ASIA STOCKS: China Equities Edge Higher Following Positive Data
The Chinese market is stabilizing after initial losses, with the CSI 300 index is 0.45% higher following a 0.5% drop earlier. Telecom and consumer discretionary stocks led declines, while consumer staples, materials & Tech stocks have shown resilience. China's economy met its 2024 growth target of 5% after a strong Q4, supported by a stimulus push and export strength ahead of potential U.S. tariffs. However, risks remain, as Donald Trump’s impending return to the White House raises fears of tariff hikes, which could significantly impact trade—a key growth driver.
- Despite positive GDP data, challenges persist. Industrial production grew 6.2% in December, driven by export front-loading, but domestic demand remains weak, with retail sales underperforming at 3.7% growth and unemployment rising to 5.1%. The property sector continues to drag on the economy, with investment contracting 10.6% in 2024—its worst performance since records began. Efforts to stabilize the housing market have yielded marginal improvements in home prices, but concerns remain high, particularly as state-backed developer China Vanke faces mounting debt and falling investor confidence.
- Although the property related data showed further contraction, prices fell at slower pace, China property indices are trading higher today, with the BBG China Property Index up 1.05%, although China Vanke is drag, trading 6.20% lower following headlines that the CEO has been detained by police. Other major benchmarks are higher with Mainland Property Index up 1.60%, while HS Property Index trades 1.65% higher.
- The Hang Seng is so far holding onto gains made over the past week, trading 4.30% off Jan 13 lows, although still 2.76% lower in Jan.
- Beijing’s fiscal policy is expected to take center stage in 2025, with measures to stimulate growth while navigating deflationary pressures and potential capital outflows. Analysts note that sustaining momentum will require balancing external risks and further domestic reforms.
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FOREX: AUD & NZD Weakness Continues, Fresh Cycle Lows
AUD and NZD weakness has again been a feature of G10 FX trade today. Both pairs have made fresh cycle lows. The BBDXY index is little changed and is holding above 1289 at this stage.
- AUD/USD has fallen to 0.6310/15, fresh lows back to oct last year. We are off around 0.30% versus end Tuesday levels in NY. We had the Mid-Year Economic and Fiscal Outlook, the FY26 deficit has been revised up 0.1pp to 1.6% of GDP, FY27 0.4pp to 1.3% and FY28 0.2pp to 1.0%. This, along with soft growth expectations is a likely AUD negative.
- The metals backdrop is softer, with iron ore and copper weaker, continuing the recent softness in this space.
- Regional equity sentiment is mixed, China/HK markets are higher but this isn't helping the higher beta plays. For AUD/USD next support will be eyed at 0.6300.
- NZD/USD is back to 0.5740, off by the same amount as AUD. NZD/USD appears stuck in a falling wedge within a broader bearish trend, showing mixed signals with Monday’s morning star pattern followed by Tuesday’s bearish reversal. There isn't much support for the pair until 0.5600.
- USD/JPY has drifted lower this afternoon, last back around 153.40/45, little changed for the session. We are still above intra-session lows from Tuesday (153.16). EUR/USD has edged up slightly, last back above 1.0500.
- US yields have ticked down, losses a little beyond 1bps at this stage, which may helping EUR and JPY. US equity futures opened lower but are now modestly higher.
- Looking ahead, the Fed decision is announced and a 25bp rate cut is widely expected. There are also US November housing starts/building permits and Q3 current account data, as well as UK November CPI/PPI. The ECB’s Lane speaks.
THAILAND: BoT Likely To Defy Political Pressure To Cut Rates
The Bank of Thailand (BoT) is widely expected to leave rates at 2.25% today after cutting them 25bp in October (see MNI BoT Preview). It has been clear that a neutral stance is consistent with both the growth and inflation outlook. Governor Sethaput also said that the bar is “reasonably high” for further easing. Headline inflation is gradually returning to the bottom of the 1-3% band and growth appears to be improving.
- Growth has trended higher over the last year which gives BoT room to hold rates despite ongoing political pressure. Q3 GDP rose 1.2% q/q (sa) lifting the annual rate to 2.9% from 2.2%, the highest in two years. It was supported by government spending, investment and exports, while private consumption growth slowed.
- Consumer confidence is signalling a possible turn in household spending plus fiscal measures should provide support for a recovery. Tourism numbers are also expected to continue growing.
- However business and consumer confidence close to neutral plus downside risks to the export outlook from the threat of protectionism may derail Thailand’s tentative recovery. Fiscal policy is likely to remain supportive though.
- Inflation has been very low at 0.9% y/y and 0.8% y/y in November for headline and core respectively. BoT expects the former to reach the band in December (released January 6) supported by higher food prices due to weather events and energy from base effects. Imported inflation is negative though.
- There had been some talk of changing BoT’s target band but it was agreed to leave it at 1-3%.
INDONESIA: Today’s BI Decision Close Call As USDIDR Rises Further
Bank Indonesia’s (BI) December decision is announced later today and analysts are split as to the outcome. 21 of respondents on Bloomberg are expecting rates to be left at 6.0%, while 13 are forecasting a 25bp cut following the first one in September. We expect policy to be unchanged given that BI is currently focusing on FX and financial stability and USDIDR has been trading above 16000 all week (see MNI BI Preview).
- In the November statement BI said that “the focus of monetary policy is on Rupiah stability in response to increasing geopolitical and global economic uncertainty”. The currency has weakened partly due to the stronger US dollar following Trump’s US election win but there are also concerns about the impact of increased protectionism on Asian economies and the fiscal outlook under new Indonesian President Prabowo.
- USDIDR is currently around 16118, up 1.9% since the November 20 BI meeting and 0.8% since last Friday. It is also weaker in trade weighted terms with the JP Morgan IDR NEER down 1.0% since the last meeting.
- The last time USDIDR was above 16000 was in August but it was trending lower then, whereas it is currently trending higher, which is likely to worry BI.
- BI can focus on FX as it has other tools to support growth apart from rates. It has already been buoying the economy with macroprudential policies to boost lending and jobs. Q3 GDP slowed slightly to 4.9% y/y from 5.0%.
- While headline inflation is close to the bottom of the 1.5-3.5% BI target band, core is trending gradually higher and BI expects both to stay in the corridor next year.
