US rate navigation, global tariff tensions
By Jamie McGeever
(Reuters) – Look at the upcoming days for the Asian market.
The Asian market is aiming for a rocky opening on Monday after continuing to sell Wall Street on Friday. US inflation comes after fears of the bubble-up and the world trade war intensifies, and President Donald Trump said earlier this week that he plans to announce mutual tariffs on many economies.
Trump’s comments show the escalation of his “America’s first” attack to restructure global trade ties. Recently, it has been accompanied by tariffs in Mexico and Canada, but otherwise many Asian economies are vulnerable.
This only deepens nervous emotions after Friday’s bruise day, where the big three US indexes were lost over 1%. Australia and Japan’s stock futures point to a cut in opening on Monday.
The negative tone extends primarily to the US Employment Report on Friday, showing slower employment growth, but with lower unemployment and surprisingly strong wage growth. Rate traders are currently fully priced this year with just one Fed rate cut, not until October.
The “risk-off” response shows that the impact on inflationary pressures and interest rates weighs heavily on investors’ minds than any other aggressiveness from strong growth signals. The survey in the US Consumer Inflation Expectations Survey on Friday was particularly strong.
That said, the dollar and US yields have been on a downward path in recent weeks as some key indicators suggest that US growth could slow down. It helped ease the financial position and offset some of the technology and revenue-related sales on Wall Street.
When inflationary pressure in the US is bubbly, they are pointing in the opposite direction of China – numbers on Sunday showed that the battle against deflation is over.
Consumer price inflation rate rose 0.7% in January, slightly slower than expected, up 0.5% per year, the highest since August. Producer prices fell at an annual rate of 2.5%, but a much faster decline than the -2.3% consensus view in Reuters polls.
Annual producer inflation has been negative since October 2022. It is no wonder that the Chinese government’s bond yields have hit record lows.
This is a completely different story in Japan, where bond yields and currencies are rising. The two-year government bond yield is the highest since 2008, with the yen valuing 5% per month.
According to Goldman Sachs, Japan’s financial position is the toughest in five months, and if the latest signal from the Bank of Japan is believed to be believed, they could be even tighter.