Morning Wrap (23.05.2025)

Asian markets gain as Treasury yields retreat, though U.S. fiscal concerns persist. Most regional indices rose Friday despite a volatile week centered on government debt worries. Japan's Nikkei 225 and TOPIX climbed 0.8% each, shrugging off stronger-than-expected inflation data. Chinese markets outperformed weekly with Shanghai Composite up 0.5% for the week and CSI 300 gaining 0.9%, benefiting from tariff deescalation optimism. Hong Kong's Hang Seng rose 0.5% Friday for a 1.1% weekly gain. S&P 500 futures edged higher marginally, though Wall Street faces 1.5-2% weekly losses.

Japan's core inflation surges to two-year high at 3.5%, raising BOJ rate hike odds. April core CPI exceeded forecasts, accelerating from 3.2% in March and marking the fastest pace since January 2023. A refined core measure excluding food and energy reached 3.0%, well above the BOJ's 2% target. Strong wage hikes from spring negotiations boosted consumer spending, with food inflation jumping to 7.0%. ING analysts now expect a 25 basis point BOJ rate hike in July, though uncertainty over U.S. tariffs may limit further moves until early 2026.

Dollar set for weekly decline amid fiscal deficit fears following narrow House passage of Trump's tax bill. The "One Big Beautiful Bill" is projected to add $3.8 trillion to national debt over a decade, following Moody's recent U.S. credit downgrade. Dollar Index fell 0.3% in Asian hours and faces a 1% weekly drop. Japanese yen strengthened 1.5% for the week as USD/JPY fell 0.4% Friday. Asian currencies broadly gained with South Korean won up 0.5% and Philippine peso rising 0.6%.

Oil prices drop for fourth straight session on OPEC+ supply concerns. Brent crude fell 0.5% to $63.53 and WTI declined 0.5% to $60.87, both heading for first weekly decline in three weeks. Bloomberg reported OPEC+ considering 411,000 bpd output increase for July at June 1 meeting. Weekly losses reached 1.9% for Brent and 2.5% for WTI. U.S. crude storage demand has surged to COVID-pandemic levels as traders brace for supply increases. Fifth round of U.S.-Iran nuclear talks scheduled for Rome Friday.

Japan-U.S. trade talks intensify with a fourth round planned for May 30. Top negotiator Ryosei Akazawa will return to Washington next week to meet Treasury Secretary Scott Bessent, who couldn't attend Friday's third round with Commerce Secretary Lutnick and Trade Representative Greer. Prime Minister Ishiba held a 45-minute call with Trump discussing tariffs and economic cooperation. Japan maintains demand for complete tariff elimination while facing 10% general duties plus 25% auto tariffs by the July deadline.

Major U.S. banks explore joint stablecoin launch to counter crypto competition. JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo are in early discussions alongside Early Warning Services and Clearing House. The initiative awaits GENIUS Act legislation, which passed a key Senate procedural vote this week. Banks aim to leverage stablecoins for faster cross-border payments while preventing deposit base erosion from big tech entrants.

Foxconn advances India expansion despite Trump pressure with a $1.5 billion display facility planned for Tamil Nadu. The Apple supplier proceeds with major investments including an approved $450 million chip assembly plant in Uttar Pradesh, as India emerges as an alternative to China manufacturing. Trump recently told CEO Tim Cook "we are not interested in you building in India," calling for U.S. production return. Reports suggest all U.S.-sold iPhones may eventually come from India due to China tariffs.