Asia Economics & Strategy Daily_ Strategy_ Scenarios around the 90-day tariff deadline; CN June PMI; JP May IP; IN Trade

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the economic and trade dynamics in Emerging Asia, focusing on the implications of the 90-day tariff deadline and its potential outcomes for various countries including China, Japan, India, and South Korea [2][11]. Core Insights and Arguments 1. Tariff Deadline Scenarios: The 90-day tariff pause is set to expire on July 9, with three potential outcomes: - Announce deals/frameworks with some trade partners - Extend deadlines with certain partners - Set new tariff rates for remaining partners [2][5]. 2. Base Case Scenario: The most likely outcome is an extension of the current status quo, maintaining a 10% baseline tariff for a longer period. This scenario suggests limited market reactions, with a slight risk-on sentiment but constrained upside [3][5]. 3. Bull Case Scenario: If trade deals are announced, effective tariffs may decrease, leading to a more optimistic market outlook. This could result in equities outperforming and a stronger performance from export-oriented currencies like KRW and TWD [6][9]. 4. Bear Case Scenario: If tariffs increase significantly, particularly above 15%, it could lead to a risk-off market reaction, with a stronger USD and concerns about global growth impacting Asia FX negatively [7][9]. 5. Market Reactions: The actual announcements regarding tariffs may be complex, potentially incorporating elements from all scenarios. The focus will remain on effective tariff rates and the risks of subsequent increases, alongside ongoing diversification from USD overweight positions [8][9]. Important but Overlooked Content 1. Japan's Industrial Production: Japan's industrial production increased by 0.5% MoM in May, which was below expectations. Companies are reportedly curbing production in anticipation of potential negative impacts from US tariffs [11]. 2. China's Economic Indicators: Both manufacturing and non-manufacturing PMIs in China exceeded expectations in June, indicating continued growth momentum. However, domestic demand, particularly in property sales, may be waning [11][12]. 3. India's Trade Dynamics: Reciprocal tariffs have led to a front-loading of exports to the US, with a notable 25% YoY increase in Indian exports to the US from January to May 2025. However, this has not improved the overall trade balance due to a decline in exports to other regions [12]. 4. South Korea's GDP Forecast: The GDP forecast for South Korea has been adjusted downwards for Q2 2025 to 0.3% QoQ, but expectations for Q3 and Q4 have been revised upwards due to anticipated recovery in consumption and positive fiscal measures [12]. 5. Inflation and Interest Rate Forecasts: The report includes projections for inflation and interest rates across various countries in the region, indicating a cautious outlook for monetary policy adjustments in response to evolving economic conditions [20][21]. This summary encapsulates the critical insights and data points discussed during the conference call, providing a comprehensive overview of the current economic landscape in Emerging Asia.