ASIA STOCKS: Equities Down from Overnight Leads, CSI 300 Testing Key Levels

Indonesia is widely expected to keep rates at 5% today with only 2 out of 38 analysts surveyed by Bloomberg forecasting a 25bp cut (see MNI BI Preview). Bank Indonesia (BI) holds monthly meetings and so has space to be cautious given its focus on FX stability and that it intervened to defend the rupiah in recent weeks following political instability and the replacement of respected Finance Minister Indrawati. However with signs of weakening growth and moderating inflation, it will keep its easing bias.

• Headline inflation moderated 0.1pp to 2.3% y/y in August with lower transportation inflation offsetting higher food driven by rice prices. Core moderated to 2.2% y/y from 2.3%, the lowest since October, reflecting softer domestic demand.
• Both measures are now below the mid-point of BI’s 1.5-3.5% target band but in August the central bank said that it is “confident” that inflation will remain within the corridor this year and next with inflation expectations anchored, spare capacity, effects from digitalisation and “managed imported inflation”. 

Indonesia CPI y/y%

Source: MNI - Market News/LSEG

• The August S&P Global PMI showed an increase in manufacturers’ cost inflation due to the stronger USD which was passed on to customers driving selling price inflation to its highest since July 2024.
• Economic data since the August meeting have been mixed. Consumer confidence fell to its lowest in almost three years. Weak household sentiment is signalling a slowdown in consumption in Q3.
• July merchandise exports were robust rising 9.9% y/y with shipments to key destinations China and the US robust but also to the rest of ASEAN and the EU. In contrast, imports fell 5.9% y/y, a tentative signal of weak domestic demand.
• The S&P Global manufacturing PMI returned to positive territory with both domestic and export orders growing.

Indonesia merchandise exports vs imports y/y% 3-mth ma

Source: MNI - Market News/LSEG

The USD/JPY range has been 146.21 - 146.61 in the Asia-Pac session, it is currently trading around 146.50, +0.03%. USD/JPY came under pressure overnight as the USD trades very heavy heading into the FOMC. The price is now just above the support of its recent 146-149 range, and we need a convincing break to see a clearer direction again. CFTC data shows leveraged funds paring back some of their short JPY position last week but remain core short, looking for this support to continue to hold. A move back below 145/146 is needed to potentially start seeing these positions being flushed out. Can the FOMC or the BOJ this week be that catalyst ?

• (Bloomberg) -- “RBC BlueBay Asset Management has taken a long yen position, betting that Japan’s political transition and a possible Bank of Japan rate hike in October could drive further strength in the currency. BlueBay’s chief investment officer Mark Dowding said the firm would also consider shifting to “go long duration” if Shinjiro Koizumi wins the LDP leadership race, and the BOJ follows through with a rate hike.”
• "Japan’s GPIF is making its first direct investment in domestic alternative assets." - BBG
• MNI Brief: Japan Aug Exports Post 4th Straight Drop: Japan’s exports fell for a fourth straight year-on-year decline in August, down 0.1% after July’s 2.6% drop, as shipments of automobiles and iron, and steel products were hit by U.S. tariffs. The data is unlikely to prompt the BOJ to alter its view that exports remain broadly flat as a trend.
• Solid Demand Metrics For 20Y Auction: The 20-year JGB auction delivered solid results across key metrics. The low price outperformed dealer forecasts, which were set at 97.80 according to a Bloomberg poll. Moreover, the cover ratio jumped to 3.9974x from 3.0853 in the previous outing and the auction tail shortened to 0.10 from to 0.13
• Options : Close significant option expiries for NY cut, based on DTCC data: 145.70($1.22b), 146.85($861m), 148.00($567m). Upcoming Close Strikes : 145.00($1.48b Sept 19), 146.40($797m Sept 19) - BBG.

Fig 1 : USD/JPY Spot Weekly Chart

Source: MNI - Market News/Bloomberg Finance L.P

• China's bond futures are mixed today with the 10-Yr down and the 2-Yr marginally up.  
• The 10-Yr is down -0.06 at 107.94.  Having traded through the 20-day EMA, the decline today sees it again approach the 20-day of 107.91.

• China's 2-Yr bond future is up +0.01 at 102.42 and is near to the 50-day EMA , which it has not traded through since early July. 

• China's 10-Yr CGB is at 1.78% .