Asian equity gains capped as market awaits details from US/CN talks

Asia Market Update: Asian equity gains capped as market awaits details from US/CN talks; US equity FUTs outperform, hold near the Asia highs as Gold -2% amid potential peace dividends in UR/IN-PK/IR.

General trend

- US equity FUTs gapped up at the open and headed towards highs last seen in early March, as the White House announced a China trade deal, with details to be disclosed on Mon. Prices continued higher with Nasdaq +2% as China officials backed up the positive tone, noting 'progress' in the US trade talks and the sides to finalize agreement as soon as possible. [However, Japan officials notably still seem hesitant on a number of US-JP trade issues].

- Asian shares were more muted in their positivity, with Hang Seng outperforming +1.1%.

- Also over the weekend Ukraine’s Pres Zelenskiy confirmed he would meet Russia's Pres Putin in Turkey this Thursday, 15th May, to discuss ending the war. Came after Russia’s Putin offer to resume direct negotiations with no pre-conditions.

- Pakistan India also signaled at least a willingness to entertain peace as US Pres Trump announced that through US mediation India and Pakistan have agreed to a full and immediate ceasefire.

- Further, Iran said to agree to a fourth round of indirect nuclear talks with the US on Sunday local time in Oman.

- Gold fell >2% as safe haven appetite decreased, while Bitcoin was little changed.

- Modest fixed income reaction: US 10 yr yield +2bps; 10-yr JGB yield +4.3bps, AU 3-yr yield +4.5bps; Also only modest FX gains seen; USD/CNH -0.2%, USD/JPY +0.4%; USD/CHF +0.6%---so USD mixed, especially against commodity currencies Kiwi +0.4% and Aussie +0.2% on potential China trade positivity.

- China govt stimulus and easing of rates over the past many months still failing to revive the economy, as April CPI and PPI prices fell - continuing to show an excess of supply over demand. Factory gate prices now in their 31st month of decline. [Note that the full extent of the Trump tariffs at the higher rate of 145% as well as the May 2nd $800 de minimis exemption taken away from Chinese exports into the US will Not show up in Chinese trade and inflation data until the May figures are released – and assuming no concrete US-CN deal is reached in the meantime.].

- Korean exports plummeted in the first 10 days of May, -23.8% y/y, Imports also took a huge fall, -15.9% y/y. Chip exports +14% was the only bright spot as autos and petroleum plunged 23% and 36% respectively, while exports to China -20.1%, to the US -30.4% y/y, to the EU -38.1% y/y and to Vietnam -14.5% y/y.

- Japan, Australian HK and Indian pharma stocks fell after US Trump posted that tomorrow he will sign an Executive Order to reduce drug and pharmaceutical prices in the US by between 30-80%; Trump also indicated he would implement a Most Favored Nation policy to reduce US drug prices. [Takeda -4% Chugai -5% Dai-ichi Sankyo -4%, while in Australia, Botanix -16.1%, GSS.AU -7.7%, CU6 -7.0% Neuren NEU.AU -6.3%, DBX.AU -6.1%; India’s Sun Pharma -7%, while HK'S Hang Seng Biotech index -3%].

- Japan registered a slightly better adjusted Current Account surplus for March than expected. Meanwhile, Japan Apr Bank Lending showed that Japanese banks' trust accounts bought the most foreign stocks on record.

- Only a slight decline last week in CFTC Japanese Net long positions through Tue May 6th, down to 176.9K contracts; Still close to the all-time-record high recorded in the prior week of 179.2K contracts.

- Mitsubishi Motors the latest Japanese car maker to contemplate price hikes in the US to help offset US tariffs.

- Philippine Senate elections today (Monday), with China tensions over Philippine sovereignty in the South China Sea a core theme of the election campaign. US-friendly Pres Marcos is halfway through his 6-year Presidential term vs the more China-friendly and former Pres Duterte.

- US equity FUTs +1.5% to +2.0% during Asian trading.

Looking ahead (Asian-weighted releases, using Asian time zone)

- Tue May 13th AU Biz & Consumer Confidence, JP BOJ SOMP, (Tue night US Apr CPI).

- Wed May 14th KR jobs, AU Home Loans.

- Thu May 15th AU jobs, (Thu eve UK Q1 GDP, US Apr PPI, US Apr Retail Sales).

- Fri May 16th NZ Apr Business PMI, JP Q1 Adv GDP, (Fri night US prelim Apr Michigan Consumer Sentiment).

Holidays in Asia this week

- Mon May 12th Indonesia, Philippines, Singapore, Thailand.

- Tue May 13th Indonesia.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens +0.2% at 8,245.

- Australia PM Albanese names Tim Ayers Minister for Industry; Hope to meet EU's Von der Leyen at the time he meets the Pope - financial press.

China/Hong Kong

- Hang Seng opens +1.4% at 23,183; Shanghai Composite opens +0.3% at 3,252.

- Former PBOC Adviser said to expect US/China 'deal' in 2 weeks - US financial press.

- (US) White House announces china trade deal in geneva; details to follow on Monday – Statement.

- China officials held press conference in Geneva earlier on Mon: Noted 'progress' in the US trade talks; the sides will finalize agreement as soon as possible, trade announcement will be good news for world; US meeting was 'first step' to resolve differences - update.

- China APR CPI Y/Y: -0.1% V -0.1%E; PPI Y/Y: -2.7% v -2.8%e (31st month of negative readings) [weekend update].

- China plans to accelerate infrastructure construction in Q2 - Chinese press.

- (US) Trump: I had given Treasury Sec Bessent a number on how low I am willing to go on tariffs; We have to make a great deal with China [weekend update].

- (US) White House Press Sec: Confirms US will not unilaterally bring down tariffs on China; We need to see concessions from China [weekend update].

- China govt said to send Minister of Public Security Wang Xiaohong to Switzerland for US talks as way to signal importance of fentanyl issue in negotiations – WSJ [weekend update].

- China PBOC sets Yuan reference rate: 7.2066 v 7.2095 prior.

- China PBOC Open Market Operation (OMO): Injects CNY43B in 7-day reverse repos; Net injects CNY43B v injects CNY77B prior.

Japan

- Nikkei 225 opens +0.6% at 37,704.

- Japan Mar Current Account: ¥3.678T v ¥3.791Te; Adjusted Current Account Balance: ¥2.723v ¥2.465Te.

- Japan Apr Bank Lending Y/Y: 2.4% v 2.8% prior; Banks' trust accounts bought the most foreign stocks on record [net ¥2.76T].

- Follow Up: Japan Apr bank deposits +0.7% y/y [slowest annualized pace since 2007]; cites BOJ data – US financial press.

- Japan PM Ishiba: Will not "sacrifice" rice for cars in trade talks - financial press.

- Japan Economic Revitalization Min Akazawa: Affirms that security and FX not part of trade discussions.

- Mitsubishi Motors (7211.JP) Reportedly mulling price increases for cars sold in the US; Move to potentially offset the expected $344M rise in costs from US tariffs - Nikkei.

Korea

- Kospi opens +0.6% at 2,593.

- US has asked South Korea for renegotiation of defense cost sharing agreement - South Korea press.

- Samsung and SK Hynix both said to have raised their DRAM prices.

Other Asia

- Taiwan is 'willing' to help US mass-produce advanced drones, assist on shipbuilding and military - Taiwan press.

- (IN) On Saturday India and Pakistan agreed to an immediate ceasefire (update).

- Trump: After a long night of talks mediated by the United States, I am pleased to announce that India and Pakistan have agreed to a FULL AND IMMEDIATE CEASEFIRE. Congratulations to both Countries on using Common Sense and Great Intelligence. Thank you for your attention to this matter!
[weekend update]

North America

- (US) Equity FUTs open sharply higher, Nasdaq FUTs +1.5%, S&P 500 Futs +1.3%; White House announced ‘China trade deal’, details to be disclosed on Mon.

- (US) US Pres Trump: To sign Exec Order on Mon to reduce drug and pharmaceutical prices, almost immediately, by 30-80%; To also institute a Most Favored Nation policy to reduce US drug prices - Truth Social post.

- (US) House GOP is releasing plan to cut Medicaid spending which seeks 'middle ground' between Republicans - US financial press.

- (US) Jefferies analysts: Recent shipper commentary and behavior suggests volatile demand and volumes in upcoming quarters while LA and Long Beach ports expect a 25% decline to arrivals; Expect increased demand for East Coast ports and Mexico-US cross-border moves as a result.

- (DK) Trump administration said to mull offering Greenland special status under a compact of free association (COFA) agreement – press [weekend update].

- Punchbowl's journalist: SALT Caucus R’s will meet with House GOP leaders and Ways & Means Republicans Monday at 10 a.m.

- (US) Reportedly Treasury Sec Bessent has urged Congress to raise the debt limit by mid-July, expects debt limit to be hit in August – press [weekend update].

- (US) Trump administration said to list ~20 economies for trade talks prioritization, big and small – pres- (US) White House Press Sec: Confirms US will not unilaterally bring down tariffs on China; We need to see concessions from China [weekend update].

- (US) Trump: I had given Treasury Sec Bessent a number on how low I am willing to go on tariffs; We have to make a great deal with China [weekend update].

- (US) Fed's Hammack (non-voter for 2025): Reasonable to take a wait and see approach; Would rather be slow and move in the right direction than be fast and wrong - press interview [weekend update].

Europe

- (UR) Ukraine's Pres Zelenskiy: Ready to meet Russia Pres Putin in Turkey on Thursday, 15th May (update).

- (RU) Russia Pres Putin offered Ukraine to resume direct negotiations which were halted in 2022, on May 15th in Istanbul with no pre-conditions; Ukraine Pres Zelenskiy said he expects Russia to confirm a ceasefire – full, lasting, and reliable – starting tomorrow, May 12th, and Ukraine is ready to meet.

- (US) Pres. Trump: A potentially great day for Russia and Ukraine! The USA wants to focus, instead, on Rebuilding and Trade. A BIG week upcoming!

- (IR) Iran said to agree to fourth round of indirect nuclear talks with US on Sun in Oman - Iranian state press [weekend update].

- (UR) Europe and US said to be in talks over ultimatum to end war in Ukraine [weekend update].

- (RU) Russia said to support 30-day Ukraine ceasefire provided nuances are taken into consideration - Russia press [weekend update].

Levels as of 01:20 ET

- Nikkei 225 +0.3%, ASX 200 +0.1%, Hang Seng +1.2%; Shanghai Composite +0.5%; Kospi +1.1%.

- Equity S&P500 Futures +1.5%; Nasdaq100 +2.0%; DAX +0.9%; FTSE100 +0.5%.

- EUR 111.93-112.43; JPY 145.70-146.28; AUD 0.6411-0.6436; NZD 0.5910-0.5935.

- Gold -2.0% at $3,278/oz; Crude Oil +0.7% $61.44/bbl; Copper +0.6% at $4.6830/lb.