Trump-Xi call settles nerves, for now –Trump-Musk feud de-escalates

Asia Market Update: Trump-Xi call settles nerves, for now; Trump-Musk feud de-escalates; US-JP trade talks deepen; RBI unexpectedly large cuts; US May NFP tonight.

General trend

- Reports of cordial call between US Pres Trump and China Pres Xi helped Nikkei outperform, though modestly +0.5%. (Korea’s outperforming Kospi closed for holiday after further extending yesterday to a 20% rally).

- Practically, however, the Trump-Xi call showed the two sides not having closed any substantive gaps on key issues. Both indicated the conversation was largely about trade and will result in another round of high level talks and perhaps a face-to-face meeting down the road. Talks may be complicated by later reporting of Iran ordering material from China that could make "hundreds of ballistic missiles".

- Musk-Trump spat descended into outright warfare online, with Musk shifting into a higher gear from the ‘Big Beautiful Bill’ being a ‘disgusting abomination’, to claiming that Trump is in the Epstein files (saying that is really why they haven’t been released) and even shared a post on social media calling for Trump's impeachment. Trump responding by threatening to take away Musk’s government subsidies and contracts (which would include SpaceX). Tesla fell -17% at its worst point as the spat continued. Tesla’s $150B market cap loss was biggest in its history.

- However, first signs of de-escalation later in the Asia session, with Musk posting on X; “Good advice. OK, we won’t decommission Dragon” after having earlier threatened to 'begin decommissioning its Dragon spacecraft "immediately"; US Pres Trump's aides have scheduled a call with Musk on Friday; Trump regarding Musk feud: 'It's Okay'.

- In trade news Japan proposed car tariff reductions to the US, while also presenting a 'China measures' package' including rare earth supply chains. Trade rep Akazawa met with US Commerce Sec Lutnick in DC for 110 minutes, with the two discussing non-tariff barriers and trade expansion.

- Japanese yields curve continued to soften at the long-end. Comes as Japanese consumers having to queue for 'hours' to buy the essential staple of rice; threatens to be a big issue in the upcoming July elections.

- The US Treasury semi-annual currency report added Switzerland and Ireland to FX monitoring list; China not named a currency manipulator but "stands out for lack of transparency."

- USD generally stronger after weakness overnight, with the exception of the Korean Won which has moved up to levels not seen since late Sept 2024.

- Reserve Bank of India unexpectedly cut the Repurchase Rate by 50bps (25bps expected) and the Cash Reserve Ratio by 100bps (no cut expected), yet changed the monetary policy stance back to Neutral from Accommodative. India 10-year yields -6bps on the unexpected cuts.

- Lululemon -22% after-hours on a poor outlook post-earnings.

- US May nonfarm payrolls tonight under additional scrutiny following JOLTS and ADP. US treasuries have stabilized from Wed.

- US equity FUTs +0.4% late during Asian trading.

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

- Fri Jun 6th (Fri US May Non-Farm Payrolls).

Holidays in Asia this week

- Mon Jun 2nd China, Malaysia, New Zealand.

- Tue Jun 3rd South Korea, Thailand.

- Fri Jun 6th Indonesia, Singapore, South Korea.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens +0.1% at 8,543.

- Australia sells A$800M v A$800M indicated in 1.50% Jun 2031 bonds; Avg Yield: 3.7539% v 4.1259% prior; bid-to-cover: 2.48x v 4.56x prior.

- Follow up: Australia reported to have signed long-range precision strike missile agreement with the US - financial press.

China/Hong Kong

- Hang Seng opens +0.1% at 23,941; Shanghai Composite opens flat at 3,384.

- US Pres Trump: Concludes 'Great' phone call with China Pres Xi about trade including rare earths; Confirms their teams will meet soon at a location to be determined - Truth Social.

- CHINA PRES XI: US SHOULD REMOVE NEGATIVE MEASURES ON CHINA; US AND CHINA SHOULD INCREASE COOPERATION ON ECONOMY AND TRADE; XI AND TRUMP AGREE TO START NEW ROUND OF TALKS – CCTV [overnight update].

- China Pres Xi and US Pres Trump hold phone call; Call was held at Pres Trump's request - Chinese state media [overnight update].

- China VP Han Zheng meets US delegation; China-US relations at 'critical juncture' - Chinese state media [overnight update].

- China May Preliminary Retail Passenger Vehicle Sales M/M: +10.0% v -8.0% prior; Y/Y: +13% v +17% prior – PCA [overnight update].

- China reportedly told EV markers to self-regulate due to price war heating up [overnight update].

- China reportedly expands global income tax crackdown beyond ultra-rich – press [overnight update].

- China MOF sells 5-year, 7-year and 10-year Special Sovereign bonds.

- China PBOC sets Yuan reference rate: 7.1845 v 7.1865 prior.

- China PBOC Open Market Operation (OMO): Injects CNY135B in 7-day reverse repos; Net drains CNY156B v drains CNY140B prior.

Japan

- Nikkei 225 opens +0.1% at 37,610.

- Japan Apr Household Spending Y/Y: -0.1% v 1.5%e.

- Japan Apr Preliminary Leading Index CI: 103.4 v 103.9e; Coincident Index: 115.5 v 115.4e.

- Japan May Total Reserve Assets: $1.30T v $1.30T prior (update).

- Japan Trade Negotiator Akazawa met with US Commerce Sec Lutnick earlier today (Jun 5th) for 110 minutes - Japan govt.

- Japan consumers said to be queuing for 'hours' to buy rice as shortage crisis intensifies - financial press.

- US Envoy to Japan Glass: Cannot conceive of a world dominated by a 'coercive China' - financial press.

- Japan PM Ishiba: Need negotiations with the US for a 'win-win' relationship - comments in parliament.

- Follow up: Japan proposes car tariff reduction mechanism to the US - Asia press.

- Japan Fin Min Kato: Reiterates will leave specifics of monetary policy to the BOJ; Will not comment on US FX reports - financial press.

- Japan Trade Negotiator Akazawa: There's no change in Japan's stance of wanting a full tariff reprieve.

- (JP) Japan Trade Min Muto: No change to Taiwan Semi's No 2 Japan plant production start plans - financial press.

- Japan sells ¥4.4T vs. ¥4.4T indicated in 3-Month Bills; Avg Yield: 0.4529% v 0.4083% prior; bid-to-cover: 3.11x v 2.76x prior.

- Japan reportedly to present 'China measures' package in trade talks with US; Also to propose collaboration on rare earth supply chains – Nikkei [overnight update].

Korea

- Kospi closed for holiday

- Korea Finance Ministry: To continue to discuss FX 'closely' with the US - statement, following Treasury FX report.

Other Asia

- INDIA CENTRAL BANK (RBI) CUTS REPURCHASE RATE BY 50BPS TO 5.50%; NOT EXPECTED; (rates now at lowest since Aug 2022; Changes stance back to Neutral from Accommodative in April).

- India Central Bank (RBI) cuts Cash Reserve Ratio (CRR) by 100 BPS to 3.00%, larger than expected cut [unchanged was expected].

- Taiwan Central Bank (CBC); Reiterates that the US did Not ask for a stronger TWD - Press.

- Vietnam May Trade Balance: $0.5B v $0.4Be.

- Vietnam May CPI Y/Y: 3.2% v 3.2%e.

- Vietnam May Retail Sales Y/Y: 10.2% v 11.1% prior.

- Vietnam May Industrial Production Y/Y: 9.4% v 8.9% prior.

- Taiwan May CPI Y/Y: 1.6% v 1.8%e [overnight update].

- India said to plan incentives for domestic rare earth magnet production amid threats to supply – press [overnight update].

North America

- US Pres Trump's aides scheduled a call with Musk for Friday; Time not disclosed – Politico; US Pres Trump regarding Musk feud: 'It's Okay'.

- SPACEX.IPO CEO Musk: “Good advice. OK, we won’t decommission Dragon” - post on X, in reply to a regular user of X plea to "cool off and take a step back for a couple of days'. [Earlier Musk threatened on an X post to 'begin decommissioning its Dragon spacecraft "immediately" ].

- Tesla (US) Follow up: White House Press Sec Leavitt: Musk has a right to speak for his companies; Pres Trump's focus in on passing Republican tax bill - Fox News interview.

- (CA) PM Carney and China Premier Li Qiang discussed bilateral relations and trade.

- (US) May Challenger Job Cuts: 93.8K v 105.4K prior; Y/Y: +47.0% v +62.7% prior.

- (US) House Speaker Johnson: Have exchanged texts with Elon Musk; Will talk to Musk this morning - TV interview.

- (US) APR TRADE BALANCE: -$61.6B V -$66.0BE.

- (US) Q1 FINAL NONFARM PRODUCTIVITY: -1.5% V -0.8%E; UNIT LABOR COSTS: 6.6% V 5.7%E.

- (US) INITIAL JOBLESS CLAIMS: 247K V 235KE; CONTINUING CLAIMS: 1.90M V 1.91ME (highest since Oct 2024).

- (US) Trump: Elon Musk and I had a great relationship, don't know if we will anymore; Musk is upset we took away the EV mandate.

- (US) Fed's Kugler (voter): April spending and income point to slight moderation in activity; Progress on core goods inflation has reversed; Already seeing effects of higher tariffs, expects that will continue to raise inflation over 2025 - speech text.

- (CA) Canada PM Carney and US Pres Trump are quietly holding direct talks on a trade and security deal - Canadian press

- (US) Elon Musk: Without me, Trump would have lost the election and Democrats would control the House; 'Such ingratitude'.

- (US) Fed's Harker (non-voter): Must wait for more detail of tariff impact on economy; Possible, not certain Fed will face higher prices and unemployment.

- (US) Fed's Schmid (voter; hawk): Extent on tariff's drag on growth and unemployment is unclear; Expect tariffs to star to show though in prices in coming months - speech text.

- (US) Trump: Elon was “wearing thin,” I asked him to leave, I took away his EV Mandate that forced everyone to buy Electric Cars that nobody else wanted (that he knew for months I was going to do!), and he just went CRAZY!; Easiest way to save money in our Budget, Billions and Billions of Dollars, is to terminate Elon’s Governmental Subsidies and Contracts.

- (US) Elon Musk: Trump asking him to leave is 'a lie'; realDonaldTrump is in the Epstein files.

Europe

- (RU) EU said to be considering adding Russia to the 'grey list' for money laundering - FT.

- (IR) Iran said to have ordered material from China that could make "hundreds of ballistic missiles" - WSJ.

- (IE) Ireland May Unemployment Rate: 4.0% v 4.1% prior.

- (IE) Ireland Q1 Preliminary GDP Q/Q: 9.7% v 3.2% prior; Y/Y: 22.2% v 13.3% prior.

- (EU) ECB CUTS KEY RATES BY 25BPS; AS EXPECTED; Notes uncertainty is exceptional.

- (EU) ECB JUNE STAFF PROJECTIONS AND SCENARIO ANALYSES; Cuts FY25 26 headline inflation forecast.

- (PL) Poland Central Bank (NBP) Gov Glapinski: Domestic CPI remains 'markedly' above target in May; In Q2 GDP growth may accelerate; Future decisions will depend on data.

- (EU) ECB Chief Lagarde: Decision was almost unanimous with one member dissenting against the 25bps cut; 'Just nearly' concluded policy cycle but not confirming a pause - Q&A.

- (DE) Auto parts supplier MAHLE: See risk of production outages due to rare earth export curbs; Situation is highly critical.

Levels as of 01:20 ET

- Nikkei 225 +0.5%, ASX 200 -0.1%, Hang Seng -0.4%; Shanghai Composite -0.1%; Kospi closed.

- Equity S&P500 Futures +0.4%; Nasdaq100 +0.4%; DAX -0.1%; FTSE100 +0.1%.

- EUR 1.1431-1.1458; JPY 143.45-143.96; AUD 0.6493-0.6518; NZD 0.6027-0.6051.

- Gold +0.5% at $3,392/oz; Crude Oil -0.4% $63.13/bbl; Copper +0.1% at $4.9165/lb.