PETER’S BUSINESS & FINANCE BRIEFING – Friday 7 March 2025, 06:00 Hong Kong

● China has ‘ample’ policy tools officials say at NPC ● JGB yields surge to highest in a decade as global bond selloff deepens ● Asian stocks buoyed by a delay to some US tariffs on Mexico & Canada

US stocks sink and bond yields surge

Friday’s Opening Call

Hang Seng (Hong Kong) Projected Open: 24,262 -108 points -0.4%

Nikkei 225 (Japan) Projected Open: 37,050 -655 points -1.7%

Quick Summary - 4 Things To Know Before Asian Markets Open

1. China has more room to act on fiscal policy amid domestic and external uncertainties, Finance Minister Lan Fo’an told reporters on Thursday. He was responding to a question during China’s ‘Two Sessions’ annual parliamentary meeting about the country’s plans for proactive fiscal policy this year. Lan also vowed to study greater, more precise measures to boost consumption, to set up a system for subsidizing pre-school education, to adopt subsidies and training for the unemployed, and to provide subsidies for individual consumption loans in key areas.
   
   

2. Some of the sweeping tariffs imposed on Mexican and Canadian goods imported to the United States will be suspended until 2 April, President Donald Trump said Thursday. The one-month exemption includes goods covered under the USMCA trade agreement negotiated during Trump's first term. About 50% of Mexican imports and 38% of Canadian imports are covered by the trade agreement, according to a White House official. Trump’s tariffs will still apply to about 50% of Mexican imports and more than 60% Canadian goods.
   
   

3. The European Central Bank (ECB) has cut interest rates for the sixth time in nine months as it seeks to bolster eurozone economic growth. The ECB cut its main interest rate to 2.5% from 2.75%, and once again reduced its forecasts for economic growth in the eurozone. The ECB also raised its forecast for inflation this year from its December estimate of 2.1% to 2.3% on the back of higher energy prices. But it trimmed its prediction for eurozone growth, putting expansion in 2025 at just 0.9%, down from its December projection of 1.1% and only slightly above the 0.7% pace recorded last year.
   

4. Japanese bond yields have surged higher after the biggest jump in German Bund yields since 1990. The yield on the 10-year JGB crossed 1.5% for the first time since June 2009, while the 30-year bond yield breached the 2.5% mark for the first time since 2008. German borrowing costs surged by 29 bps Wednesday, as investors bet on a big boost to the country’s ailing economy from an agreement to fund investment in the military and infrastructure. Deutsche Bank economists described the deal to loosen the country’s strict borrowing limit as “one of the most historic paradigm shifts in German postwar history”. Bonds in Australia and New Zealand also saw their yields surge around 10 bps.
   
   

China Has ‘Ample’ Policy Tools Officials Say

China has more room to act on fiscal policy amid domestic and external uncertainties, Finance Minister Lan Fo’an told reporters on Thursday. He was responding to a question during China’s ‘Two Sessions’ annual parliamentary meeting about the country’s plans for proactive fiscal policy this year. Lan also vowed to study greater, more precise measures to boost consumption, to set up a system for subsidizing pre-school education, to adopt subsidies and training for the unemployed, and to provide subsidies for individual consumption loans in key areas. “We can overcome and resolve the difficulties and problems,” said Zheng Shanjie, chairman of the National Financial Regulatory Administration, China’s top economic-planning agency. “We have the courage to face squarely the risks and challenges and have the foundation to resolve the problems.” Zheng said the government will “soon” publish its action plan for a special program to boost consumption. A state fund will be set up to guide investment in startups, he said, as the country doubles down on promoting technological innovation.

China on Wednesday announced it was raising its budget deficit to 4% of the country’s GDP the highest since at least 2010. The country on Wednesday also said it would target a GDP increase of around 5% this year, while lowering its inflation target to 2%, the lowest in around 20 years. Officials speaking on Wednesday and Thursday have emphasized it will take hard work for China to reach its 5% target. China’s economy grew by 5% last year, but benefited from strong exports that offset lacklustre consumption and the drag from domestic real estate. “China has delivered a pro-growth message here at the National People’s Congress, in line with expectations,” said Aaron Costello, head of Asia at Cambridge Associates.

Earlier on in the press briefing, Wu Qing, chairman of the China Securities Regulatory Commission, mentioned the fact that China included the goal to stabilize its property and stocks markets in the government work report in an “unprecedented” move. A gauge of Chinese stocks listed in Hong Kong rose to session highs as PBOC Governor Pan Gongsheng said China will lower interest rates and RRR at appropriate times this year. The central bank will also explore new structural tools, he said, likely hinting at more sectors to be offered its low-cost relending credit. Carlos Casanova, Senior Economist, Asia at Union Bancaire Privée, Hong Kong, said Thursday in a report, “we expect that the PBOC could deliver at least a 25-basis point interest rate cut, 50-100 basis point RRR reductions, and boost monetary aggregates. The reason for a focus on RRR cuts and monetary aggregates over rate cuts is due to depreciatory pressures on the yuan. Interest rates in the U.S. are expected to remain elevated, which restricts PBOC’s policy space. If this changes, PBoC may opt to be more aggressive.”

Answering a question on the tariff war, Commerce Minister Wang Wentao said the US must respect the facts and take positive actions on its own. The US cannot just blame China, he says, which will not address the nation’s own problems. If tariffs are imposed on China on this basis, it will “confuse right and wrong and reverse black and white”, Wang said. He said China would respond in kind if the US continues down the wrong path of raising tariffs and putting up trade barriers.

Second Tariff Climbdown From Trump In 2 Days

Some of the sweeping tariffs imposed on Mexican and Canadian goods imported to the United States will be suspended until 2 April, President Donald Trump said Thursday. The one-month exemption includes goods covered under the USMCA trade agreement negotiated during Trump's first term. About 50% of Mexican imports and 38% of Canadian imports are covered by the trade agreement, according to a White House official. Trump’s tariffs will still apply to about 50% of Mexican imports and more than 60% Canadian goods.

The US enacted sweeping 25% tariffs on its North American neighbours earlier this week after previously delaying them for a month. Earlier, Canadian Prime Minister Justin Trudeau says a recent call with Trump was "colourful", adding that Ottawa "will continue to be in a trade war... for the foreseeable future." US Treasury Secretary Scott Bessent, meanwhile, called Trudeau a "numbskull" and warned his approach on tariffs could lead to them being raised.

Yesterday’s latest suspension of tariffs came just a day after Trump said he would temporarily spare carmakers from a new 25% import tax imposed on Canada and Mexico, just a day after the tariffs came into effect. White House press secretary Karoline Leavitt said the president had spoken with Chrysler and Jeep maker Stellantis, Ford and General Motors on Wednesday. Leavitt added the exemption would apply to cars complying with the terms of the 2020 trade deal between the US, Mexico and Canada. “The president is giving them an exemption for one month so they are not at an economic disadvantage,” Leavitt said. Leavitt also said Trump was open to providing additional exemptions on the taxes. The announcement from the White House came even as the president continued to blast Canada for not doing enough to stop drugs from entering the US.

President Trump said Thursday in the Oval Office that steel and aluminum tariffs were on track for next week, with no modifications. Trump also told reporters that he still intended to impose reciprocal tariffs on April 2, calling it the "big one."

Heightened uncertainty around the Trump administration’s new tariffs has shaken markets in the past week, with all three major US stock averages on track for a weekly decline. Wolfe Research analyst Tobin Marcus criticized the tariffs and said that all this uncertainty may have been for nothing. “After three consecutive days of major tariff expansion or retraction, we have to ask: What was all this for? In Trump’s statement announcing the delay, he didn’t point to any specific further concessions from Sheinbaum on either fentanyl or trade, even though there are some policy shifts he might reasonably have hoped to achieve,” he wrote. “Sheinbaum’s midday post also did not point to any specific policy commitments beyond general continued cooperation on migration, fentanyl, and guns.” Marcus added: “Again, we’ll see as details continue to emerge, but for now it doesn’t look like these three days of tariffs and uncertainty secured any policy wins. And given what’s left behind after today’s more expansive relief, we’re not sure 25% tariffs on Canadian dairy products are going to make too much headway on drug trafficking.

Michael Green, chief strategist at Simplify Asset Management, said, “the thing that we have emphasized over and over again is that Trump introduces uncertainty. We now are at a point where a single tweet or a single release of information can significantly change the interpretation of what markets look like.” Green added that a mounting trade war, exacerbated by retaliatory tariffs, could place a damper on the economy going forward, although it’s still uncertain what the long-term prospects will look like.

Tariffs Dent Consumer Confidence

Uncertainty around Trump’s trade war is weighing on Americans and causing some to hold back on purchases. Consumer spending in January had its largest monthly drop in four years. Consumer sentiment fell nearly 10% in the University of Michigan’s February survey of consumers. Those surveyed expected inflation to reach 4.3% for the year, the highest reading since November 2023. The Federal Reserve’s preferred inflation measure, the personal-consumption expenditures price index, was up 2.5% in January from a year earlier. “The consumer is feeling highly uncertain and concerned about significant changes that are happening. It makes sense for them to pause a little bit of their spending,” said Marc Giannoni, chief U.S. economist at Barclays. The Federal Reserve’s Beige Book and the Institute for Supply Management’s manufacturing reading both indicated fear of rising input costs because of the tariffs. Data from Challenger, Gray & Christmas released Thursday showed layoff announcements soared to 2020 highs.

Consumers are feeling whiplash from Trump’s frenetic first month-and-a-half in office. Earlier this year, the president threatened 25% tariffs on Mexico and Canada, which could lead to higher prices on everything from avocados to cars and then postponed them at the last minute at the beginning of February. Then he imposed them on Tuesday. An extra 10% tariff on China also went into effect. But on Wednesday he backtracked and granted a one-month exemption to automakers who were complying with a North American trade deal that Trump had negotiated in his first term. Then there were further concessions yesterday. More tariffs could come in April. In his state of the Union Address Tuesday he said that 2 April is when "reciprocal tariffs kick in". "We will take in trillions and trillions of dollars and create jobs like we have never seen before," he says. "We've been ripped off for decades by every country on Earth, and we will not let that happen any longer." However, for the first time, he acknowledged that tariffs were causing pain. "There will be a little disturbance but we're OK with that. It won't be much," he said. Commerce Secretary Howard Lutnick said in a television appearance on Tuesday that there may be “short-term price movements” from the tariffs, but they would pay off by bolstering domestic manufacturing.

Corporate America is preparing consumers for more inflation. Target is telling customers they will have to pay more money because of Trump’s tariffs. While it’s still too early to predict which items will get more expensive and when, items with a shorter supply chain, like fresh produce, could be affected quickly, executives said. Target CEO Brian Cornell stated that the company will take action depending on the level of tariffs, and price increases will vary by categories. Best Buy also echoed the price warnings on its earnings call, telling investors that increases are “highly likely” on its gadgets and appliances. Both companies are projecting little to no sales growth this year.

Nearly 60% of all households expect tariffs to increase the prices of everyday goods, but Democrats are far more worried, according to a Harris Poll/Bloomberg survey conducted in early February. About 76% of Democrats expect tariffs to lead to higher prices, while 55% of independents and 45% of Republicans do.

China ‘Ready To Fight Till The End’ Over Tariffs

China has filed a revised request for consultations at the World Trade Organization over the additional 10% tariffs Trump has imposed, according to the international body. Beijing originally appealed to the WTO on Feb. 4 after Trump imposed his first round of 10% levies. Consultations are the first step in the WTO process to resolve trade disputes between nations.

Chinese officials are taking an aggressive stance toward the US tariff escalation, including a post on X by the Chinese Embassy in the US. The Embassy said that “If war is what the US wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.” China Foreign Ministry spokesperson Lin Jian made similar remarks while also calling the US′ fentanyl-related explanation for the tariffs a “flimsy excuse.” “If the US has another agenda in mind and if harming China’s interests is what the US wants, we’re ready to fight till the end. We urge the US to stop being domineering and return to the right track of dialogue and cooperation at an early date,” the spokesperson said.

Trump has imposed fresh tariffs on Chinese goods amounting to an additional 20% in duties in about a month. The average effective US tariff rate on Chinese goods is set to hit 33%, up from around 13% before Trump began his latest term in January, according to estimates from Nomura’s Chief China economist Ting Lu. China announced Tuesday it would impose additional tariffs of up to 15% on some US goods from March 10. 15% tariffs will be slapped on some US agriculture imports, including chicken, wheat, corn and cotton. It has added 10% tariffs on other produce such as soybeans, pork, beef, fruits, vegetables and dairy products. China's commerce ministry has also added 10 US firms to the so-called "unreliable entity list" and 15 US entities to an export control list, which are banned from buying from China

Lou Qinjian, spokesperson for the third session of the 14th National People’s Congress, told reporters, “we hope to work with the US side to address each other’s concerns through dialogue and consultation on the basis of mutual respect, equality, reciprocity, and mutual betterment. At the same time, we will never accept any act of pressure or threat, and will firmly defend our sovereignty, security, and development interests.” He added, “China is opposed to over-stretching the concept of national security or politicizing economic and technological issues.”

European Central Bank Cuts Interest Rates But Signals Pause

The European Central Bank (ECB) has cut interest rates for the sixth time in nine months as it seeks to bolster eurozone economic growth. The ECB cut its main interest rate to 2.5% from 2.75%, and once again reduced its forecasts for economic growth in the eurozone. The ECB also raised its forecast for inflation this year from its December estimate of 2.1% to 2.3% on the back of higher energy prices. The deposit rate is now at its lowest since February 2023. There was no opposition to the decision to cut rates, though one rate-setter, Austria’s hawkish central bank governor Robert Holzmann, abstained.

With inflation getting closer to its 2% target, the ECB said its interest rate cuts were "making new borrowing less expensive for firms and households". Inflation has fallen from a peak of 10.6% in October 2022 to 2.4% in February. But it trimmed its prediction for eurozone growth, putting expansion in 2025 at just 0.9%, down from its December projection of 1.1% and only slightly above the 0.7% pace recorded last year. The prospects for the Eurozone economy could also be affected by moves by Friedrich Merz, Germany’s chancellor-in-waiting, to unleash hundreds of billions of euros in borrowing to boost defence spending and overhaul his country’s infrastructure. In projections that did not take into account the German plan, the ECB cut its growth forecast for 2025, its sixth successive downgrade for the year, as well as for 2026 and 2027. “High uncertainty, both at home and abroad, is holding back investment and competitiveness challenges are weighing on exports,” Lagarde said on Thursday afternoon, adding that rate-setters were facing an acutely uncertain environment. But Lagarde added that “an increase in defence and infrastructure spending could also add to growth” and “could also raise inflation through its effects on aggregate demand”.

In a change of tone that signalled a more hawkish stance, the ECB said that “monetary policy is becoming meaningfully less restrictive”. The language suggested a possible slowdown or pause in future interest rate cuts, since it compared with the ECB’s previous wording that “monetary policy remains restrictive”. Christine Lagarde, ECB president, said that the shift in wording was “not an innocuous little change”. Lagarde raised the prospect of pausing the ECB’s run of rate cuts, saying rate-setters would be led by what “the data indicates”.

In the aftermath of the decision, traders trimmed their bets on future rate reductions. While they continued to fully price in one further quarter-point cut this year, according to levels implied by swaps markets, the chance of a second cut in 2025 fell from around 85% to roughly 70% by late afternoon.

US Posts Record Trade Deficit on Soaring Imports

The US trade deficit with its global partners hit a record in January as President Donald Trump began his tariff campaign, the Commerce Department reported Thursday. The goods and services deficit for the month totalled US$131.4 billion, a US$33.3 billion surge and higher than the Dow Jones estimate for a shortfall of US$128.7 billion. Though exports increased slightly to US$269.8 billion, imports jumped 10% to US$401.2 billion. On a year-over-year basis, the trade deficit soared 96.5% as exports rose just 4.1% while imports surged 23.1%.

The US goods trade gap widened with China (-US$29.7 bn vs -US$25.3bn in December 2024), the EU (-US$25.5bn vs -US$20.4bn), Switzerland (-US$22.8bn vs -US$13bn), Mexico (-US$15.5bn vs -US$15.3 billion), Vietnam (-US$11.9 billion vs -US$11.4bn) and Canada (-US$11.3bn vs -US$7.9bn).

US Layoff Announcements Soar To The Highest Since 2020

President Donald Trump’s efforts to pare down the federal government workforce left a mark on the labour market in February, with announced job cuts at their highest level in nearly five years, outplacement firm Challenger, Gray & Christmas reported Thursday. The firm reported that US employers announced 172,017 layoffs for the month, up 245% from January and the highest monthly count since July 2020 during the heightened uncertainty from the Covid pandemic. In addition, it marked the highest total for the month of February since 2009 during the global financial crisis. More than one-third of the total came from Elon Musk’s efforts, with Trump’s blessing, to reduce the federal headcount. Challenger put the total of announced federal job cuts at 62,242, spanning 17 agencies. “With the impact of the Department of Government Efficiency [DOGE] actions, as well as cancelled Government contracts, fear of trade wars, and bankruptcies, job cuts soared in February,” Andrew Challenger, the firm’s workplace expert, said in the release. January’s planned reductions brought the total through the first two months of the year to 221,812, also the highest for the period since 2009 and up 33% from the same time in 2024.

US Initial Jobless Claims Fall More Than Expected

Initial jobless claims in the United States fell by 21,000 from the previous week to 221,000 in the last week of February, well below economists’ expectations of 235,000. The total was about in line with the four-week average of 224,250. Jobless claims have returned to historically low levels following the two-month high noted in the earlier period. In the meantime, recurring claims, which run a week behind, rose by 42,000 to 1,897,000, not too far from the expected 1,880,000. The data shows that the US continues to host a relatively tight labour market despite the prolonged tightening cycle and recent soft data releases. Unemployment claims filed under programs for Federal government employees, which have been under close scrutiny due to firings by the Department of Government Efficiency (DOGE), rose by 1,020 to 1,634.

Australia Trade Balance Exceeds Expectations

Data Thursday revealed that Australia’s trade balance exceeded expectations in January, driven by accelerated export growth and a decline in imports. Australia's goods exports grew 1.3% from the previous month to an eleven-month high of AU$44.53 billion in January, accelerating slightly from an upwardly revised 1.2% rise in December. On a destination basis, sales surged to the US (104.3%) and Pakistan (148.6%) while those to Australia’s top trading partner, China, fell by 21.5%. Australia's trade surplus on goods increased to AU$5.62 billion in January, up from a downwardly revised AU$4.92 billion in December 2024, slightly higher than economists’ expectations of a gain of AU$5.50 billion. A report earlier this week also showed that Australia’s economy grew by 0.6% in the fourth quarter, up from 0.3% in the previous quarter and surpassing market expectations of 0.5%.

South Korea Inflation Eases For The First Time In 4 Months

South Korea’s inflation rate fell in February for the first time in four months, coming in at 2% from a year earlier, compared to a gain of 2.2% in January. This figure was slightly above the 1.95% expected by economists polled by Reuters. On a monthly basis, consumer prices rose by 0.3% in February, a slowdown from the 0.7% increase in January, but still surpassing the anticipated 0.2%.

This data follows the Bank of Korea’s decision to reduce interest rates by 25 bps to 2.78% in its February meeting, citing stabilising inflation, easing household debt, and sluggish economic growth. The central bank maintained its inflation forecast at 1.9% for both 2025 and 2026, while projecting core inflation at 1.8%. The latest data affords more room for South Korea’s central bank to cut rates further as the country struggles with a slowing economy.

Malaysia Holds Rates Steady As Expected

The Central Bank of Malaysia maintained its key interest rate at 3% for the tenth consecutive period during its meeting yesterday, in line with analysts’ expectations. The annual inflation rate in Malaysia remained steady at 1.7% in January 2025, marking an eleven-month low for the second consecutive month. Inflation is projected to stay manageable throughout 2025, supported by easing global cost pressures and the absence of significant domestic demand imbalances. The Malaysian economy posted 5.1% growth in 2024, primarily attributed to stronger domestic demand and a robust recovery in exports. Despite global uncertainties, the outlook for 2025 remains positive, with continued strength in economic activity driven by resilient domestic demand.

FDI Into Vietnam Up 5.4% In Jan-Feb

Foreign direct investment (FDI) into Vietnam rose 5.4% year-on-year to US$2.95 billion in February 2025. Meanwhile, FDI pledges, an indicator of future disbursements, advanced by 35.5% from a year earlier to US$6.90 billion. South Korea was Vietnam’s top investor over the first two months of the year, contributing US$1.5 billion (21.7% of total FDI), followed by Singapore with US$1.48 billion (21.4%). Manufacturing and processing attracted the most FDI at US$4.72 billion (68.3% of total), followed by real estate with US$1.5 billion (21.4%). Other key sectors included professional services, science & technology, and retail.

Vietnam Inflation Rate Eases to 3-Month Low

The annual inflation rate in Vietnam eased to 2.9% in February, a three-month low, and down from 3.63% in January. The slowdown was driven by lower inflation in food and beverage services (3.1% vs. 4.4%). Core inflation, which excludes volatile items, slowed to 2.9% from 3.1% in January. On a monthly basis, consumer prices rose 0.3%, following a 1.0% increase in the previous month.

Vietnam Retail Sales Growth Edges Down

Retail sales growth in Vietnam edged down to 9.4% year-on-year in February, from a 9.5% increase in the previous month. This marked the 38th consecutive month of expansion in retail activity. On a monthly basis, retail activity dropped by 2.5% in February.

Vietnam Industrial Output Growth At 13-Month High

Vietnam's industrial production increased by 17.2% year-on-year in February, improving sharply from a downwardly revised 1.0% decline in the previous month and marking the strongest growth since January 2024. The robust recovery occurred as activity returned to normal following the Lunar New Year Festival. On a monthly basis, industrial production shrank by 2.2%. For the first two months of the year, it grew by 7.2%. In 2024, industrial output expanded by 8.4%.

Vietnam Posts Trade Deficit For First Time In 9 Months

Vietnam posted a trade deficit of US$1.55 billion in goods for February, swinging from a US$1.38 billion surplus in the same month last year. This marked the first trade gap since May 2024, due to a surge in imports. Exports surged by 25.7% compared to a year earlier, totalling US$31.11 billion. Meanwhile, imports jumped 40.0% to US$32.66 billion, driven by dairy products, automobiles, and metal products. For the first two months of 2025, the country registered a US$1.47 billion surplus, with exports and imports rising by 8.4% and 15.9%, respectively. The US was Vietnam's largest export market, with a turnover of US$19.6 billion, while China was the country's largest import market, with a turnover of US$23.3 billion.

Philippines Jobless Rate Falls To 4.3% In January

The unemployment rate in the Philippines fell to 4.3% in January, down from 4.5% in the same month last year. The number of unemployed individuals slightly increased to 2.17 million from 2.16 million in January, while employment rose to 48.5 million from 45.9 million. Among broad industry groups, the services sector continued as the top sector in terms of the number of employed persons with a share of 61.6% percent of the total number of employed, followed by agriculture at 21.1% and industry at 17.2%. Meanwhile, the labour force participation rate advanced to 63.9% compared to 61.1% a year earlier.

Seven & i Announces Restructuring

Seven & i Holdings, the parent of convenience store chain 7-Eleven, said Thursday it will replace CEO Ryuichi Isaka with Lead Independent Outside Director Stephen Dacus. Dacus will take charge from Isaka on May 27, according to a company filing. Seven & i said that Isaka will remain as senior adviser to the company. Dacus is currently the head of the company’s special committee that is evaluating a US$47-billion takeover bid from Canada’s Alimentation Couche-Tard. The convenience store operator also announced a share buyback of ¥2 trillion yen (US$13.4bn) and plans to list its North American subsidiary, 7-Eleven Inc. The company said that it will hold a majority stake in the subsidiary which will be listed in the second half of 2026.

Bond Selloff Spreads to Japan After European Yields Surge

Asia-Pacific markets steadied Thursday after automakers won a one-month delay from the newly imposed US duties on Mexico and Canada. Japan’s Nikkei 225 index rose 0.8% to 37,705. Shares of Japanese automakers climbed after the exemption announcement from the White House. Shares of Honda rose 2.0%, while Nissan climbed 1.1%. Mazda Motor advanced 2.3%. Shares of Seven & i rose 6.1% as the company was expected to reveal business restructuring plans and a leadership shift.

South Korea’s Kospi advanced 0.7%. South Korea’s consumer inflation for February rose 2.0% year-on-year, more than Reuters estimates of a 1.95% increase, and slower than the 2.2% gain in January. Australia’s S&P/ASX 200 slipped 0.6% to its lowest level in ten weeks. In India, the BSE Sensex was up 0.8%, trading at 74,340, after surging 1% in the previous session.

The yield on the 10-year JGB rose 7 bps and crossed 1.5% for the first time since June 2009, while the 30-year bond yield breached the 2.5% mark for the first time since 2008. Nomura head of FX strategy for Japan Yujiro Goto told CNBC that the spike in yields is due to the sharp rise in European government bond yields. German borrowing costs surged by 29 bps Wednesday, the most since 1990, as investors bet on a big boost to the country’s ailing economy from an agreement to fund investment in the military and infrastructure. Deutsche Bank economists described the deal to loosen the country’s strict borrowing limit as “one of the most historic paradigm shifts in German postwar history”. Comments from Bank of Japan Deputy Governor Shinichi Uchida also contributed to the sell-off. Uchida reportedly said the central bank was likely to “raise interest rates at a pace in line with dominant views among financial markets and economists.”

Mitul Kotecha, head of Asia FX and rate strategy at Barclays said Thursday the sell-off was fuelled partly by the rise in Japan’s inflation: “A lot of people are saying that the real inflation is even higher than what the actual measures are showing. So I think part of that is the inflation move that is pushing yields higher.” Japan’s headline inflation has stayed above the BOJ’s 2% target for 34 straight months, with the most recent figure in January hitting a two-year high of 4%. The so-called “core-core” inflation rate, which strips out prices of both fresh food and energy and is closely monitored by the BOJ, climbed slightly to 2.5% in January, hitting its highest rate since March 2024.

Bonds in Australia and New Zealand also saw their yields surge around 10 bps.

Hong Kong Stocks Jump To 3-Year High

Chinese shares continued their recent surge, regaining their losses since Donald Trump launched his trade war. Expectations rose that China will introduce more stimulus policies to achieve its newly set annual growth target. Chinese tech stocks have largely been on a tear since AI startup DeepSeek emerged unexpectedly. AI was in focus at the ‘Two Sessions’ annual parliamentary meetings this week. Premier Li Qiang, China’s number two official, delivered the government’s ‘work report’ on Wednesday before thousands of delegates gathered in Beijing’s Great Hall of the People for the annual session of the National People’s Congress (NPC), China’s parliament. China looks set to continue to dedicate considerable resources to the AI race. Categories mentioned in the work report include promoting the "AI+", supporting LLM development and application, and developing next-generation intelligent terminals such as AI-enhanced new energy vehicles, mobile phones, computers, robots, and manufacturing equipment. The NPC’s message of focusing on technology innovation and consumption was encouraging and “should help to sustain the market’s momentum,” according to Morgan Stanley’s strategist Laura Wang.

On Thursday, the mainland CSI 300 index rose 1.4% to 3,956, the highest level since February 27. The index of the largest listed companies is up over 6% since mid-January. Premier Li Qiang declared on Wednesday that “vigorously boosting consumption” was the government’s top priority in 2025 as it strives to hit an ambitious growth target of “about 5%,” the same as the past two years. Li implored officials to move faster to “make domestic demand the main engine and anchor of economic growth.” President Xi, in a December speech that China only made public last week, called the shift toward consumption “a strategic move” and not an “expedient measure”. Xi said it was necessary for “both economic stability and economic security.”

In Hong Kong, the Hang Seng index surged 776 points, or 3.3%, to a new three-year high of 24,370. That level was last seen on 17 February 2022. The city’s benchmark index is up 21.5% year-to-date, making it the world’s best performing major stock index. The Tech index surged 5.4%, to close at a level not seen since December 2021.

The indices were boosted by shares of Alibaba which jumped after it made its latest AI QwQ-32B model open-source on Thursday. The company claims its performance is comparable to DeepSeek’s R1 model. Alibaba shares rose 8.4% in Hong Kong. Alibaba, which posted stellar earnings results last month, and has been making “significant strides” in advancing its AI cloud business after launching its Qwen 2.5-Max flagship AI foundation model, experts said. Alibaba has added some US$135 billion in market value this year.

Shares of Hong Kong’s CK Hutchison extended gains on Thursday after US President Donald Trump commended a transaction led by BlackRock to purchase the bulk of CK Hutchison’s ports division, including its holdings along the Panama Canal. In return, the Hong Kong firm will receive cash proceeds of more than US$19 billion. Hutch shares closed 9.5% higher after surging almost 22% on Wednesday.

Germany’s DAX At Record High

European stock markets closed mixed Thursday after the ECB cut interest rates by 25 bps. The regional Stoxx 500 was unchanged on the day. Germany’s DAX index rose 1.5%, to a new record high, after surging 3.4% Wednesday. London’s FTSE 100 fell 0.8%.

Automakers received a boost following sharp declines Monday. The Stoxx autos index was up 2.5% after US President Donald Trump on Wednesday announced a one-month tariff exemption for automakers. Shares of Jeep and Dodge-maker Stellantis, one of the companies set to be most impacted by the duties, rose 2.1%.

Shares of Air France-KLM surged 33% after the airline group beat market expectations for full-year and fourth-quarter operating profit. Germany’s Lufthansa was 12.2% higher on its own annual results, which showed a decline in annual profit but also came in slightly ahead of consensus. DHL Group, listed as Deutsche Post, popped 14.2% after announcing a €1 billion cost-cutting plan set to lead to an 8,000 headcount reduction and an increased share buyback program.

Yields on German Bunds were up another 2 bps Thursday to 2.82%, after surging 29 bps on Wednesday, the most since 1990. Yields on French and Italian debt also jumped. Investors said the continued sell-off in German bonds did not reflect concerns about the sustainability of Berlin’s debt, which at about 63% of GDP is far lower than the level in other big western economies such as France, the UK and the US.

US stocks are struggling as “America First” bets backfire while European assets predicted to suffer under Trump are now surging. European stock indices have caught up or outstripped Wall Street over the past six months. The S&P 500 is up nearly 6%, matching the UK’s FTSE 100, but behind 9% for France’s Cac 40 and more than 20% for Germany’s Dax. The region-wide Stoxx Europe 600 has jumped 8%. In Europe, defence stocks have soared. Germany’s Rheinmetall is up 130% over the past six months, and infrastructure stocks have also been big winners in anticipation of greater government spending, with Siemens Energy up 115% over the same timeframe. “We have gone from ‘all roads lead to the US’ to seeing numerous cracks to US exceptionalism,” said Alain Bokobza, head of global asset allocation at Société Générale. “At the same time, we have seen several game changers in Europe, so Europe is back on the agenda.” The region’s fund managers moved to a bigger than benchmark position in European stocks in January from a negative position in December, according to a widely watched Bank of America survey. Inflows into German equities have hit their highest level in three years, according to Goldman Sachs.

US Stocks Tumble As Nasdaq Falls Into Correction Territory

Big shifts in US trade policy battered markets again Thursday. Tech shares tumbled, dragging the Nasdaq into correction territory as investors were unnerved by whipsawing policy. Recession fears weighed on financial stocks. The S&P 500 tumbled 1.8% to 5,739. The Dow slid 428 points lower, or 1.0%, to 42,579, after falling more than 600 points at session lows. The Nasdaq Composite dropped 2.6% to 18,069, closing in correction territory, defined as when an index falls 10% from a recent high. The Nasdaq has dropped more than 4% week to date, while the Dow and S&P 500 have slid around 2.9% and 3.6%, respectively. All three are on pace for their worst week since September 2024.

President Trump said his decision to rollback some tariffs on Mexico and Canada was unrelated to the volatility they caused in US markets. "No nothing to do with the market," Trump told reporters in the Oval Office on Thursday. "I'm not even looking at them off, because long term, the United States will be very strong with what's happening here." Keith Lerner, chief market strategist at Truist said, “you’re just having confusion. That confusion is permeating into the day-to-day swings of the market.”

A continued unwind of the popular artificial intelligence trade that has boosted the market for more than a year also hurt stocks on Thursday. Notably, chipmaker Marvell Technology dropped 19.8% after the company issued mixed first-quarter guidance. Other semiconductor manufacturers such as ON Semiconductor (-5.6%), Taiwan Semiconductor Manufacturing (-4.6%) and Nvidia (-5.7%) also slid.

Shares of Tesla tumbled a further 5.6% on Thursday. The electric vehicle stock is now trading at its lowest levels since November 5.

Heightened uncertainty around President Trump’s newest tariff policies, alongside emerging signs of a softening economy, have pushed bank stocks lower this week. Both the SPDR S&P Regional Banking ETF (KRE) and the SPDR S&P Bank ETF (KBE) slipped around 2% on Thursday, putting the exchange-traded funds on pace for a 7% weekly decline. This marks the worst week for both ETFs since Aug. 2, 2024.

Treasury Yields Rise For Third Day

Treasuries fell, pushing the US 10-year yield higher for a third day. The yield rose 1 bps to 4.28%. The yield on the 2-year note slipped 3 bps to 3.97%.

On the data front, the US trade deficit widened to a record high in January, driven by a 10% surge in imports ahead of anticipated tariffs. Additionally, job cuts soared to their highest level since 2020, fueled by significant layoffs at DOGE. However, initial jobless claims came in below expectations, offering some reassurance. Investor focus now shifts to the jobs report, alongside an appearance by Fed Chair Powell later today.

US Dollar Slips For Fourth Session

The US dollar weakened as recession fears mounted. The US Dollar Index extended its decline for a fourth consecutive session, slipping below 104 at one point on Thursday to the lowest level since November, as investor sentiment remained fragile amid concerns over tariffs and the US economic outlook. However, the dollar pared its losses later in the day to end almost unchanged at 104.24 after falling 1% Wednesday, weakening against most major currencies, with losses particularly stark against the euro. The euro had its best three-day rally since 2015 ahead of the European Central Bank’s policy meeting on Thursday. The euro approached $1.08, its highest level since November.

The Japanese yen traded near ¥148 per dollar on Thursday, staying close to its strongest levels in five months. The offshore yuan was 0.1% weaker around Rmb 7.24 per dollar.

Gold Near Record High

Gold was steady near its record high. On Thursday it settled 0.4% lower at $2,909 an ounce.

Oil Rebounds From 6-Month Low

Oil edged higher from the lowest close in six months. Brent crude oil settled 0.1% higher at $69.43 a barrel.

Bitcoin Slides

Bitcoin slid just over 1% over the past 24 hours. It was last trading at $89,350.

Peter Lewis’ Money Talk Podcast

On Friday’s “Peter Lewis’ Money Talk” podcast, I’ll be joined by Francis Lun, the CEO of GEO Securities, and Andrew Sullivan, founder of Asian Market Sense. With a view from Australia, is Toby Lawson, the former CEO at Statton Partners.

The podcast is also available on Apple Podcasts, YouTube Studio and Spotify.

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