Haven Assets Mostly Higher Amid U.S. Recession Fears — Market Talk

AUD/JPY has eased amid weaker risk sentiment and more downside is likely in coming months as the global trade war to intensifies further, sapping risk appetite, says Carol Kong, economist at CBA. The pair will also be weighed down by narrower Australia‑Japan interest rate differentials as the Reserve Bank of Australia keeps cutting rates and the Bank of Japan keeps raising rates, she adds. Monday's Japanese labor cash earnings for January showed wage momentum continued to build which adds to the case for more BoJ rate hikes this year, Kong says. Another positive print on Japan's household spending at 2330 GMT will also bolster expectations of faster BoJ rate hikes, she says. AUD/USD now at 92.30. (james.glynn@wsj.com; @JamesGlynnWSJ)

The yen is mixed against the G-10 and Asian currencies, but may be supported by prospects of more BOJ rate increases. "Another solid Shunto outcome this year will raise the chances of more Bank of Japan interest rate hikes," CBA's Kristina Clifton says, citing news that Japan's biggest labor union group said unions were demanding stronger wages growth this year. "We expect 25bp hikes in July and December," the senior economist and senior currency strategist says in a note. 'Shunto' refers to annual spring wage negotiations in Japan. USD/JPY edges 0.1% lower to 147.89; EUR/JPY is little changed at 159.56. (ronnie.harui@wsj.com)

The yen weakens against most other G-10 and Asian currencies in the morning session amid improved risk sentiment. The USD/JPY and EUR/JPY have rebounded, partly owing to optimism over increased EU defense spending, Nomura's research analysts say in a research report. Also, the White House's announcement overnight of a one-month tariff reprieve for auto imports from Mexico and Canada, is likely helping to bolster risk appetite. USD/JPY rises 0.2% to 149.24; EUR/JPY gains 0.3% to 161.15. (ronnie.harui@wsj.com)

The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.

1945 ET - The yen weakens against most other G-10 and Asian currencies in the morning session amid improved risk sentiment. The USD/JPY and EUR/JPY have rebounded, partly owing to optimism over increased EU defense spending, Nomura's research analysts say in a research report. Also, the White House's announcement overnight of a one-month tariff reprieve for auto imports from Mexico and Canada, is likely helping to bolster risk appetite. USD/JPY rises 0.2% to 149.24; EUR/JPY gains 0.3% to 161.15. (ronnie.harui@wsj.com)

1920 ET - South Korea's benchmark Kospi is up 0.6% to 2574.48 in early trade, as battery and auto stocks advance. Sentiment is buoyed by President Trump's one-month tariff exemption for cars that comply with a free trade pact between the U.S., Canada, and Mexico. Retail investors are net buyers. Carmakers Hyundai Motor and Kia rose 1.8% and 1.5%, respectively, as they have expanded operations in North America. Electric-vehicle battery maker LG Energy Solution, which has close business ties with U.S. carmakers, also gains 2.1%. USD/KRW is 0.8% lower at 1,443.40 in Seoul onshore trading. South Korea's 10-year government bond yield is up 7.0 bps at 2.773%. (kwanwoo.jun@wsj.com)

1917 ET - Japanese stocks are higher as concerns about U.S. tariffs recede for now. Heavy-industry and auto stocks are leading the gains. Mitsubishi Heavy Industries is up 7.9% and Kawasaki Heavy Industries is 7.0% higher while Nissan Motor is up 3.0% and Honda Motor is 2.6% higher. USD/JPY is at 149.14, compared with 149.59 as of Wednesday's Tokyo stock market close. Investors are focusing on any developments related to U.S. trade and foreign policies as well as Japanese monetary policy. The Nikkei Stock Average is up 0.9% at 37739.06. (kosaku.narioka@wsj.com; @kosakunarioka)

1916 ET - If the Federal Reserve pauses its balance-sheet runoff until the federal debt limit is raised or suspended, there's no reason to think that balance-sheet reduction wouldn't resume later, says the New York Fed's Roberto Perli, manager of the system open market account. "The pause [would be] a tactical decision," Perli says in a moderated Q&A in New York City. "It doesn't change the end goal." The Fed's current policy is to let the balance sheet run off until bank reserves--now seen as abundant--fall to a level somewhat above ample. For now, market signals suggest reserves are still abundant, Perli says. (matt.grossman@wsj.com; @mattgrossman)

1908 ET - JGBs fall in the morning Tokyo session, tracking overnight price declines in U.S. Treasurys. Uncertainty is adversely affecting the domestic government bond market, given the 10-year JGB auction's outcome earlier this week was very weak, Citi Research's Tomohisa Fujiki says in a note. A 2.4% yield for the 30-year JGBs to be auctioned today by the Finance Ministry should be sufficiently attractive to investors, but their appetite for duration seems weaker than Citi had expected, the rates strategist adds. The JGB 10-year yield climbs 5.5bps to 1.495%, highest intraday level since June 2009. (ronnie.harui@wsj.com)

1845 ET - Japanese stocks may rise as concerns about U.S. tariffs recede for now. Nikkei futures are up 0.5% at 37635 on the SGX. USD/JPY is at 148.91, compared with 149.59 as of Wednesday's Tokyo stock market close. Investors are focusing on any developments related to U.S. trade and foreign policies as well as Japanese monetary policy. The Nikkei Stock Average rose 0.2% to 37418.24 on Wednesday.(kosaku.narioka@wsj.com)

1818 ET - Australian Treasurer Jim Chalmers has responded to calls from the U.S. for the country to sharply boost its spending on defense, saying expenditures are already rising. A report in the Sydney Morning Herald says Elbridge Colby, Donald Trump's choice to be head of policy at the U.S. Defence Department, has noted Australia's level of spending on defense is well below the 3.0% of GDP requested of NATO countries, with the country facing a far bigger threat in the shape of China. Chalmers says Australian defense spending is on target to reach 2.3% of GDP by 2033, up from 2.0% of GDP now. "We do pay our own way on defence. We are substantially increasing defence spending," Chalmers said in a television interview. Chalmers is preparing to deliver a federal budget on March 25. (james.glynn@wsj.com; @JamesGlynnWSJ)

1745 ET - Australians have their eyes turned to the Queensland capital of Brisbane as cyclone Alfred appears set to make landfall in the coming days. With 4.5 million people in its path, there's the potential for billions of dollars in damage to homes and businesses across southeast Queensland and northern New South Wales. It's extremely rare for cyclones to hit so far south with smaller tourism centers and farms further north the usual victims of cyclones. Treasurer Jim Chalmers has estimated that 1.8 million homes will be affected by the category-2 storm. The economic impact could be significant. (james.glynn@wsj.com; @JamesGlynnWSJ)

1624 ET - The one-month pause on tariffs for the automotive industry gives car-makers a little more time to build up inventory, but most won't be able to make many changes in that timeframe, CarGurus director of economic and market intelligence Kevin Roberts said. Auto companies didn't build up inventories much in February, and Roberts said the supply chain is so complex and international it will be difficult to rearrange quickly. "I don't believe you're going to be able to do that in a month," he said. Stellantis and Ford have especially large inventories built up, giving them more time before they might have to raise consumer prices. (katherine.hamilton@wsj.com)

1555 ET - Treasury yields rise as President Trump grants a one-month tariff exemption for U.S. automakers that comply with USMCA. The trade reprieve helps improve the mood in Wall Street. February services PMI indicates faster-than-forecast expansion. ADP employment survey disappoints, while economists surveyed by The Wall Street Journal expect a slowdown on jobless claims tomorrow and steady unemployment Friday. January trade balance, due tomorrow, is expected to show a widening deficit. The 10-year yield rises 0.055 percentage point to 4.264% and the two-year gains 0.030 p.p. to 3.984%. snapping a three-day losing streak. (paulo.trevisani@wsj.com; @ptrevisani)

1527 ET - Mexico's auto and other manufacturing companies face the most risk from U.S. tariffs and the increasing likelihood of a domestic recession, Fitch Ratings says. The tariffs and uncertainty over trade relations "significantly worsen the business environment for Mexico's corporates," while threatening nearshoring prospects, the firm says. Manufacturers have highest exposure to tariffs, while "for other Mexican corporate sectors, direct exposure to U.S. tariffs is moderate to low, mitigated by product and geographical diversification or access to alternative markets." Construction and building materials companies are also seen highly vulnerable to a recession, while consumer, energy and telecommunications sectors are the least at risk to both tariffs and an economic downturn. (anthony.harrup@wsj.com)

1502 ET - In the latest Beige Book, the Fed's survey of regional business contacts, a lack of clarity about the future of the economy is increasingly weighing on sentiment. The February Beige Book out today includes about 45 mentions of the word "uncertainty," up from about 13 mentions in the January version. Uncertainty about immigration was weighing on the labor market, and uncertainty about tariffs also gave businesses pause. Uncertainty was highlighted by the Fed's regional reserve banks in Boston, New York, Philadelphia, Richmond, St. Louis and Dallas as a prominent concern of local contacts. (matt.grossman@wsj.com, @mattgrossman)

By Ronnie Harui

Asian stock markets fell Friday while the yen strengthened as President Trump's fresh tariff threats spooked investors, spurring some to seek shelter in the haven Japanese currency.

Trump said Thursday that the U.S. plans to impose an additional 10% tariff on imports from China over its role in the fentanyl trade and move forward with 25% tariffs on products from Canada and Mexico.

The China move, slated to become effective March 4, alongside the Canada and Mexico actions, doubles up on the prior 10% additional tariff Trump placed on Chinese products this month.

Trump's tariff threats have "prompted market participants to reassess their expectations of tariff risks, as his tone reflects an ally who may be harder to please and suggests a tougher path to consensus with trading partners than initially expected," said IG market strategist Yeap Jun Rong.

Japan's Nikkei Stock Average fell 3.0% to 37109.79, South Korea's benchmark Kospi was off 3.4% at 2532.39 and Hong Kong's Hang Seng Index was 2.7% lower at 23075.46.

Against the yen, the dollar was down 0.1% to 149.62, the Australian dollar declined 0.5% to 92.99 and the euro dropped 0.2% to 155.45.

"The market's natural reaction has been to de-risk," Yeap said.

The dollar also strengthened on its safe-haven appeal amid ongoing trade tensions.

"We continue to see scope for some USD strength if tariff risks materialize by April even as our conviction that the USD can strengthen meaningfully is now reduced given cracks in the U.S. exceptionalism story," Bank of Singapore senior currency strategist Sim Moh Siong said in a research report.

"The additional China tariff caught markets off-guard and weighed on Asian currencies," he said.

Despite stretched positions that have spurred gold weakness amid a stronger dollar, Bank of Singapore continues to like gold, Sim said. There's uncertainty around trade tensions, economic growth and the U.S. fiscal outlook, he added.

The U.S. Dollar Index was recently 0.1% higher at 107.39. Spot gold fell 0.4% to $2,864.95 per ounce.

Write to Ronnie Harui at ronnie.harui@wsj.com

By Ronnie Harui

Asian stock markets fell early Friday while the yen strengthened as U.S. President Trump's fresh tariff threats spooked investors and spurred some to seek shelter in the haven Japanese currency.

Trump said Thursday that the U.S. plans next week to impose an additional 10% tariff on imports from China over its role in the fentanyl trade and move forward with 25% tariffs on products from Canada and Mexico.

The China move, slated to become effective on March 4, alongside the Canada and Mexico actions, doubles up on the prior 10% additional tariff Trump placed on Chinese products this month.

Trump's tariff threats have "prompted market participants to reassess their expectations of tariff risks, as his tone reflects an ally who may be harder to please and suggests a tougher path to consensus with trading partners than initially expected," said Yeap Jun Rong, market strategist at IG.

Japan's Nikkei Stock Average was down 2.8% to 37175.15, South Korea's benchmark Kospi was off 2.6% to 2554.09, and Hong Kong's Hang Seng Index was 1.9% lower at 23264.29.

Against the yen, the dollar was down 0.3% to 149.30, the Australian dollar declined 0.5% to 92.92, and the euro dropped 0.4% to 155.09.

"The market's natural reaction has been to de-risk," the IG market strategist said.

Write to Ronnie Harui at ronnie.harui@wsj.com