Asian Markets Trade Mixed as Investors Weigh China Inflation and Global Tensions

Economic

Stocks

Summary:

Asian stocks were mixed as markets reacted to China’s inflation data and geopolitical risks, while Fast Retailing surged over 7% on strong earnings and defense stocks rose amid U.S.–Venezuela tensions....

Asian Indices Mixed After China Inflation Matches Expectations

Asian equities opened the final trading day of the week with a fragmented performance, shaped by China’s latest inflation figures and ongoing macro-political uncertainty. The CSI 300 dipped 0.25% after China’s consumer price index (CPI) rose 0.8% in December from a year earlier, in line with forecasts and a slight acceleration from November’s 0.7% rise. Factory-gate prices fell 1.9%, showing persistent deflationary pressures in the producer economy, though less than expected.

The muted reaction in Chinese equities underscores investor caution amid ongoing concerns about domestic demand recovery and policy support. While the data avoided surprises, the sluggish pace of price growth signals a fragile consumption rebound, which continues to weigh on sentiment across Asia.

Japan’s Equities Outperform on Strong Corporate Earnings

Japan’s markets stood out, with the Nikkei 225 rising 0.54% and the Topix up 0.46%, supported by corporate earnings. Shares of Fast Retailing, parent of Uniqlo, jumped more than 7% after the company reported a nearly 33% surge in quarterly operating profit and raised its full-year guidance. Strong global sales, particularly in China, North America, and Europe, helped offset the impact of U.S. tariffs. The company remains on track for its fifth consecutive year of profit growth, boosting confidence in Japanese retail resilience and international brand strategy.

Geopolitical risk continued to support defense-related shares in the region. Following the U.S. military operation that resulted in the capture of Venezuelan President Nicolás Maduro and Trump’s renewed rhetoric around Greenland acquisition, defense firms saw renewed investor interest. In Japan, Kawasaki Heavy Industries rose 1.46%, while IHI gained nearly 2%. In South Korea, Hanwha Aerospace soared 5.87%, Poongsan climbed over 4%, and Korea Aerospace rose 1.33%. This defensive rotation highlights market sensitivity to global security developments and regional defense realignment.

Australia Flat, Mining Stocks React to M&A News

Australia’s S&P/ASX 200 traded just below flat, dragged by weakness in mining. Shares of Rio Tinto fell over 5% following confirmation of early-stage merger talks with Glencore. A potential merger between these two global mining giants, estimated to be worth $207 billion, introduces uncertainty in the short term despite long-term consolidation synergies. The announcement triggered cautious investor response, weighing on the broader materials sector.

Hong Kong’s Hang Seng Index gained 0.12%, with futures suggesting a higher open. Investors are closely watching Hang Seng Bank following shareholder approval of a privatization plan proposed by majority owner HSBC. The move, part of HSBC’s broader regional restructuring, could shift capital flows and affect banking sector valuations in the short term.

Wall Street Rotation Reflects Pre-Data Repositioning

U.S. equity futures remained muted in early Asian trade as global investors awaited the December non-farm payrolls report and a critical Supreme Court ruling on Trump’s use of emergency tariff powers. Overnight, the Dow rose 270.03 points (0.55%), the S&P 500 added a modest 0.01%, while the Nasdaq lagged with a 0.44% decline. The rotation out of tech, led by a 1% drop in the information technology sector, indicates investor caution ahead of potentially market-moving legal and labor market developments.

Asia’s markets reflected a mix of localized corporate catalysts, macroeconomic data digestion, and broader geopolitical undercurrents. While China’s inflation data remained in line with expectations, uncertainty over global trade policy, mergers in the mining sector, and defense spending trends drove sector-specific movements. Market participants now shift focus to U.S. payroll data and the Supreme Court’s pending tariff decision, both of which could redefine risk sentiment going into next week.

Source: CNBC

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Gerik

Economic

Forex

Rupee Opens Firmer on RBI Support, but Gains Remain Fragile

The Indian rupee is expected to inch up in Friday’s session, opening in the 89.90–89.94 range against the U.S. dollar, after closing weaker at 90.0175 on Thursday. While the Reserve Bank of India (RBI) continues to intervene by selling dollars in the spot market, its efforts are yielding diminishing returns as market participants hedge aggressively and external headwinds persist.

On Thursday, the rupee briefly strengthened to 89.75 in response to central bank support, echoing a similar rebound seen on Wednesday. However, in both cases, the currency failed to sustain its gains, underscoring a pattern of fragile recoveries and persistent structural pressure. Traders attribute the lack of follow-through to continued foreign portfolio outflows and muted optimism over trade negotiations, especially amid concerns of new tariffs from the United States.

Structural Pressures from Trade and Capital Flows

The rupee’s weakness is not merely a reflection of short-term volatility but is causally linked to sustained capital outflows and deteriorating investor sentiment. Importers, anticipating further depreciation, are locking in forward contracts aggressively during any momentary dips in the dollar/rupee rate, adding to dollar demand in the forward market and curbing the effectiveness of RBI’s interventions.

Moreover, portfolio flows have yet to recover meaningfully. Risk appetite has waned across Asia as regional currencies trend lower, with sentiment clouded by expectations of soft U.S. labor data and broader concerns around global monetary tightening. While President Trump has signaled the possibility of new tariffs on India over Russian oil imports, this is not yet seen as an immediate risk. However, the political tone adds to the broader uncertainty surrounding India’s trade and investment climate, which further discourages inflows.

RBI’s Backstop Seen as Defensive, Not Proactive

The central bank’s actions though preventing a disorderly decline in the rupee are largely reactive. They serve more as a backstop than a directional policy force. Market participants note that without a strong catalyst from trade, portfolio rebalancing, or external macro data, the rupee lacks the momentum to break sustainably below the 89.90 threshold.

The one-month non-deliverable forward rates, used as a proxy for opening expectations, reflected the post-market dip in the dollar/rupee to below 89.90, setting the tone for today’s session. Yet traders remain skeptical that this move will extend without a shift in underlying flows.

Focus Shifts to U.S. Labor Data and Fed Policy Signals

The upcoming U.S. non-farm payrolls report remains a key focus, with economists expecting an increase of 60,000 jobs and an unemployment rate holding steady at 4.5% a slight improvement from November’s 4.6%. ING Bank analysts suggest that unless the data diverges significantly from expectations, the unemployment rate will be the more influential metric for markets.

A stable jobless rate, particularly if accompanied by soft hiring, could reinforce expectations of a January rate cut by the Federal Reserve. Morgan Stanley analysts maintain that such an outcome would align with a modest easing trajectory, which could eventually ease pressure on emerging-market currencies like the rupee. However, in the near term, the Fed’s stance and the dollar’s resilience continue to tilt the balance against the rupee.

While RBI’s interventions have helped to contain volatility, they are proving insufficient to reverse the rupee’s broader depreciation trend. Persistent capital outflows, geopolitical uncertainty, and tepid regional cues weigh heavily on sentiment. Unless global risk appetite improves or India sees a meaningful pickup in inflows, the rupee is likely to remain under pressure, testing the limits of central bank support in the face of structural headwinds.

Source: Reuters

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Daily News

[Quick Facts]

1. U.S. Treasury Secretary: Some sanctions against Venezuelan entities will be lifted.

2. Trump has decided on the next Fed chair.

3. The Trump administration considers funding to promote Greenland's joining the U.S.

4. Government funding running out again, House approves three appropriations bills.

5. Short-term inflation expectations rise in the U.S.; employment outlook worsens.

6. Investors' bearish sentiment toward oil reaches its highest level in nearly a decade.

[News Details]

U.S. Treasury Secretary: Some sanctions against Venezuelan entities will be lifted

On January 8th, U.S. Treasury Secretary Bessent announced that some sanctions targeting Venezuelan entities would be removed. Regarding future U.S. involvement in Venezuela's governance, Bessent expressed hope for stabilizing Venezuela's existing structure. On Venezuelan assets, he stated that the Treasury Department would oversee asset sales and return proceeds to Venezuela under instructions from Secretary of State Rubio. Bessent also noted that independent oil companies are interested in investing in Venezuela soon, while major oil firms may act more cautiously there.

Trump has decided on the next Fed chair

According to reports, Trump said during an interview on Wednesday evening that he had finalized his nomination for the next Fed chair. When asked if it was his chief economic advisor, Kevin Hassett, Trump replied he won't name the pick but acknowledged Hassett is among those he respects.

Whoever Trump ultimately nominates will take over an institution at a critical juncture, currently under intense pressure from the president, who wants borrowing costs lowered significantly. Fed Chair Jerome Powell's term expires in May, and he has become a frequent target of Trump's criticism, signaling that the next chair risks facing public backlash if unable to meet presidential demands.

The Trump administration considers funding to promote Greenland's joining the U.S.

Sources revealed that U.S. officials have discussed plans to offer each Greenland resident between $10,000 and $100,000 in exchange for support to leave Denmark and consider establishing an affiliation with the United States. This proposal is part of a series of White House discussions exploring military options and Compacts of Free Association. Polls show most Greenlanders favor independence but overwhelmingly oppose joining the U.S., and details of potential financial aid remain undefined.

Government funding running out again, House approves three appropriations bills

On January 8th, local time, the U.S. House of Representatives passed three government funding bills, moving closer to avoiding a shutdown before the January 30th deadline. The package, called a "minibus" spending bill, provides funds for the Energy Department, Commerce Department, Justice Department, water projects, Environmental Protection Agency (EPA), and federal research programs through the end of the fiscal year. The legislation is expected to go to the Senate next week. Senate Majority Leader John Thune said the combined spending package could be reviewed as early as next week.

Short-term inflation expectations rise in the U.S.; employment outlook worsens

The latest New York Fed survey showed that consumers' one-year inflation expectations rose to 3.42% in December from 3.2%. Medium-term expectations for three and five years remained unchanged at 3%.

Consumers believe the probability of finding a new job if they lose their current one dropped by 4.2 percentage points to 43.1%, the lowest since the NY Fed began its consumer expectations survey in mid-2013. The average predicted probability of falling behind on debt payments over the next three months rose by 1.6 percentage points to 15.3%, the highest since April 2020, when the pandemic began.

Investors' bearish sentiment toward oil reaches its highest level in nearly a decade

A Goldman Sachs survey found that geopolitical factors have driven institutional investors' views on oil to their most pessimistic level in nearly ten years, with global markets facing oversupply. Among over 1,100 clients surveyed across asset classes, more than 59% were bearish or slightly bearish on crude oil, marginally higher than the lowest monthly figure recorded since January 2016.

Last year, crude prices posted their worst performance since 2020 due to increased output from OPEC+, record U.S. production, and supply growth from Brazil and Guyana. This year, oversupply is expected to widen further. If the Russia-Ukraine conflict ends, it could remove supply disruptions and sanctions on Russian crude. Meanwhile, the U.S. plans to control future Venezuelan oil sales, bringing more of the South American country's crude to market.

[Today's Focus]

UTC+8 18:00 Eurozone November retail sales month-on-month rate

UTC+8 20:45 ECB Chief Economist Philip Lane speech

UTC+8 21:30 U.S. December nonfarm payrolls

UTC+8 23:00 U.S. January University of Michigan consumer sentiment index (preliminary reading)

UTC+8 23:00 Minneapolis Fed President Kashkari speech

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Owen Li

Economic

Traders' Opinions

Remarks of Officials

Central Bank

Data Interpretation

China's consumer inflation hit a 34-month high in December, but this surge masks a more troubling trend: full-year inflation for 2025 was the lowest in 16 years, and producer prices remain stuck in deflation. This mixed data points to persistent weakness in domestic demand, reinforcing market expectations that Beijing will need to roll out more stimulus measures to stabilize the economy.

While China’s $19 trillion economy is on track to meet the government's "around 5%" growth target for 2025, economic imbalances have deepened. Stubbornly soft consumer demand, amplified by a prolonged property crisis and global trade tensions, continues to weigh on business confidence and overall growth.

Food Costs Drive December CPI Higher

The consumer price index (CPI) rose 0.8% year-on-year in December, accelerating from November's 0.7% increase and matching analyst expectations. On a monthly basis, CPI climbed 0.2%, reversing the previous month's 0.1% dip.

According to National Bureau of Statistics (NBS) statistician Dong Lijuan, the primary drivers were:

• Rising food prices: Fresh vegetable costs expanded by 18.2% and beef by 6.9%.

• Seasonal demand: Pre-New Year holiday shopping provided a temporary boost.

• Supportive policies: Government measures also contributed to the uptick in consumer prices.

However, the data reveals significant divergence. While gold jewelry prices surged 68.5% year-on-year, pork prices—a staple in the Chinese diet—fell by 14.6%. Core inflation, which strips out volatile food and energy prices, remained steady at 1.2%, unchanged from November.

Weak Demand Undercuts Full-Year Inflation

Despite the December spike, the broader trend remains concerning. For the full year of 2025, consumer price growth was flat, falling far short of the official "around 2%" target. This indicates that stimulus policies, like a major consumer goods trade-in program, have only had a modest impact on lifting sentiment and fighting deflationary pressures.

The underlying weakness stems from a fragile job market and the ongoing property crisis, which have dampened household spending. Lynn Song, chief economist for Greater China at ING, noted that the low inflation environment leaves room for further policy action. "Despite expectations of a recovery, inflation remains relatively low and should not preclude further monetary easing this year," Song said.

Factory-Gate Prices Remain Stuck in Deflation

On the industrial side, the producer price index (PPI) fell 1.9% year-on-year in December. While this was a slight moderation from the 2.2% drop in November, it marks more than three consecutive years of factory-gate deflation. For the full year, PPI declined by 2.6%.

The NBS attributed the modest improvement to rising global commodity prices and government policies aimed at controlling capacity in key industries. However, some analysts remain skeptical.

Zichun Huang, China economist at Capital Economics, argued that there has been "any fundamental improvement in overcapacity." Huang noted that deflationary pressures will likely persist without stronger demand-side policies, highlighting that "prices of consumer durables continued to fall at a faster pace than during the depths of the global financial crisis."

All Eyes on Beijing for More Economic Stimulus

With economic momentum slowing in the latter half of 2025, markets are anticipating more robust government support in 2026. Top leaders have already committed to a more proactive macroeconomic policy framework to shore up growth.

To this end, the central government has allocated 62.5 billion yuan ($8.95 billion) from special treasury bonds to continue funding the consumer goods trade-in scheme. Policymakers have also pledged to flexibly use monetary tools, such as cuts to interest rates and banks' reserve requirement ratio (RRR), to ensure ample liquidity and stimulate economic activity.

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Forex

Economic

Dollar Rises on Policy Uncertainty and Pre-Data Positioning

The U.S. dollar edged higher in early Friday Asian trading, with the dollar index climbing 0.2% to 98.883, marking its third consecutive daily gain. Investors remained cautious yet supportive of the greenback as markets awaited key catalysts: the December non-farm payrolls report and a potential ruling from the U.S. Supreme Court on former President Donald Trump’s use of emergency trade powers under the International Emergency Economic Powers Act (IEEPA).

The dollar’s continued rise reflects a mix of macroeconomic expectations, market positioning, and legal uncertainties that could reshape U.S. trade and monetary policy narratives. This dynamic supports a causal connection between policy anticipation and currency strength, rather than a mere correlation with global risk appetite or cyclical flows.

Jobs Report to Cut Through Data Fog but May Not Shift Fed View

Traders are particularly focused on the labor data, not necessarily for headline job additions, but for its impact on the unemployment rate and wage growth, both of which have greater implications for Federal Reserve policy direction. ING analysts noted that unless there is a dramatic downside surprise, markets may tolerate softer numbers. Weekly jobless claims released earlier showed only a marginal increase, reinforcing expectations of labor market resilience.

According to CME FedWatch, futures now assign an 89% probability that the Fed will hold rates steady at its January 27–28 meeting, up sharply from 68% one month earlier. This repricing suggests traders are adjusting to the Fed’s more measured tone, potentially reducing the probability of early rate cuts.

Legal Battle Over Tariff Powers Could Upend Trade Dynamics

Beyond economic data, traders are closely monitoring the U.S. Supreme Court, which may rule imminently on whether Trump’s past use of IEEPA to impose tariffs without congressional consent was lawful. A ruling against the administration could trigger legal and financial chaos, as businesses prepare to demand refunds for up to $150 billion in previously collected duties. This judicial outcome carries significant causal implications for the dollar, given its potential to disrupt trade policy consistency and reignite market volatility.

If the Court upholds Trump’s interpretation, the executive branch may gain sweeping unilateral authority to reshape trade flows—a scenario that could bolster the dollar in the short term due to perceived U.S. leverage but weaken it over time if retaliation or economic dislocation follows.

Mixed Currency Reactions Reflect Global Divergences

In other currency pairs, the dollar remained mostly stable. Against the Japanese yen, it held at 156.885, despite data showing that Japanese household spending rose unexpectedly in November. This surprise uptick occurred just before the Bank of Japan raised its policy rate to a 30-year high in December, signaling renewed domestic demand strength.

The Chinese offshore yuan was unchanged at 6.982 ahead of local inflation data, while most other major currencies posted muted moves. The euro stayed at $1.1657, while the British pound slipped slightly to $1.3436. The Australian and New Zealand dollars hovered near recent levels, at $0.6698 and $0.5749, respectively, suggesting that the dollar's rise was driven more by U.S.-centric policy expectations than broad global flows.

The dollar’s upward momentum heading into the second week of January reflects a blend of legal uncertainty, economic anticipation, and repricing of Federal Reserve outlooks. The dual impact of the upcoming payroll report and a potential Supreme Court ruling will likely define near-term volatility and could shape market sentiment well into the first quarter of 2026. While global currencies remain broadly rangebound, the dollar’s position as the axis of macro risk remains intact.

Source: Reuters

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Frederick Miles

Economic

Daily News

Remarks of Officials

Central Bank

Political

Bond

A late-day announcement from President Donald Trump calling for a $200 billion purchase of mortgage bonds sent a jolt through the U.S. Treasury market, allowing long-dated government debt to trim earlier losses.

The yield on the 10-year Treasury note, a critical benchmark for mortgage rates, edged lower just before the close on Thursday. The move came after Trump posted on Truth Social that he had instructed "representatives" to buy mortgage-backed securities in an effort to bring down housing costs. The 30-year Treasury yield also stabilized, finishing the day nearly unchanged.

All Eyes on Jobs Data and Supreme Court Tariff Ruling

Despite the late rebound, Treasury yields remained higher on the day by as much as two basis points. Investors are holding their breath for two major events: Friday's December employment report and a potential Supreme Court ruling that could dismantle tariffs that have been bolstering the U.S. fiscal position.

Andrew Brenner, vice-chairman at Natalliance Securities, noted that Treasuries have "a strong underlying bid" which could limit any potential selloff, even if the employment data comes in strong. However, he warned that a Supreme Court decision on tariffs "could send rates in either direction."

This cautious sentiment was also reflected in the options market, where one trader bought a $7.5 million call option on 10-year note futures expiring Friday, a hedge that protects against a rally in bond prices (and a fall in yields).

Fed Rate Cut Path Hangs in the Balance

The upcoming jobs data is crucial because it has the power to reshape expectations for Federal Reserve interest rate cuts this year. The Fed implemented three cuts at the end of last year in response to a softening job market. Now, with several Fed officials expressing concerns about inflation risk and suggesting a pause, the path forward is uncertain.

Currently, traders of short-term interest rate products are pricing in minimal odds of a rate cut at the next Fed meeting on January 28, though they anticipate two cuts by the end of the year.

Compounding the uncertainty is the future leadership of the central bank. Fed Chair Jerome Powell's term expires in May, and President Trump has already stated he will not be reappointed due to rates being too high. The administration has teased the announcement of a nominee for months. According to The New York Times, Trump claimed in an interview on Wednesday that he had made his decision but had not yet informed anyone.

Market Navigates Supply Pressures

Beyond policy and economic data, supply dynamics are also influencing yield levels. This week is shaping up to be a historic one for new investment-grade corporate bond sales, which compete with Treasuries for investor funds. With $88.4 billion sold in the first three days, the week already ranks among the five largest on record.

At the same time, the Treasury Department is preparing its own issuance. The first coupon auctions of the year are set for Monday and will include sales of three- and 10-year notes. All of next week's auctions are scheduled earlier than usual to ensure they conclude by their January 15 settlement date.

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Gerik

Political

U.S. Oil Takeover Clashes with China's Longstanding Venezuelan Interests

In the wake of President Nicolás Maduro’s capture by U.S. forces, President Donald Trump has moved swiftly to seize control of Venezuela’s oil exports. However, this strategy places the U.S. on a collision course with China, which has entrenched itself in Venezuela through over two decades of loans and joint energy ventures. While Trump portrays the move as a means of liberating Venezuela and neutralizing hostile foreign influence, Beijing sees it as a direct assault on its financial and geopolitical foothold in Latin America.

From 2000 to 2023, China extended approximately $106 billion in official loans to Caracas, much of it in exchange for oil. These arrangements made Venezuela the fourth-largest recipient of Chinese state credit globally. Although estimates place the outstanding debt at $10 billion, the true amount remains opaque due to Venezuela’s limited financial disclosures and the disruption of oil flows caused by U.S. sanctions. Many of these loans are collateralized through long-term oil supply contracts a setup now in jeopardy as the U.S. begins to redirect Venezuelan crude exports under its own terms.

Chinese Oil Rights and Infrastructure Now at Risk

Two major Chinese state-owned enterprises, China National Petroleum Corporation (CNPC) and Sinopec, are entitled to a combined 4.4 billion barrels of Venezuelan oil reserves more than any other foreign entities. Beyond energy, Chinese companies have invested heavily in telecommunications, railway systems, and port infrastructure. These physical assets, once secure under Maduro’s pro-China governance, now face potential expropriation or invalidation by a transitional regime aligned with Washington.

This situation echoes China’s losses in Libya, where billions in investments were wiped out following the fall of Moammar Gadhafi. Scholars in Beijing have warned that the transitional Venezuelan government may declare Maduro-era deals illegitimate, especially under pressure from Washington to reduce adversarial influence. The consequence would be not only financial losses for China but also a symbolic retreat from the Western Hemisphere a region where it has steadily expanded its presence.

Balancing Trade Peace and Strategic Assertiveness

The Trump administration now faces a delicate balancing act. While Washington’s National Security Strategy has long emphasized removing adversarial powers from Latin America, Beijing remains a vital player in global trade. Trump is scheduled to visit Beijing in April, a diplomatic effort aimed at reinforcing the fragile trade truce he struck with Chinese President Xi Jinping in October. Experts suggest that Trump is unlikely to allow the Venezuelan oil dispute to escalate into a full-blown confrontation, particularly if it risks derailing broader economic cooperation.

According to Craig Singleton of the Foundation for Defense of Democracies, the administration seems intent on preserving leverage over China while avoiding new provocations that could complicate bilateral relations. However, the seizure of oil tankers and U.S. control over Venezuelan crude sales currently estimated at 30 million to 50 million barrels could provoke more than symbolic pushback from Beijing.

Beijing's Response: Condemnation Without Leverage

China responded to Maduro’s capture with sharp condemnation, calling the act a “blatant violation of sovereignty.” The Ministry of Commerce declared that no country has the right to interfere with China’s economic ties with Venezuela. Nevertheless, analysts argue that China’s diplomatic protests are unlikely to deter Washington. Despite its financial reach, Beijing lacks the military and political influence to enforce its interests once the U.S. decides to apply direct pressure.

This reality underscores a power asymmetry. While China has poured money into Venezuela, it cannot shield those investments under current geopolitical dynamics. Its strategy of economic statecraft, successful in regions like Africa and Southeast Asia, faces harder limits in Washington’s strategic backyard.

U.S. Firms Await Oil Windfall, While Legal Claims Loom

American companies that suffered billions in losses when Venezuela nationalized its oil industry are now preparing claims of their own. How competing IOUs from Chinese and U.S. firms will be prioritized remains unresolved. Energy Secretary Chris Wright has stated that profits from seized oil will be placed in U.S.-controlled accounts and eventually redirected for the benefit of the Venezuelan people a policy designed to legitimize the seizure while undermining creditor nations like China.

Meanwhile, trading firms such as Trafigura and Vitol have secured preliminary U.S. Treasury licenses to trade Venezuelan oil, signaling Washington’s intent to cement new commercial ties rapidly and push Chinese refiners historically the main buyers of discounted Venezuelan crude out of the supply chain.

Trump’s aggressive strategy in Venezuela has opened a new front in the contest with China. With billions in Chinese-backed oil assets and infrastructure now exposed to American control, the risk of diplomatic fallout looms large especially as Trump prepares for high-level engagement with Xi Jinping. Whether the administration can simultaneously assert dominance in Latin America and maintain economic cooperation with Beijing remains uncertain. For now, Venezuela is no longer just a regional issue it is a global test of influence between two superpowers.