Core Viewpoint - Recent trade news regarding Chinese rare earth mineral exports has negatively impacted USA Rare Earth stock, leading to significant sell-offs and a decline in share price [1][4]. Group 1: Stock Performance - USA Rare Earth stock experienced a decline of 7.7% as of Monday afternoon, with intraday lows reaching 9.9% [1]. - Despite the recent sell-off, the stock has increased approximately 63% over the last three months, reflecting earlier bullish momentum due to trade disputes and tariffs between the U.S. and China [5]. Group 2: Market Dynamics - Chinese exports of rare earth minerals have surged, with a 69% increase in shipments on a sequential monthly basis in July, reaching the highest levels since January [2][4]. - The increase in Chinese mineral exports suggests a potential decrease in demand for USA Rare Earth's services in the near term [2]. Group 3: Future Outlook - The relationship between the U.S. and China will significantly influence USA Rare Earth's stock performance, as China dominates global rare earth mineral production [6]. - The U.S. is focusing on enhancing its domestic mining capabilities and diversifying sourcing options due to ongoing competition and tensions with China [6]. - Future access to minerals is expected to be a critical factor in any potential trade agreements between the U.S. and China [7]. - The U.S. government's priority on improving mineral sourcing may lead to further sell-offs for USA Rare Earth in response to trade developments or continued growth in Chinese shipments, although the long-term investment case remains intact [8].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The report discusses three significant changes in the industry: US-China trade negotiations, the partial suspension of China's consumer goods trade-in programs, and the acceleration of social welfare reforms in China, while highlighting that deflation remains a persistent macroeconomic issue [1][2][13] Summary by Sections US-China Trade Negotiations - The London trade talks represent a key advancement following the Geneva meeting where the US and China agreed to pause tariffs, although challenges remain due to differing expectations on non-tariff measures [2] - A Framework Agreement was established to implement the Geneva trade deal and utilize the bilateral economic consultation mechanism [2][3] - The scope of the London agreement appears limited, focusing primarily on non-tariff measures without significant US concessions beyond student visas [3] Consumer Goods Trade-in Programs - China has partially suspended its consumer goods trade-in programs due to the exhaustion of allocated trade-in funding in some regions, with Rmb162 billion already distributed out of a Rmb300 billion quota [4] - The rapid utilization of funds and the impact on retail sales indicate potential limitations of such stimulus measures, reminiscent of the US Cash-for-Clunkers program [8] - Despite these challenges, the report anticipates a modest expansion of the annual quota if economic growth declines [8] Social Welfare Reforms - China has released a blueprint aimed at enhancing the social welfare system, focusing on equal access to public services and addressing healthcare and elderly care concerns [9][10] - The reforms are characterized as gradual, with a focus on improving existing frameworks rather than implementing radical changes [10][11] - The report suggests that while some measures have been implemented, the overall pace of reform may be slow due to structural challenges and external pressures [11][13]

Investment Rating - The report indicates a neutral stance on CNH shorts and a revised lower target for USD/CNY, reflecting a cautious outlook on currency movements [9][15][21]. Core Insights - The recent US-China tariff ceasefire is seen as a positive development, potentially alleviating short-term growth pressures in China, although the overall market sentiment remains bearish [3][11][10]. - Despite the tariff rollback, local markets in China have not reacted positively, with investors still holding onto bearish positions, indicating a lack of confidence in sustained recovery [3][10][11]. - The report anticipates significant dividend payouts from Hong Kong-listed Chinese firms, estimated at approximately $60 billion from May to August, which could exert near-term pressure on CNY FX [14][21][19]. Summary by Sections Trade Recommendations - Current outright trades include a long position in 3-year CGBs, with a slight profit noted [2]. Market Sentiment - The report highlights a disconnect between the positive tariff news and the prevailing pessimism in the market, with bearish positions remaining largely intact [3][10][11]. - The sentiment on China-linked assets is described as downbeat, despite the positive implications of the tariff ceasefire [10][11]. Currency Outlook - The report suggests that the USD/CNH may face downward pressure but also highlights potential seasonal headwinds due to upcoming dividend payouts [14][21]. - The anticipated terminal rate for repo fixing is expected to settle above the current policy rate, indicating a conservative market pricing of the People's Bank of China's easing prospects [21][23]. Economic Indicators - The report notes that economists have revised China's GDP growth forecast for the year to 4.8%, up from 4.1%, reflecting a more optimistic view on economic recovery [15].

Investment Rating - The report indicates a medium-term bearish outlook for USD/Asia currencies, suggesting a downward trajectory for the USD against Asian currencies [3][18]. Core Insights - The US-China trade talks resulted in a larger-than-expected reduction in tariffs, leading to a decrease in USD/CNY and an initial increase in other USD/Asia pairs [3][5]. - The US economics team revised their 2025 GDP growth forecast to 1.0% from 0.5% and reduced recession odds from 45% to 35%, which may limit the downside for the USD compared to a recession scenario [5][6]. - Key themes include ongoing diversification away from US assets, continued conversion of USD by Asian exporters into local currencies, and potential strength in Asian currencies if trade deals are reached [3][11][15]. Summary by Sections Changes Observed - The reduction in tariffs has led to a revision of USD/Asia forecasts, with expectations for USD/CNY to drift towards 7.0 [4][15]. - The US left-tail risk has decreased, improving the outlook for US assets and potentially reducing broad USD bearishness [5][18]. Unchanged Factors - The USD remains overvalued by approximately 17% according to the GS DEER model, indicating that the diversification theme away from US assets is still relevant [6][10]. - Asian exporters are expected to continue selling USD, with significant increases in foreign currency deposits in several Asian countries [11][9]. Implications for Asian FX - The report anticipates that if trade deals are finalized, Asian currencies will likely strengthen against the USD, with favored currencies being KRW, TWD, MYR, and SGD [3][18]. - The path of least resistance for USD/Asia is expected to be downward, especially if trade negotiations lead to a narrower trade deficit with the US [15][18].

May 12, 2025 10:21 AM GMT China Economics | Asia Pacific Morgan Stanley Asia Limited US-China Tariff Cut: Sooner and Deeper US-China tariff de-escalation arrived faster and deeper than the market expected with a joint announcement today of reversal of the tit-for-tat tariff escalation and suspension of 24% of the remaining reciprocal 34% hike for a 90-day window, from May 14. This puts the effective US trade-weighed tariff on China at ~40%, down from 107%, significantly better than our baseline assumption o ...