest rose around 5%. Renesas Electronics jumped 7.0%. Softbank, which owns chip designer Arm, rose 1.2%. Shares of Nippon Steel fell 1.5% after the company, along with US Steel, sued the US government over President Joe Biden’s decision to block Nippon Steel’s US$14.9 billion takeover of the US company.
In Tawan, the Taiex climbed 0.4%, taking its gains since the start of the year to 2.7%. Taiwanese chip manufacturer Taiwan Semiconductor Manufacturing Company rose 0.4% to hit a fresh high on Tuesday. South Korea’s Kospi advanced 0.1%, with chip heavyweight Samsung Electronics reversing earlier gains to fall 0.9%. Australia’s S&P/ASX 200 traded 0.3% higher, marking a fourth day of gains. India’s BSE Sensex closed 0.3% higher at 78,199, halting two straight sessions of declines.
Hong Kong Stocks Lead Losses In Asia
Hong Kong stocks fell on Tuesday after the US defence department added a number of Chinese companies to a list of businesses it considers military entities. Being added to the Pentagon’s Chinese military companies blacklist has no direct legal ramifications and does not result in sanctions. However, it does carry reputational risks. Beginning next year, companies on the list will not be able to do business with the Pentagon, potentially affecting those that are in the defence supply chain.
Tencent shares fell 7.3% after the tech company was added to the list for the first time. Shenzhen-listed CATL, the world’s biggest battery maker, which was also added to the list, lost 2.8%. The two companies lost a combined US$38bn in market capitalisation. Tencent and CATL called the inclusion a ‘mistake,’ saying they are not a military company or engaged in any military related activities. Vincent Su, senior equity analyst at Morningstar, said that CATL being included in the list “may discourage US customers from purchasing the company’s energy storage system, or ESS, batteries in the future.”
Xiaomi, which sued the US government over its inclusion on the Pentagon blacklist in 2021 and was successfully removed, was the worst performer on Hong Kong’s Hang Seng index as it dropped 5.9%. The overall index closed 241 points lower, or 1.2%, at a six-week low of 19,448. The mainland’s CSI 300 index rose 0.7% to 3,796.
China’s currency and equity markets have underperformed to start the new year, with the country’s stock exchanges meeting with foreign investors over the weekend as Beijing looks to reassure markets. The CSI 300 is down 3.5% since the start of 2025, while the Hang Seng has fallen 3.1% over the same period.
European Markets Higher After Eurozone Inflation Data
European stocks closed slightly higher on Tuesday following eurozone inflation data that rose but was in line with expectations. The region-wide Stoxx Europe 600 rose 0.3%. Mining, utilities and construction stocks led the losses, while financial services and retail stocks saw the biggest gains. London’s FTSE 100 shed 0.1%, dragged lower by healthcare and financial stocks.
Shares in Kion Group, the German supplier of industrial trucks and supply chain services, surged 9.6%, leading gains on the Stoxx 600 index, after it announced it was partnering with US chipmaking giant Nvidia and IT services group Accenture to use AI-powered robots to “optimise” supply chains. Shares of Volvo were up 9.3% after the Swedish carmaker reported a new global sales record for 2024. Shares in Next, the UK high street and online fashion retailer, rose 3.8% after it upgraded its profit outlook on the back of strong festive sales, but warned of slowing growth in the UK, as the impact of tax rises introduced in the Budget starts to affect the overall economy. Shares in the French multinational services conglomerate Sodexo shed 7.8%, leading losses on the Stoxx, after first-quarter results fell short of consensus, weighed down by weaker growth in Europe.
The UK’s long-term borrowing costs have reached their highest level since 1998 as investor worries about the country’s economic outlook and borrowing needs mount. The yield on the country’s 30-year debt climbed 4 bps to 5.21% on Tuesday, the highest level in almost three decades, following an auction of £2.25bn (US$2.8bn) worth of debt of the same maturity. The UK’s 10-year gilt yields gained 6 bps to trade at 4.68%, while yields on 2-year gilts added 2 bps. The British economy unexpectedly contracted by 0.1% in October. Inflation is also hovering above the Bank of England’s 2% target, after edging higher to 2.6% in November. Concerns are mounting about the Labour government’s fiscal policies and plans to raise taxes by £40 billion (US$50.1bn) including through a hike in employer National Insurance payments, a tax on earnings, that has prompted warnings from businesses that they will be less likely to take on new workers. On Monday, the British Chambers of Commerce said business confidence had fallen to its lowest level since the UK’s 2022 “mini-budget” crisis, with many firms citing concerns about covering additional tax costs on top of rising wages.
German two-year Bund yields were flat at 2.20% after data showed Eurozone inflation rose to an annual rate of 2.4% in December, in line with economists’ forecasts. November’s reading came in at 2.2%.
US Stocks Relinquish Gains Following Strong Economic Data
On Wall Street Tuesday, stocks gave up early gains after hotter-than-expected data on job openings and business prices fanned fears that inflation could remain stubbornly high in 2025. Job openings held steady in November, while a survey of purchasing managers suggested service-sector activity rose in December from the previous month, along with costs.
The S&P 500 dipped 1.1% to close at 5,909. The Dow lost 178 points, or 0.4%, and ended at 42,528. The Nasdaq Composite notched its biggest daily drop in three weeks, led by a sell-off in chipmakers. The tech-focused index was down 1.9%, its biggest daily drop since December 18, ending at 19,490.
US stocks were initially on track to rise for a third day after Nvidia's chief executive Jensen Huang touted inroads in AI, self-driving cars and robotics at the annual Consumer Electronics Show in Las Vegas. But they reversed course as Treasury yields surged. Nvidia shares were up 2.0% in premarket trading, taking the stock to a new record high, but they relinquished all of those gains to end the regular session down 6.2%, making it the worst performer in the Dow.
Meta Platforms is ending fact-checking and removing restrictions on speech across Facebook and Instagram, a move Chief Executive Mark Zuckerberg said was an attempt to restore free expression on its platforms. Shares of Meta fell 2.0%.
Getty Images and Shutterstock announced a merger on Tuesday that brings together two digital image databases. The combined company will keep the Getty name and be led by Getty Images CEO Craig Peters. Shutterstock rose 14.7%, while Getty Images soared over 24%.
30-Year Treasury Yields At Highest In Over A Year
Treasury yields continued to rise after strong jobs and services data prompted investors to bet that the Federal Reserve is likely to lower interest rates just once this year. The 30-year yield ticked up 8bps to 4.92%, its highest level since November 2023. The 10-year US government bond yield rose 8bps to 4.70%, its highest level since April last year.
Following Tuesday’s data, investors were betting the Fed will deliver a quarter-point rate cut by July, with a roughly 35% chance of another such move by the end of the year. Earlier in the day, the odds of a second quarter-point reduction were nearly 70%.
Yen Weakness Triggers Fresh Verbal Intervention
The US Dollar Index reversed course to close 0.4% higher at 108.68 following the US economic data. Recent price action for the greenback has also been dictated by the recent Washington Post report that Trump's tariff plans may not be as bad as initially feared. Whilst Trump did later attempt to downplay this, ING is of the view that "there is no smoke without fire".
The Japanese yen fell 0.4% to past ¥158 per dollar on Tuesday, marking its lowest point in over five months and prompting renewed verbal intervention from a top Japanese official. Japan's Finance Minister Katsunobu Kato noted they are recently seeing one-sided, rapid moves and reiterated they would take appropriate action against excessive moves. Elsewhere, Barclays have shifted their BoJ view and now see the central bank hiking in March and October versus its previous forecast of January and July.
The offshore yuan held steady around Rmb 7.34 per dollar, hovering near 16-month lows. Traders are now eyeing key economic data next week, including consumer inflation, producer prices, and the balance of trade.
The euro weakened 0.5% to $1.0342. Data out Tuesday showed eurozone inflation accelerated in December to 2.4% from 2.2% in November. Sterling fell 0.3% to $1.2476.
Gold Firmer
Gold was modestly firmer, rising 0.5% to $2,650 an ounce as a result of the soft dollar. Investors also took heart from China’s monthly reserves figures, which showed the second consecutive monthly increase in gold reserves.
Oil Rebounds Toward 3-Month High
Brent crude oil futures rose 1.1% to $77.06 per barrel on Tuesday, recovering from earlier losses and nearing three-month highs, on concerns over tighter Russian and Iranian oil supply due to escalating Western sanctions. In addition, Shandong Port Group has banned US-sanctioned oil vessels from its ports, which is set to put pressure on supply in China.
Bitcoin Drops Below $97,000 As Treasury Yields Pressure Risk Assets
Bitcoin slumped on Tuesday as a sharp rise in Treasury yields weighed on risk assets. The flagship cryptocurrency was 5.6% lower at $96,360. It traded above $102,000 on Monday.
Peter Lewis’ Money Talk Podcast
On Wednesday’s “Peter Lewis’ Money Talk” podcast, I’ll be joined by Richard Harris, Chief Executive Officer at Port Shelter Investment Management and Le Xia, Asia Chief Economist at BBVA. With a view from Japan is Tokyo based journalist and author, William Pesek.
The podcast is also available on Apple Podcasts, YouTube Studio and Spotify.
This podcast is sponsored by Surfin Group, which is headquartered in Singapore and offers online financial services to 50 million customers across 9 countries. You can find out more about them by going to their website www.surfin.sg
