ASIA FX: Early 2026 Trends Against IDR, THB Continues To Outperform

US bond futures are flat to modestly better today in a low volume day.  As markets await the FOMC decision the US-10-Yr opened with a modest bid tone to reach 112-04+ before falling back to where it started around 112-03+.

Cash was better bid with yields 0.5bp - 1.0bps lower across the curve with 5-Yr and 7-Yr the outperformers.  

• The 2-Yr is down -0.8bps to 3.611%
• The 5-Yr is down -1.0bps to 3.78%
• The 10-yr is down -0.8bps to 4.182%
• The 30-Yr is down -0.7bps to 4.802

Tonight's auction will be a US$69 Bln 17-Week Bills.

SEP/Dot Plot:  The lack of major data since the September projections round portends only limited changes to the macro and rate forecasts in the December edition out Wednesday.

• None of the rate dot medians are expected to change, with 2025 confirmed at 3.6% (though with an unusual amount of disagreement in the dot distribution for an end-year SEP in a form of "soft dissent" against the cut), 2026 at 3.4% (implying one 25bp cut), with 2027 at 3.1% (another 25bp cut).
• In short, we expect most of the attention to be on the rate distribution. For 2026, the September dots were closely poised between 3.4% and 3.1% (10 above 3.25% vs 9 below 3.25%). We don't see much change here but if anything the risks to the median skew to the downside. For example, if one member who put their dot at 3.4% in September also saw rates ending 2025 at 3.9%, they might mark-to-market the rate view one notch lower.
• We'll also be watching for any dots implying a 2026 hike (we would expect at least one seeing rates higher than 3.6%) with the solidity of a 2026 "hold" also in focus.
• The longer-run dot is broadly expected to remain at 3.0%. But once again with 10 at 3.00% or below and 9 above that level, it would only take 1 moving from 3.00% or below to above 3.00% to move the median higher, likely to 3.1%. That shift will happen at some point and it wouldn't be a shock to see it come this week.

Caution is evident in equity markets today ahead of the FOMC with the focus now on the forward pricing as rate cut expectations begin to diminish.  In Japan, markets are agonizing over a potential Bank of Japan (BoJ) rate hike this month, following stronger-than-expected producer price data. This has influenced the Japanese yen and market dynamics, though rising yields are expected as a part of the normalization process. Whilst in China inflation remains weak even though it has hit near term highs.  CPI at +0.7% was the strongest print in more than a year and a step towards easing deflationary fears but remain well below the 2% target.  Producer pricing remained was negative again, having last printed positive  in late 2022.  The push pull of deflationary pressures is obvious, weighing heavy on China's stocks today.

• The NIKKEI couldn't shrug off the concerns on rates and is down -0.25% eating into modest gains for the first few days of trading.  
• China's bourses are all down with onshore down marginally more than the HSI.  HSI is lower by -0.43% and CSI 300 is down -0.85%
• The KOSPI seems to refuse to fall at the moment and is up over 5% in December alone.  It is doing very little today hardly moving from where it started the day.  
• The NIFTY 50 had two consecutive days of falls to start the week but has bounced back Wednesday morning to rise +0.35% after a strong IPO for an e-commerce stock
• Malaysia and Jakarta are moving in opposite directions with the FTSE Malay KLCI down -0.29% whilst the JCI is up +0.42%.  The FTSE Malay KLCI has now traded below the 50-day EMA and at 1,609 has the 100-day EMA resistance below at 1,598.

Crude has held onto most of Tuesday’s losses during today’s APAC session as it range trades ahead of the Fed decision later. A rate cut is widely expected, which is positive for US energy demand, but a hawkish tone regarding the policy outlook would likely weigh on oil prices. The EIA data release today could also be a market mover.

• WTI is up 0.2% to $58.35/bbl off the intraday low of $58.27, while Brent is also 0.2% higher at $62.05/bbl after falling to $61.96. The USD index is little changed.
• The market focus has returned to demand/supply fundamentals and it will be monitoring Thursday’s IEA and OPEC reports closely after today’s Fed and EIA data.
• A record market surplus in 2026 has been forecast for some time and upward revisions will be watched closely, especially given increased OPEC and non-OPEC output and elevated levels of seaborne crude.
• Bloomberg reported that US oil inventories fell 4.8mn barrels last week, according to those familiar with the API data. Product stocks were higher with gasoline stocks up 7.0mn and distillate 1.0mn.
• Not only is the FOMC decision announced later on Wednesday but Q3 US employment costs and November budget data also print. The BoC also decides rates. ECB President Lagarde gives an interview on the future of the euro and dollar. The ECB’s Donnery and Machado also appear.