San Francisco Frontiers - Asian stocks rally fades as Japan debt sale disappoints

New York investors returned to their desks after a long weekend break in a good mood after Donald Trump delayed until July the 50 percent tariffs on the European Union he announced out of the blue on Friday, sparking a market rout.

The US president's announcement Sunday delaying them soothed worries about a fresh flare-up in his trade war that has rattled global sentiment, fanned uncertainty and led some to question their confidence in the world's biggest economy.

Buying was also boosted by Trump's post on social media flagging progress with Brussels.

"I have just been informed that the E.U. has called to quickly establish meeting dates," he said on his Truth Social platform.

"This is a positive event, and I hope that they will, FINALLY, like my same demand to China, open up the European Nations for Trade with the United States of America."

Markets also cheered data showing a bigger-than-expected jump in US consumer confidence thanks to a slight easing of trade tensions, particularly with China.

However, investors were unable to maintain their momentum, with optimism sapped by the disappointing sale of 40-year Japanese government bonds (JGBs).

Hong Kong, Sydney, Mumbai and Jakarta all fell, with Wellington also in the red even after New Zealand's central bank cut interest rates for the sixth meeting in a row.

Shanghai was barely moved, while Singapore, Seoul, Taipei, Manila and Bangkok rose with London, Frankfurt and Paris.

Tokyo was flat and the yen weakened after the auction of the long-term JGBs was met with the worst take-up since July. That came after last week saw the worst auction of 20-year notes for more than a decade.

The cost of government debt has surged around the world in recent weeks -- hitting record highs last week in Japan -- amid worries about rising spending as leaders try to support their economies and after Trump's April 2 tariff blitz.

The Bank of Japan's decision to reduce its purchases of JGBs -- as it looks to tighten monetary policy in the face rising inflation -- has added to the rising yields.

The poor result reversed Tuesday's rally that came after Japan's Ministry of Finance sent a questionnaire to market players regarding issuance, fuelling talk that it was considering slowing its sales down, meaning there would be less supply.

Bonds yields rise and prices fall when demand is weak.

Still, Masahiko Loo, senior fixed income strategist at State Street Global Advisors, said the JGB panic may have been overdone.

"We maintain our long-standing view that the challenges in the JGB market are technical rather than structural. These issues are largely addressable through adjustments in issuance volume or composition," he wrote in a commentary.

"We believe the concern on loss of control over the super-long end is overblown. Around 90 percent of JGBs are domestically held, and the 'don't fight the BOJ/MOF' mantra remains a powerful anchor," he added, referring to the Bank of Japan and Ministry of Finance.

"Any perceived supply-demand imbalance is more a matter of timing mismatches, which is a technical dislocation rather than a fundamental flaw.

"We expect these imbalances to be resolved as early as the third quarter of 2025. The MOF potential reduction headline reinforces our view."

- Key figures at around 0715 GMT -

Tokyo - Nikkei 225: FLAT at 37,722.40 (close)

Hong Kong - Hang Seng Index: DOWN 0.7 percent at 23,222.53

Shanghai - Composite: FLAT at 3,339.93 (close)

London - FTSE 100: UP 0.1 percent at 8,787,17

Euro/dollar: DOWN at $1.1307 from $1.1329 on Tuesday

Pound/dollar: DOWN at $1.3478 from $1.3504

Dollar/yen: UP at 144.40 yen from 144.34 yen

Euro/pound: UP at 83.90 pence from 83.88 pence

West Texas Intermediate: UP 0.2 percent at $60.99 per barrel

Brent North Sea Crude: UP 0.1 percent at $64.16 per barrel

New York - Dow: UP 1.8 percent at 42,343.65 (close)

X.Roberts--SFF