Morning Wrap (16.05.2025)

Asian markets mixed to end the week with mixed cues from Wall Street's middling overnight close. Hong Kong's Hang Seng index declined over 1%, weighed down by Alibaba's 5%+ tumble after disappointing Q4 earnings. Mainland Chinese markets retreated with the Shanghai Shenzhen CSI 300 and Shanghai Composite falling about 0.4% and 0.3% respectively. However, Australian stocks outperformed, rising 0.7% on expectations of a central bank rate cut.

U.S. stock futures subdued with S&P 500 Futures down 0.1%, as the early-week rally driven by U.S.-China trade détente loses momentum. Traders grow wary that the rebound may have overshot amid concerns over how the tariff situation might evolve after the 90-day reduction period. Bond markets found support from Thursday's unexpected fall in U.S. producer prices, pushing 10-year Treasury yields down 3 basis points to 4.424%.

Japan's economy contracts more than expected with Q1 GDP shrinking 0.7% year-on-year, far exceeding forecasts of a 0.2% decline. The contraction, Japan's first in a year, was driven by weakening exports and flat consumer spending, highlighting the impact of U.S. tariffs and global trade uncertainties. The Nikkei 225 shed 0.5% and TOPIX lost 0.3% following the disappointing data.

BOJ board member warns against rate hikes amid U.S. tariff concerns as Toyoaki Nakamura, known as the most dovish member of the board, urged the central bank to hold off raising interest rates. "Japan's economy is facing mounting downward pressure," Nakamura warned, citing how U.S. tariffs on Japan's automobile sector could seriously hurt corporate profits. Most economists now expect the BOJ to maintain current rates through September.

Trump announces $200+ billion in UAE deals during his visit to the Gulf state, including a $14.5 billion commitment from Etihad Airways to purchase 28 Boeing 787 and 777X aircraft powered by GE engines. Etihad confirmed the order, with delivery expected from 2028. The White House announced the UAE would invest in or finance U.S. data centers "at least as large and powerful as those in the UAE," strengthening AI cooperation between the countries.

Oil prices stabilize after sharp declines with Brent crude futures steady at $64.55 per barrel and WTI edging up 0.1% to $61.22 after both contracts fell more than 2% Thursday on Iran nuclear deal prospects. President Trump stated the U.S. was "very close" to securing a deal with Iran, with NBC News reporting that Tehran is prepared to sign if all economic sanctions are lifted, potentially bringing significant Iranian oil back to global markets.

U.S. dollar remains weak, boosting Asian currencies with the Dollar Index falling 0.2% following sharp declines earlier in the week driven by soft U.S. inflation data. The Japanese yen strengthened against the dollar despite weak GDP data, while the South Korean won's USD/KRW pair fell 0.3%. Other regional currencies including the Singapore dollar and Australian dollar also gained ground against the greenback.

Nvidia reportedly planning Shanghai R&D center according to Financial Times, as the chipmaker seeks to maintain its edge in China amid tightening U.S. export controls. CEO Jensen Huang reportedly discussed the plan with Shanghai's mayor last month. The center would research Chinese customer requirements and technical specifications needed to meet Washington's export restrictions, though actual core design and production would remain overseas.

SpaceX awaits Starship Flight 9 approval as the FAA approved license modifications but won't allow launch until it closes the Flight 8 investigation or makes a return to flight determination. The approval includes increasing the number of launches at Boca Chica, Texas, from five to as many as 25. The FAA is currently reviewing SpaceX's mishap report submitted May 14 following the March explosion of Starship Flight 8.