Trump reboots risk-on trades by offering EU reprieve on 50% tariffs

Asia market update: Trump reboots risk-on trades by offering EU reprieve on 50% tariffs – for now; Widespread USD weakness and relief for JP yields; US holiday on Mon.

General trend

- Shortly after the Asian open Pres Trump agreed to EC Commission head Von der Leyen’s request to delay his 50% EU tariff to July 9th (was June 1st). US equity FUTs and DAX FUTs shot up >1% on the news, and Asian/EU bond yields fell on what will be a US holiday on Monday. However, Asian equities struggled to join the party, with only the Kospi outperforming, +1.3%.

- Risk-on mood saw widespread dollar weakness. Euro +0.4% back over 1.14 handle to multi-week high. Sterling +0.4% to nearly 1.36, highest since Feb 2022. CAD highest since Oct 9th, Taiwan dollar rose back past 30/USD for first time since its spike to 27 in early May, while the Philippine Peso at levels not seen since Aug 2023.

- Stronger PBOC Yuan fix in 7.18 handle saw the offshore Yuan strengthen to 7.16, highest since Nov 2024, while in tandem commodity currencies Aussie and Kiwi +0.5% to 0.6% to levels not seen since Nov last year. JPY initially fell -0.5% on the Trump EU news, but made back most of its losses.

- 40-year JGB yield fell 9bps to <3.5%; 30-year JGB yields fell 9bps to <3.0%. Provides some temporary respite as Japan 40-year JGB yields rose to fresh record high and 30-year JGB yields to multi-decade highs following a weak 20-year auction earlier last week.

- In further trade news, Japan trade rep Akazawa continued a tone of caution on his latest US trip to meet US Commerce Sec Lutnick in DC, saying that both sides seeking mutually beneficial deal “as soon as possible”, Will not comment on how far US-Japan talks have progressed, and “until everything is agreed upon, nothing is agreed upon”. Wants to meet US Treas Sec Bessent on this next trip.

- Flexport CEO said after the Geneva US-China trade truce that the Co had its two biggest ever booking weeks in the two weeks since. Vietnam and China shipments surging.

- Persistence paid off for Nippon Steel, with Donald Trump at last giving his blessing to the long-proposed acquisition of US Steel (deal initially announced in Dec 2023), whose HQ will stay in Pittsburgh and deal said to add 70K jobs and $14B of investment in the US. US Steel surged 24% in late US trading. Nippon Steel opened up as much as 7% higher at the Nikkei open, later paring gains to +1.5%.

- Softer China EV makers; BYD -5.9%; Geely -5.7%; Li Auto -4.3%, Xiamoi -2.6%, on reported profit-taking after extensive gains so far this year plus a series of discounts recently announced.

- A former China official opined that China should reduce its GDP target to 4.0% GDP, and focus on jobs and debt over the next 5 years

- Thailand April exports to US +23.8% y/y, China +3.2% y/y, as Thai April trade deficit much worse than expected, and in a potential sign that US tariffs beginning to have an effect.

- Not a good sign for imminent peace in Ukraine and Russian, with Pres Trump posting that “Something has happened to him (Pres Putin). He has gone absolutely CRAZY! He is needlessly killing a lot of people”.

- After his stint in the US govt with DOGE, Elon Musk said he was back to working and sleeping at work 24/7 as he refocuses on X/xAI, Tesla and Starship.

- US equity FUTs +1.0-+1.2% during Asian trading; US cash markets closed Monday for Memorial Day.

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

- Mon May 26th.

Holidays in Asia this week

- Mon May 26th (US Memorial Day).

- Thu May 29th Indonesia.

- Fri May 30th Indonesia, Taiwan.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens flat at 8,362.

- NZIER: Monetary Policy Shadow Board: Recommends 25bps OCR cut this week (Wed May 28th).

China/Hong Kong

- Hang Seng opens -0.4% at 23,505; Shanghai Composite opens -0.1% at 3,346.

- Former China official: China should consider (reducing down to) a 4.0% GDP target, focus on jobs and debt over the next 5 years - SCMP.

- Reportedly draft guidelines in China propose stricter e-commerce fee regulations - China News.

- China Securities Journal: PBOC's "moderately loose monetary policy" underpinning bond market stability.

- China MOFCOM: Created action plan for 'accelerating digital intelligent supply chains' - financial press.

- Flexport CEO: Flexport had the two biggest ocean freight booking weeks in company history in the two weeks since the tariffs on China were paused. 80% growth over the pre-tariff trend line. Not just China surging, Vietnam also setting records.

- China-ASEAN Free Trade Agreement 3.0 negotiations concluded; To boost investment and trade - ASEAN Sec Gen Dr Kao Kim Hourn.

- China reportedly lowers deposit rate ceiling to protect bank's interest margins - press.

- China PBOC reportedly to offer FX convenience to overseas listed firms - press.

- China Apr YTD Foreign Direct Investment (FDI) (CNY-denominated) Y/Y: -10.9% v -10.8% prior.

- Nvidia: Reportedly Nvidia's new Blackwell-architecture AI processor designed for China market will be significantly cheaper than previous generation H20 chips and will not need TSMC's advanced packaging; Plans to begin mass production as soon as June – press.

- China PBOC 1-year Medium-Term Lending facility (MLF) setting: Leaves rate unchanged at 2.00%; Conducts CNY500B; Net injects CNY375B in liquidity (Friday update).

- China PBOC sets Yuan reference rate: 7.1833 v 7.1919 prior (strongest fix since Jan 21st).

- China PBOC Open Market Operation (OMO): Injects CNY382B in 7-day reverse repos; Net injects CNY247B v injects CNY36B prior.

Japan

- Nikkei 225 opens +0.1% at 37,209.

- 40-year JGB yield fall 7bps to 3.48%; 30-year JGB yields fall 7bps to 2.995%.

- Japan Economic Revitalization Min Akazawa: Will not comment on how far US-Japan talks have progressed; Hopes to meet with US Treas Sec Bessent on next trip to US, schedule being arranged - press interview upon returning from US to Japan.

- Japan MOF sells ¥650B v ¥650B indicated of JGBs in liquidity enhancement auction; bid-to-cover: 3.06x v 4.70x prior.

- Japan Steel Industry Head: Japan must urgently take trade measures against rising steel shipments from China.

- Japan Economic Revitalization Min Akazawa: Met with US Commerce Sec Lutnick in Washington, discussed trade measures; Both sides seeking mutually beneficial deal as soon as possible.

- President Trump supports Nippon Steel's purchase of US Steel and partnership between the companies; US Steel HQ to remain in Pittsburgh – Nikkei [ Fri night update].

- Japan's new Farm Min Shinjiro Koizumi targets Y2,000 per 5kg retail price for govt rice, as rising prices impact consumers – press [weekend update].

Korea

- Kospi opens +0.2% at 2,598.

- South Korea main opposition party (Democratic Party) DP's Lee support continues to fall ahead of Jun 3rd election, while ruling party PPP's Kim gains further ground - financial press.

- South Korea DP [opposition party] leader Lee: (If elected) would restore hotline between North and South Korea - Yonhap.

- Follow up: South Korea DP [opposition party] leader Lee: Extra budget necessary to boost domestic economy in the short term; If elected will form task force run by himself to tackle the slowing economy - financial press.

- US Defense Dept denies report of 4.5K US troops reduction in South Korea – press [weekend update].

Other Asia

- (TH) Thailand Apr Customs Trade Balance: -$3.3B v -$0.8Be.

- Vietnam, France sign nuclear energy and transport cooperation agreements, as well as collaboration in defense, security; 14 agreements overall - financial press.

- Malaysia PM Anwar: Wrote to US Pres Trump requesting a US-ASEAN Summit - financial press.

- Indonesia Pres Prabowo: Indonesia sees China as "Very Important Partner" in developing industry and tech - financial press, following meeting with China Premier Li Qiang in Jakarta.

- Taiwan Apr Industrial Production Y/Y: 22.3% v 13.9%e [weekend update].

- (SG) China Premier Li Qiang: China wants to deepen cooperation with Singapore - China state media [weekend update].

North America

- (US) Fed's Kashkari (non-voter): Uncertainty is top of mind for Fed and US businesses; When asked if Fed will move by Sept, "Anything is possible" - comments in Tokyo.

- CEO Musk: Back to spending 24/7 at work and sleeping in conference/server/factory rooms. I must be super focused on X/xAI and Tesla (plus Starship launch next week), as we have critical technologies rolling out.

- (US) White House has placed over 100 National Security Council (NSC) staffers on administrative leave - CNN (weekend update).

- (US) Reportedly EPA has a draft plan to eliminate all limits on greenhouse gases from US coal and gas-fired power plants – NYT [weekend update].

- (US) Pres Trump: Will place tariffs on Apple and Samsung for not producing in the US by end-June; Apple can build in the US, it's 'computerized' [weekend update].

- US Steel: President Trump supports Nippon Steel's purchase of US Steel and partnership between the companies; US Steel HQ to remain in Pittsburgh – Nikkei [late Friday update].

Europe

- (US) Pres Trump: Agrees to delay 50% tariff threat against EU to July 9th (prior deadline June 1st) - Truth Social post.

- (EU) Commission Pres Von der Leyen: Had "good" call with US Pres Trump to discuss trade: EU needs until July 9th to reach a "good deal" - financial press.

- (EU) Trade Commissioner Sefcovic: Spoke with USTR Greer and Commerce Sec Lutnick; EU ready to work in good faith with US - X post [weekend update].

- (SY) US Treasury Dept issues immediate sanctions relief for Syria [weekend update].

- (UR) Russia ready to give Ukraine draft document outlining conditions for long-term peace once the prisoner swap is complete - Russian state media cites Foreign Minister Lavrov [weekend update].

- (UR) Ukraine's Pres Zelenskiy: Only new sanctions will force Russia to agree to a ceasefire [weekend update].

- (IR) US and Iran made progress on nuclear talks, but more work needs to be done; Both sides agreed to meet in near future - press cites US official [weekend update].

- China Pres XI: Should collaborate with Germany on quantum technology; China ready to work with Germany to open new chapter in all-round strategic partnership - financial press [weekend update].

Levels as of 01:20 ET

- Nikkei 225 +0.8%, ASX 200 +0.1%, Hang Seng -1.1%; Shanghai Composite -0.2; Kospi +1.3%.

- Equity S&P500 Futures +1.0%; Nasdaq100 +1.1%; DAX +1.6%; FTSE100 -0.3%.

- EUR 1.1363-114.19; JPY 142.23-143.08; AUD 0.6486-0.6538; NZD 0.5982-0.6032.

- Gold +0.5% at $3,376/oz; Crude Oil +0.4% $61.78/bbl; Copper +0.7% at $4.8698/lb.