China narrows trade surplus with the US ahead of 'talks', excess exports go to ASEAN, EU

General trend

- Nikkei outperformed Asia +1.4% on the back of higher US equities overnight, the first time to break 37K since Mar 28th.

- Weaker Japan labor earnings across the board for March amid USD/JPY strength back above 146, at highs last seen Apr 10th, even as 40-year JGB yields rose to a record 3.35% - highest since the bond was launched in 2007; JP 10-years also up +4bps to 1.36% (**Note: USTs also up ~10bps overnight, with a weak 30-year bond auction).

- China said to be considering a “new model” for real estate development, whereby developers would only be able to offer completed properties for sale, instead of using the pre-sales model that has exacerbated the housing crisis, now in its fourth year.

- China’s April trade surplus with the US fell to $20.5B (v $27.6B prior), with China implied exports to US down -21.0%. Yet the China trade figures only fell slightly m/m, with the overall trade balance higher than expected with exports rising by +8%; The hole turned out to be filled by increased China exports to ASEAN, +20.8% y/y and the EU +8.3% y/y. [**Note: ASEAN countries from Indonesia to Malaysia to Thailand and Vietnam have already placed import restrictions on Chinese goods this past year. Expect to see increased political pressure within these local economies to take action to protect local industries from Chinese exports].

- Conversely, Japan customs data showed slowing exports and a falling trade balance for first 20 days of April. Data came as Japan Trade Rep Akazawa said still trying to reach a trade agreement with the US, wanting a Summit agreement ‘ASAP’.

- Also on the China trade front and supply chains, US company MP Materials (NYSE: MP) said that its recent halt of shipments of rare earth concentrate to China has led it to now sell 100% of its output to non-Chinese customers in Japan, Korea and elsewhere.
- US equity FUTs +0.1% to +0.2% during Asian trading.

Looking ahead (Asian-weighted releases, using Asian time zone)

- Sat May 10th CN Apr CPI, PPI + Aggregate Financing.

Holidays in Asia this week

- Mon May 5th China, Hong Kong, Japan, South Korea, Thailand.

- Tue May 6th Japan, South Korea.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.1% at 8,186.

- Australia sells A$700M vs. A$700M indicated in 2.75% Nov 2029 bonds; Avg Yield: 3.5507% v 3.8551% prior; bid-to-cover: 5.41x v 4.13x prior.

- Westpac now sees New Zealand RBNZ to cut twice for total 50bps by July to 3.50% (previously saw only one 25bp cut to 3.25% by July).

China/Hong Kong

- Hang Seng opens +0.4% at 22,856; Shanghai Composite opens flat at 3,350.

- China Apr trade balance: $96.2B V $93.9BE.

- China Apr trade balance (CNY-DENOMINATED): 690B V 736.7B PRIOR.

- China Vice Foreign Min Hua: US cannot 'sustain what it is doing' in trade policy; On US trade talks: 'if we have to face up to reality, come on. We have no fear.' - financial press.

- Trump admin reportedly considering plan to cut China tariffs to as low as 50% as early as next week; Also contemplating reducing tariffs on other South Asian countries to 25% - NY Post.

- US Pres Trump: Could lower tariffs on China if talks go well; Would like to see China open up their markets; China's tariff can't get any higher than 145%, so we know it's coming down.

- BCA Research: Final US agreement with China remains distant; Trump has made tactical exemptions from tariffs on Chinese electronics and computers, while China responded with limited concessions [overnight update].

- China Apr Preliminary Retail Passenger Vehicle Sales M/M: -8.0% v +14.0% prior; Y/Y: +17% - PCA [overnight update].

- Reportedly China mulls housing market overhaul to curb pre-sales - press.

- China PBOC reportedly to allow local lenders to buy more US dollars to fund increased fund import quotas – press [overnight update].

- China MOF sells 1-year bonds and 30-year Special Treasury Bonds.

- China PBOC sets Yuan reference rate: 7.2095 v 7.2073 prior.

- China PBOC Open Market Operation (OMO): Injects CNY77B in 7-day reverse repos; Net injects CNY77B v injects CNY159B prior.

Japan

- Nikkei 225 opens +1.1% at 37,332 (first time to hit 37K since Mar 28th).

- JAPAN MAR LABOR CASH EARNINGS Y/Y: 2.1% V 2.5%E.

- Japan Mar Household Spending Y/Y: 2.1% v 0.2%e.

- Japan Apr Total Reserve Assets: $1.30T v $1.27T prior.

- 40-year JGB yield rises to record 3.35% - highest since the bond was launched in 2007.

- Japan Economic Revitalization Min Akazawa: Still trying to reach trade agreement with the US; Want to reach Summit agreement with US "as soon as we can" - financial press.

- Japan MOF: Japan exports slowed during first 20 days of April - citing data from Japan Customs trade statistics.

- Japan FSA: Hacked online trading cases are now >3.5K, worth ¥304.9B.

- Japan PM Ishiba: Food security is bipartisan issue for Japan - comments from Tokyo [overnight update].

- Japan sells ¥4.5T vs. ¥4.5T indicated in 3-Month Bills; Avg Yield: 0.3979% v 0.4051% prior; bid-to-cover: 3.13x v 2.77x prior.

Korea

- Kospi opens +0.3% at 2,587.

- South Korea Mar Current Account: $9.1B v $7.2B prior.

Other Asia

- Indian armed forces reportedly carried out precision strike at terrorist camps via "Operation Sindoor" (presumably on Pakistan side of Kashmir line) - financial press.

- Taiwan Apr Trade Balance: $7.2B v $6.7Be [overnight update].

- Malaysia central bank (BNM) leaves overnight policy rate unchanged at 3.00%; as expected **Note: 11th straight pause in the current tightening cycle [overnight update].

- Malaysia Central Bank (BNM) cuts RRR to 1.0%; effective May 16th [overnight update].

North America

- (US) Pres Trump: The agreement with the United Kingdom is a full and comprehensive one; it is the first announcement, many other deals to follow.

- (US) Pres Trump: “Too Late” Jerome Powell is a FOOL.

- (BR) Brazil Apr FGV Inflation IGP-DI M/M: 0.3% v 0.4%e; Y/Y: 8.1% v 8.2%e.

- (US) Q1 preliminary Nonfarm productivity: -0.8% V -0.8%E; unit labor costs: 5.7% V 5.1%E.

- (US) Initial jobless claims: 228K V 230KE; continuing claims: 1.88M V 1.90ME.

- (US) Weekly EIA Natural Gas inventories: +104 BCF VS. +100 BCF TO +102 BCF Indicated range.

- (CA) Bank of Canada (BOC) Gov Macklem: Good time for Canadian households to get prepared for turbulence - press conference following Financial System Review report.

Europe

- (UK) US Pres Trump: Reached a 'Tremendous deal for both countries'; Concluded rare earth deal with Ukraine; Very close on numerous deals; UK deal increases access to US beef, ethanol and the UK will eliminate non-tariff barriers for US goods; Details will be written up in the coming weeks; Just about everything was approved in the UK deal.

- (UK) Bank of England (BOE) cuts bank rate by 25BPS to 4.25%; as expected; Maintains language on interest-rate guidance.

- (UK) Bank of England (BOE) May minutes: vote to cut 25BPS was 5-2-2 (Dhingra and Taylor voted for 50bps cut, Mann and Pill voted to keep rates unchanged).

- (UK) BOE Gov Bailey:Disinflation has continued but rate path not on auto-pilot - post rate decision press conference.

- (EU) EU releases draft list of about $107b in US goods that could face duties (as expected); fully committed to negotiated products; to launch two dispute against the US.

- Reportedly US and Russia exploring ways to restore Russia gas flows to Europe - press.

- (PL) Poland Central Bank (NBP) Gov Glapinski: Outlook for Polish inflation has improved; Latest data allowed for rates to be reduced - post rate decision press conference.

- (RU) Russia Pres Putin: To sign new investment treaty with China today; Trade has reached new high with China but not a ceiling.

Levels as of 01:20 ET

- Nikkei 225 +1.5%, ASX 200 +0.6%, Hang Seng -0.2%; Shanghai Composite -0.2%; Kospi +0.1%.

- Equity S&P500 Futures +0.1%; Nasdaq100 +0.2%; DAX +0.2%; FTSE100 +0.2%.

- EUR 111.97-112.33; JPY 145.45-146.19; AUD 0.6371-0.6511; NZD 0.5871-0.5908.

- Gold +0.8% at $3,332/oz; Crude Oil +0.6% $60.28/bbl; Copper -1.3% at $4.5428/lb.