Morning Wrap (02.05.2025)

Asian markets rally on China's openness to trade talks with Hong Kong's Hang Seng leading gains, surging 2.2% as Chinese tech heavyweights Alibaba and Xiaomi jumped 4.2% and 5.4% respectively. Japan's Nikkei 225 rose 1.2%, Australia's S&P/ASX 200 climbed 1.5%, while South Korea's KOSPI and Singapore's Straits Times added 0.4% and 0.3%. Markets were buoyed by China's commerce ministry confirming it was evaluating the possibility of trade negotiations with the U.S., though emphasizing any talks must be based on "sincerity" and removal of unilateral tariffs.

U.S. futures surge following China's trade talk signals with major indexes tracking Wall Street's strong Thursday finish. China's statement that it's open to potential trade dialogue with the U.S. significantly improved market sentiment, erasing earlier losses in futures trading. China's commerce ministry confirmed U.S. officials had reached out through various channels seeking to start talks, noting that "if we fight, we will fight to the end; if we talk, the door is open," while warning that "trying to coerce and blackmail under the guise of talks will not work."

Oil prices rebound but remain on track for steep weekly losses with Brent gaining 1.05% to $62.62 and WTI up 1.09% to $59.61 in Asian trading. Despite Friday's recovery on China trade talk optimism, both benchmarks are set to decline between 5-7% for the week amid soft economic data from the U.S. and China raising demand concerns. Markets remain focused on next week's OPEC+ meeting (May 5), where the cartel is widely expected to announce production increases as Saudi Arabia has reportedly signaled unwillingness to further support prices with supply cuts.

Asian currencies strengthen sharply against weakening dollar as regional FX markets welcomed signs of potential U.S.-China trade talks. The Taiwan dollar was the standout performer, strengthening 2.7% to reach its highest level in nearly 14 years, while the South Korean won and Indian rupee gained 1% and 0.9% respectively. The offshore Chinese yuan firmed 0.3%, with the Japanese yen lagging its peers with only a 0.1% gain as dovish Bank of Japan comments raised doubts about further rate hikes this year.

Apple warns of $900 million tariff impact after reporting strong quarterly earnings that beat expectations with $95.4 billion in revenue and $1.65 EPS. CEO Tim Cook noted limited Q1 tariff impact due to supply chain optimization but warned of $900 million in tariff-related costs for the current quarter. Apple has reduced its share buyback program by $10 billion and disclosed it now sources approximately half of U.S.-bound iPhones from India and most other products from Vietnam. The company expects "low to mid-single digits" revenue growth in the June quarter.

Japanese GDP expected to contract in Q1 according to a Reuters poll forecasting a 0.2% annualized contraction, marking the first negative growth since Q1 2024. The anticipated decline follows the previous quarter's 2.2% expansion, with analysts citing higher food costs impacting consumer sentiment despite favorable employment conditions. While exports increased for the fourth consecutive quarter as businesses rushed shipments ahead of tariff deadlines, imports likely outpaced exports, resulting in a net negative contribution to growth.

Amazon beats earnings expectations but offers soft guidance reporting $1.59 EPS on revenue of $155.7 billion versus expectations of $1.36 EPS and $155.1 billion in revenue. The company's AWS cloud division saw 17% year-over-year growth to $29.3 billion in line with estimates. However, Amazon projected Q2 operating income of $13-17.5 billion, below analyst expectations of $17.8 billion, and warned of a 10-basis-point impact to Q2 sales, likely reflecting ongoing trade war concerns.

Investors turn bullish on most Asian currencies according to a Reuters poll showing increased long positions on the Singapore dollar, Indian rupee, Thai baht, and Philippine peso. Analysts have also turned positive on the South Korean won, Taiwan dollar, and Malaysian ringgit for the first time since October as the dollar experienced its weakest monthly performance in 2.5 years during April. The Philippine peso, which gained 2.6% in April, saw bullish bets reach their highest since mid-September as the country faces comparatively modest 17% tariffs versus other Southeast Asian economies.

Japan warns it could leverage U.S. Treasury holdings in trade talks as Finance Minister made the first explicit mention of potentially using Japan's $1 trillion-plus holdings of U.S. Treasuries as leverage in negotiations with Washington. The statement underscores growing tensions despite the Bank of Japan maintaining interest rates at 0.5% yesterday while reducing its growth forecast for the year. Japan earlier announced an emergency economic package to counter U.S. tariff impacts, including subsidies to lower gasoline prices and partial coverage of electricity bills.