Morning Wrap (05.02.2025)

• The new session in Asian markets brings a deterioration in investor sentiment. Chinese markets are performing particularly poorly, with CHN.cash and HK.cash contracts losing 1.6% and 1.5%, respectively, and resuming trading after the recent New Year celebrations.

• The reason for these sell-offs is a new update on trade tensions. U.S. Customs announced that U.S. tariffs will apply to both Hong Kong and mainland China.

• What's more, the White House announced the end of a tax exemption that allowed packages valued at less than $800 to enter the U.S. duty-free. The exemption fueled the rapid growth of Chinese discount retailers such as Temu, allowing them to ship a wide range of low-cost products. The U.S. Postal Service will temporarily suspend acceptance of international packages coming from China and Hong Kong until further notice.

• January's Caixin Services PMI for China surprised on the downside with a reading of 51.0 (versus 52.2 in December).

• US equity futures were subdued with sentiment not helped by Alphabet' earnings which missed on Google Cloud revenue and fell 7.6% after hours.

• Wage data from Japan (i+4.8% y/y in December) surprised today with a higher reading, reinforcing the prospect of a Bank of Japan interest rate hike in the near term. Moreover, former BoJ banker Hideo Hayakawa admonished that interest rates will be higher than the market expects. The Japanese yen is gaining against other currencies in the face of this hawkish news and a higher reading on the services PMI data, which came in at 53 versus the previous 50.9.
• Fourth quarter employment data came out of New Zealand today, indicating rising unemployment (5.1%; in line with forecasts) and a net loss of jobs in the economy. However, the data did not trigger excessive price movements on New Zealand-linked instruments, as the reading was almost in line with market expectations. 
• The most important macro reports of the day today include, among others: the final PMIs for services and PPI for the Eurozone, ADP and ISM data for services in the US, potential reports on the Trump-Xi conversation.
• Market volatility in other instruments is limited this morning, with the exception of precious metals, which are resuming sizable gains. Gold is currently adding 0.7%, thus hitting new historic highs at $2860 per ounce. 

Heatmap of volatility currently observed in the forex market. Source: xStation