[MARKET ANALYSIS] Asia-Pac stocks mostly declined after Trump's tariff warning against Canada and the Democrats' threat of a partial shutdown, while Japan underperforms on intervention risk

APAC Stocks: Mostly lower

• Asia-Pac stocks are mostly subdued amid Japanese intervention concerns and US President Trump's latest tariff threat against Canada, in which he threatened to impose 100% tariffs if it makes a deal with China. Risk sentiment is also not helped by the Democrats threatening a partial government shutdown in revolt against the fatal shooting of an ICE protester in Minneapolis, while market conditions are somewhat quieter owing to the holiday closures in Australia and India.

Nikkei 225: -2.0%

• Underperforms with the index pressured by a firmer currency amid US-Japan joint intervention concerns after Japanese PM Takaichi said the government is ready to take action against speculative moves, and with reports last Friday that the New York Fed conducted rate checks on USD/JPY.

Hang Seng & Shanghai Comp: Hang Seng -0.2% / Shanghai Comp -0.1%

• Chinese markets are indecisive with demand contained amid reports that China is likely to target growth of 4.5% to 5% in 2026, while stocks also failed to benefit from news late last week that China told the biggest tech firms they can prep NVIDIA H200 orders.

US Equity Futures: Lower

• US index futures were pressured at the reopen in early risk-off conditions, but then gradually pared most of the initial losses.

European Equity Futures -0.3%

• Indicate a lower cash market open with Euro Stoxx 50 futures down 0.3% after the cash market finished lower by 0.1% on Friday.

The decline in Asia-Pac stocks reflects heightened geopolitical tensions, particularly surrounding President Trump's tariff threats against Canada and ongoing concerns about a potential partial US government shutdown. These factors have dampened risk sentiment, especially in Japan where intervention risks have weighed heavily on the Nikkei 225. This situation may prompt further currency volatility and impact trade relations, particularly in the tech sector given its sensitivity to such geopolitical dynamics.