Asia treads water under a tariff cloud — Calm on the surface, convexity brewing beneath

Treading water

Asian stocks look set to tread water today, with the looming impact of tariffs hanging over the tape like a grand piano teetering above a crowded street — and Beijing standing dead center beneath it. Treasury Secretary Scott Bessent didn’t mince words: China’s been sidelined while the U.S. fast-tracks bespoke trade deals with 15 to 17 other countries. The message is clear — the next move has to come from Beijing if they want any hope of disarming this ticking tariff bomb.

The optics couldn’t be worse. Two global heavyweights are locked in a dangerous economic staring contest, neither willing to flinch, even as the cost mounts. For Asia risk markets, it’s a high-wire act with no safety net. Until something cracks — or a real handshake materializes — expect traders to stay jittery, position lightly, and volatility to be coiled tight.

More immediately, Asia’s open looks sluggish, pinned between a late-session technical bump in U.S. stocks and a gauntlet of risk events ahead. Futures are showing marginal moves across Hong Kong and Sydney, while U.S. S&P futures contracts dipped after Monday’s choppy session.

As April’s jitter-fest draws to a close, don’t expect May to be any gentler. Volatility will stay wired tight, with headline whiplash running the game. The five-day U.S. rally — the longest stretch since November — now faces a tough test: a wave of earnings from tech titans, along with key data releases on jobs, inflation, and growth. The optimism that briefly buoyed the Asian and European sessions on Monday gave way quickly once U.S. traders took a ‘glass half-empty’ view of the global economic mess brewing beneath the surface.

Although some will spin this market stall as a classic sign of the risk-on balloon deflating or momentum running out of gas, the truth is more straightforward — this is textbook consolidation ahead of a high-risk gauntlet. With a loaded calendar of tech earnings and hard U.S. macro data on deck, it’s not surprising to see traders lighten up. A pullback or sideways chop here isn’t a breakdown; it’s smart money bracing for what could be the first economic breadcrumbs of what could be a brutal reality check on just how much damage the tariffs are starting to bake into the system. The convexity is now baked into the data, and that’s the trade setup.

• Non-linear payoffs are queued up. The positioning and options expiring around this print mean that a large surprise—positive or negative—will trigger self-reinforcing flows.
• Expect outsized moves at the tails. If the data comes in well below forecasts, the dollar could dip much more sharply—thanks to that convex, gamma-driven feedback loop.

Meanwhile, Monday’s slide in the U.S. dollar gave a temporary boost to overseas currencies, with the Japanese yen receiving a strong bid from risk-hedging flows. But beneath the surface, the real story is still brewing: the tidal wave of $2–$3 trillion in unhedged USD assets stuck in global portfolios. If even a sliver of that money gets hedged or yanked back home, you’re staring down the barrel of a structural dollar unwind — one that could drag out for months, maybe years. That trade is too hard to ignore.

Early signs say it’s already underway. And this isn’t some hot-money crowd flipping book on daily headlines — this is deep risk management, slow and surgical. C-suites, Japanese fund CIOs, and real-money allocators are quietly moving chess pieces behind the scenes. No headlines, no flashing screens — just steady, invisible, relentless repositioning. When it finally shows up noticeably on the prime broker tape, you will then be forced to chase the late innings dollar sell-off; it’s best to get in front.

Bottom line: Asia’s walking into an April shower with an umbrella showing some holes. Positioning will remain cautious until the U.S. data gauntlet is cleared — and if the jobs data falters, expect the dollar to weaken, volatility to spike, and risk markets to return to a defensive mode quickly.

Asia FX is still the eye of the storm

Dallas Fed’s Manufacturing Index just cratered to pandemic-era lows, with executives tossing out words like “chaos” and “insanity” to describe what tariffs are already unleashing on the ground. Close to 60% flagged higher tariffs as a direct earnings hit for 2025, with a significant chunk admitting they can no longer pass costs through without losing demand. Bottom line: US stagflation risk is flashing red, and the dollar took another swift kick in the pants.

For Asia, it’s a different beast. The tariff punch hits as a demand-side shock, not a supply crunch. China’s leadership tried to spin yesterday’s stimulus presser with their usual “calm and confident” routine, sticking to the party line of expanding existing measures and hinting at a stable RMB bias. But real growth risk is bleeding through, and it’s unclear if policy tweaks can plug the hole.

In the FX trenches

The dollar softened modestly overnight as UST yields slipped — triggered first by the Dallas Fed’s manufacturing plunge, then turbocharged by Bessent’s pre-X-date bombshell showing a sharper-than-expected drop in Treasury borrowing needs. Normally, lighter funding would be a tailwind for the dollar, but when the economic data tape is flashing recession risk in neon lights, any dollar bid gets soggy fast.

Asia FX caught a decent ride from the lower-yield backdrop. THB and MYR both put in solid performances, grinding higher as real money stepped back into the regional bid. Meanwhile, CNH lagged the move — no shock there, with Chinese export pipelines getting squeezed harder by the day. The flow’s telling you all you need to know: traders are rotating where the tariff pain isn’t.

Flows are telling the real story. India’s hand is getting stronger by the day. Chinese firms are scrambling, reportedly tapping Indian exporters to mask their US shipments — everything from white-label deals to full-on co-branding schemes to sidestep tariffs. India isn’t just holding ground; it’s actively gaining in the tariff arbitrage game, while Japan is fast-tracking negotiations to lock in preferential status.

Supply chain breakdown: Crisis now, not later

Forget the noise — the real economy is seizing up. Global supply chains are getting torched under the combined weight of tariff wars, logistics chokepoints, energy shortages, and structural fragility. Freight volumes are collapsing (OTVI tanking), container backlogs are growing, and production lines — from Asia to the U.S. — are freezing.

Retail inventories are evaporating. SMEs are getting wiped out. Even corporations are blinking. Nissan just threw a grenade into the auto sector, leading to a $ 5 B+ loss because they can’t get chips. Layoffs, plant shutdowns, capacity cuts — survival mode is here.

Meanwhile, capital is starting to smell the blood. Executive suites, fund CIOs, Japanese lifers — they’re already moving. Not hot money. Strategic rotation. Silent, heavy.

Markets haven’t priced this properly yet. Vol squeeze last week was textbook. But under the tape, the supply-side collapse is building a wrecking ball. If trade chokepoints don’t clear, we’re looking at systemic margin compression, demand shock, and a secular growth downgrade. This is why I’m only trading stocks on a 1 -2 month horizon ( where I think the US market is technically bullish)

Key tells to watch:

• OTVI = still falling.
• Container rates = rolling over.
• Softs + Industrials = crumbling.
• Consumer surveys = panic setting in.

This isn’t a drill.

The next liquidity crunch won’t be because of banks — it’ll be because supply-side inflation tanks growth faster than central banks can react.