TAIWAN: HSBC Sees CBC On Hold For Extended Period
HSBC: "Just one takeaway this time: the CBC remains constructive on growth. Very much in line with expectations. Apart from the hold decision, it was no surprise that there was no change in RRR or other macroprudential measures - given the favourable movements seen in housing prices and related leverage lately.
Still, we take particular note of the CBC's constructive view of the economy considering below points:
1) The CBC expects the impact from the US tariffs to be limited. The CBC had not assumed any tariff impact for its 2025 growth forecast last time, instead saying that it will adjust its projection incrementally based on tariff implementations. Today, it argued that the impact from the 25% tariffs on steel & aluminium from last week is expected to be limited as Taiwan's steel exports have already been subject to it. Even with the upcoming tariffs on pharmaceuticals, semiconductors, and autos/parts, the CBC noted that Taiwan's exposure is rather limited at c2% of GDP.
2) Taiwan's economy finished 2024 stronger than expected. Taiwan's 2024 growth at 4.6% was significantly above the CBC's Decmeber projection of 4.1%. However, while the CBC attributed today's modest downward revision to high base effects, the revision's limited magnitude also reflects the CBC's constructive view of the economy.
We expect the CBC to remain on hold for much longer. All in all, we think today's policy decision and communications from the CBC corroborate our view that the CBC will maintain its policy rate unchanged for much longer. Also given the consistently hawkish rhetoric on inflation, we now expect the CBC to keep its policy rate unchanged until 2H26, when we expect to see a shallow 25bp policy rate cut."
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JGBS: Bull-Steepener, BoJ Takata Reiterates More Tightening Coming
At The Tokyo lunch break, JGB futures are stronger, +15 compared to settlement levels.
- BoJ board member Takata reiterated that the central bank is in a position to adjust policy rates further if the outlook is met. Takata stated that risks of big market moves have been lowered, giving the central bank more flexibility. This is a likely nod to last year's sharp risk off move in the wake of the end July hike by the central bank (although other factors were also in play).
- Japan's January trade figures were mixed. Exports rose 7.2% y/y, close to the 7.7% forecast and up from the prior 2.8% pace. Imports surged though to 16.7%y/y, from 1.7% in Dec and against a 9.3% forecast.
- Other Japan data released showed core machine orders for Dec weaker than forecast. We fell 1.2% m/m, against a 0.5% forecast and 3.4% prior. In y/y terms we printed 4.3% (against a 7.5% forecast and 10.3% prior).
- Cash US tsys are little changed in today’s Asia-Pac session after yesterday’s heavy session.
- Cash JGBs have slightly bull-steepened, with yields flat to 1bp lower across benchmarks. The benchmark 10-year yield is 0.2bp lower at 1.428% after hitting a fresh cycle high of 1.446%.
- Swap rates are 1-5bps higher, with the 20-year underperforming. Swap spreads are wider.
CHINA: Could The Tide Be Turning for Bond Yields in China?
- Since the lows in early January, bond yields in China have inched higher quietly. From a low of 1.01%, China’s 2YR Government bond yield has moved 39bps higher to 1.40% for yesterday’s close. For the 5-year, yesterday’s close of 1.53% represented a move of +21bps higher. The 10-year benchmark has risen from a low of 1.59% to yesterday’s close of 1.71%.
- When considering the moves in bond yields compared to the move to the CSI 300, it poses something interesting.
- Finishing 2024 at 3,934.91, the index closed yesterday at 3,912.78 – a decline of -0.56%. However, it is the move in recent trading sessions that calls for further investigation.
- Against a backdrop of a 2.7% gain in the CSI 300 during the trading sessions on Thursday and Friday last week, and Monday; the 10YR bond yield rose 7bps, and the 2YR is 13bps higher.
- This comes after a period where bond markets had been relatively calm, despite news that the PBOC had halted their bond purchases in mid-January.
- The move higher yields is also against a backdrop of comments from the PBOC Governor in Saudi Arabia on Sunday that more accommodative monetary policy can be expected.
- A further development in recent days has been the meeting between President Xi and Alibaba’s Jack Ma and other key entrepreneurs; in a sign that the relations between the President and the private sector could be improving.
- Whilst a short period move does not make a trend, the CSI 300’s rally and the inverse move from bonds is worth noting.
Figure1: CGB10YR and CGB 2YR yields (source: BBG)
CHINA: Home Prices Stagnate in JAN; as Lunar Holidays Impact.
- New home prices in January fell by -0.07%, a modest improvement from the -0.08% in December.
- This represented the fifth consecutive month of improvement.
- Used home prices fell -0.34%, a modest increase from -0.31% in December.
- For used home prices, this halted a run of improving prices for four months.
- Prices for new homes fell in 42 cities, compared to 43 the month prior.
- Beijing new home prices -0.4% m/m; -5.7% y/y
- Shanghai new home prices +0.6% m/m; +5.6% y/y.
- Beijing used home prices +0.1% m/m; -3.8% y/y
- Shanghai used home prices +0.4% y/y; -2.3% y/y
- The January prices will provide little insight into the progress in the sector, as the month was impacted by the Lunar New Year holiday.
