US trade policies enter uncertain and unchartered territory

Asia Market Update: US trade policies enter uncertain and unchartered territory, as Trump Admin threatens 15% tariff via different means instead of min. 10% in response to US CIT ruling; JP-US trade announcement expected after the close NYT; Focus on US Apr Core PCE.

General trend

- As correctly foreshadowed last night by Goldman Sachs to be an option following the NY-based International Court of Trade ruling Trump’s tariffs as “illegal*, in response Trump Admin said to be considering to roll out another trade weapon, announcing a "Stop gap" tariff measure under Trade Act provision, allowing for tariffs of up to 15% for 150 days.

- The stop gap would leverage Section 122 (19 U.S.C. § 2132, international payments), imposing a 15% tariff for 150 days while Section 301/232 tariffs are rolled out country by country. The CRS notes Section 122 requires no agency findings, has no duration limit beyond 150 days, and has never been used,

- Effectively would mean a 5% increase in the current 10% minimum tariff being imposed by the US on all trading partners, which may potentially provide the US increased leverage to strike more trade deals with countries at the 10% level.

- No major equity reaction to the headline above (unlike CIT's ruling yesterday), smart money followed Goldman yesterday? Asian equities gave up most of their substantial gains yesterday. USD/Yen pares further.

- Anticipation of some kind of a trade announcement after the close Fri NYT ~5pm by Japan and US sides, with Japan Trade rep Akazawa saying he was likely to meet Treas Sec Bessent on May 30th, Fri "US time".

- Japan's ‘data dump’ slightly bullish for potential BOJ rate hikes and higher inflation with retail sales y/y and Tokyo CPI both slightly beating estimates overall. Industrial production also higher than expected while jobless steady.

- Unexpected announcement from a major news wire citing having seen a plan of a "permanent" Israel-Hamas ceasefire, reportedly 'guaranteed' by US Pres Trump. Oil and equities unmoved by the news, that had no timeline attached.

- Japan METI is setting up a panel to recommend businesses prioritize investment over stock buybacks. May have effect of dampening the significant increase in buybacks by Japanese corporations over the past couple of years (often under pressure to do so from foreign activist holders).

- US equity FUTs -0.2% during Asian trading.

- Fri May 30th (Fri night US Apr Core PCE).

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 -0.1% at 8,405.

- AUSTRALIA APR RETAIL SALES M/M: -0.1% V 0.3%E [decline since Dec 2024].

- Australia Apr Building Approvals M/M: -5.7% v 3.0%e.

- Australia Apr Private Sector Credit M/M: 0.7% v 0.5%e; Y/Y: 6.7% v 6.5% priorh.

- Australia sells A$800M v A$800M indicated in 4.25% Mar 2036 bonds, Avg Yield: 4.3306% v 4.4074% prior, bid to cover 2.58x v 3.37x prior.

- New Zealand Apr Building Permits M/M: -15.6% v 9.6% prior.

- New Zealand May ANZ Consumer Confidence: 92.9 v 98.3 prior.

- RBNZ Assist Gov Silk: Reiterates 'enormous' uncertainty around US trade policy, cannot react to 'every twist and turn'.

China/Hong Kong

- Hang Seng opens -1.0% at 23,339; Shanghai Composite opens -0.1% at 3,358.

- (US) Xinhua: Ports in California face ‘economic devastation’ as tariffs ‘cripple’ trade with Asia-Pacific; cites comments from the Chief Executive of the Port of Long Beach Mario Cordero update.

- China Securities Times: China might expand PSL to support trade (Pledged Supplementary Lending facility).

- China said to announce Finance Policies at this year's Lujiazui Forum - press.

- China Finance Ministry (MOF): Stress focus on financial risk prevention [overnight update].

- China Defense Ministry Spokesperson: Military is open to communication with US [overnight update].

- China Foreign Ministry: US push to revoke Chinese student visas is unreasonable; We have lodged complaint with US [overnight update].

- China PBOC sets Yuan reference rate: 7.1848 v 7.1907 prior.

- China PBOC Open Market Operation (OMO): Injects CNY291B in 7-day reverse repos; Net injects CNY149B v injects CNY112B prior.

Japan

- Nikkei 225 opens -1.3% at 37,919.

- JAPAN APR RETAIL SALES M/M: 0.5% V 0.5%E; Y/Y: 3.3% V 3.0%E.

- JAPAN APR PRELIMINARY INDUSTRIAL PRODUCTION M/M: -0.9% V -1.4%E; Y/Y: 0.7% V 0.1%E.

- JAPAN MAY TOKYO CPI Y/Y: 3.4% V 3.4%E; CPI (EX-FRESH FOOD) Y/Y: 3.6% V 3.5%E (highest since Jan 2023); CPI (ex-fresh food/energy) Y/Y: 3.3% v 3.2%e (Fastest annualized pace since Jan 2024).

- JAPAN APR JOBLESS RATE: 2.5% V 2.5%E.

- Japan Apr Annualized Housing Starts: 626K v 700Ke; Y/Y: -26.6% v -18.1%e (lowest Housing Starts since Oct 2009).

- Japan BOJ Gov Ueda: We are aware of firms' aggressive price- and wage-setting behaviour continuing - parliamentary testimony.

- Japan Economic Revitalization Min and Top Trade Negotiator Akazawa: Confirms to meet US Treas Sec Bessent for US-JP tariff talks - financial press.

- Japan METI panel to call for business investment in preference to stock buybacks - Japanese press.

- Toyota Motors 7203.JP: Plans to raise Jun-Aug Global Output to 2.5M units, +10% y/y - Japanese press.

- Japan PM Ishiba: Exchanged views on tariffs issues with Trump during call; Japanese Govt initiated the call; Believes to have a deeper understanding with Trump [overnight update].

- Japan Agriculture Min Koizumi confirms Japan to partially restart seafood exports to China; Aims to seek a complete lifting of seafood ban - financial press.

- Japan and China said cooperating to resume Japanese seafood exports to China - Japanese press [overnight update].

- Japan sells ¥4.5T vs. ¥4.5T indicated in 3-Month Bills; Avg Yield: 0.4083% v 0.3818% prior; bid-to-cover: 2.76x v 3.31x prior.

Korea

- Kospi opens -0.3% at 2,713.

- South Korea Apr Industrial Production M/M: -0.9% v +0.5%e; Y/Y: 4.9% v 4.0%e.

- South Korea MOF to monitor Bank of Korea (BOK) rate cut yesterday in terms of impact on housing markets - financial press.

Other Asia

- (IN) India Trade Min Agrawal: Several nations want Free Trade Agreements (FTA) with India; In talks with US, New Zealand and Gulf nations.

- Taiwan Central Bank (CBC) Annual Financial Stability Report; Life insurers face higher market risks [overnight update].

North America

- *(US) Trump Admin said to consider "Stop Gap" tariffs under Trade Act provision; Allows for tariffs of up to 15% for 150 days - WSJ.

- (US) White House Chief of Staff Susie Wiles has reportedly told associates that a hacker gained access to her phone contacts - WSJ.

- (US) Pres Trump on US Court of International Tariffs; Court incredibly ruled against the United States of America on desperately needed Tariffs but, fortunately, the full 11 Judge Panel on the U.S. Court of Appeals for the Federal Circuit Court has just stayed the order.

- US reported to reject request for publishing solar tariff ruling by June 2nd - US ITC comments.

- (US) Fed's Kashkari (non-voter): Tariffs are likely to be pushing up inflation - financial press, speaking from event in Tokyo.

- US) Fed's Logan (non-voter): If balance or risks shift, Fed is well prepared to respond; monetary policy is in a 'good place'.

- US Commerce Sec Lutnick: Countries want to make a deal with the US; Trade policy is going forward - Fox News interview.

- *(US) APPEALS COURT REINSTATES TRUMP TARIFFS UPON APPEAL, TEMPORARILY HALTING LAST NIGHT'S US COURT OF INTERNATIONAL TRADE DECISION.

- (US) White House trade adviser Navarro: The administration fully expected favorable ruling on tariffs; The court told us to do tariffs a different way in yesterday's ruling.

- (US) Redfin: There are 33.7% more homesellers than homebuyers v just 6.5% delta y/y v two years ago, buyers outnumbered sellers; At no other point in records dating back to 2013 have sellers outnumbered buyers by this large of a number or percentage.

- (US) White House NEC Dir Hassett: Judges' decision on US tariffs will be overturned; Confident in success of appeal of tariff ruling; Three trade deals are basically done - Fox Business.

- (CA) Canada Q1 Current Account: -$2.1B v -$3.2Be.

- (US) Q1 PRELIMINARY GDP ANNUALIZED Q/Q: -0.2% V -0.3%E; PERSONAL CONSUMPTION: 1.2% V 1.7%E.

- (US) Q1 PRELIMINARY GDP PRICE INDEX: 3.7% V 3.7%E; CORE PCE PRICE INDEX Q/Q: 3.4% V 3.5%E.

- (US) INITIAL JOBLESS CLAIMS: 240K V 230KE (above all estimates); CONTINUING CLAIMS: 1.919M V 1.892ME (highest since end-2023).

- (US) APR PENDING HOME SALES M/M: -6.3% V -1.0%E; Y/Y: -3.5% V 2.7%E.

- (US) WEEKLY EIA NATURAL GAS INVENTORIES: +101 BCF VS. +95 BCF TO +98 BCF INDICATED RANGE.

- (US) Fed's Goolsbee (voter): If tariffs are avoided by a deal or otherwise, could return to situation where rates can come.

- (MX) Mexico Central Bank (Banxico) Apr Minutes: All board members say there exists high level of uncertainty.

- (US) Treasury's $75B 4-week bills draw 4.215% v 4.220% prior, BTC 2.92x v 2.78x prior; $65B 8-week bills draw 4.225% v 4.235% prior, BTC 3.07x v 2.89x prior.

- (US) DOE CRUDE: -2.8M V -0.5ME; GASOLINE: -2.4M V -0.5ME; DISTILLATE: -0.7M V +1ME.

- (US) White House Press Sec Leavitt: Pres Trump told Fed Chair Powell he's making a mistake in not lowering interest rates.

Europe

- *(IL) ISRAEL- HAMAS PERMANENT CEASEFIRE AGREEMENT SAID TO BE 'GUARANTEED' BY US PRES TRUMP; Remaining Israeli hostages to be released after implementation of permanent ceasefire; Israeli military operation would cease upon implementation of ceasefire agreement [start date uncertain] - Financial press, citing having seen the plans.

- (UK) BOE's Taylor: I'm seeing more risk piling up on the downside scenario because of global developments; A trade war is going to be negative for growth - FT.

- (UK) May Lloyds Business Barometer: 50 v 39 prior.

- (ZA) SOUTH AFRICA CENTRAL BANK (SARB) CUTS INTEREST RATES BY 25BPS TO 7.25%; AS EXPECTED (corrected).

- (UK) BOE Gov Bailey: There is merit in seeking to increase the openness hf our financial markets by reducing tariffs; Merit in seeking to cut non-tariff barriers.

- (DE) Germany said to consider 10% digital tax on big tech companies - FT.

Levels as of 01:20 ET

- Nikkei 225 -1.1%, ASX 200 +0.1%, Hang Seng -1.5%; Shanghai Composite -0.3%; Kospi -1.0%.

- Equity S&P500 Futures -0.2%; Nasdaq100 -0.2%; DAX flat; FTSE100 +0.1%.

- EUR 1.1343-113.90; JPY 143.44-144.24; AUD 0.6423-0.6452; NZD 0.5960-0.5990.

- Gold -0.9% at $3,315/oz; Crude Oil -0.3% $60.74/bbl; Copper -0.3% at $4.6580/lb.