EM ASIA CREDIT: MNI EM Credit Market Update - Asia

RBNZ-dated OIS pricing was little changed across meetings today.

• Markets continue to price in 25bps of easing for Wednesday’s meeting, with a total of 64bps expected by November 2025.
• However, rates remain 2–18bps higher than levels observed prior to the Q1 CPI release on April 17.
• Amid firmer NZ rates and softer Australian rates—following last week’s dovish RBA pivot and Tuesday’s rate cut—the expected year-end policy rate differential between Australia and New Zealand has narrowed by 20–25bps over the past week, currently standing at +23bps. 

Figure 1: RBA & RBNZ Official Rate Profile (%)

Source: MNI - Market News / Bloomberg

The BBDXY range Friday night was 1210.77 - 1218.08, Asia is currently trading around 1208. The USD has opened weak again in early Monday morning trading in Asia with another leg lower. 

• What stood out from the price action on Friday was how well the EUR held up in the face of a potential 50% increase in tariffs, and it was again the USD that took the brunt of the impact. This clearly shows the market's current outlook and leans into the growing “sell America “ theme. 
• The EU is ready to advance talks and needs until July 9 to reach a good deal, Ursula von der Leyen said on X. https://x.com/vonderleyen/status/1926729529436913794
• Deutsche Bank put out a note that the Dollar would need to depreciate by up to 40% in order to eliminate the US deficit. “ If the average real exchange rate appreciation of 40% over the past 15 years were to reverse, it could likely restore the deficit to a zero balance, but the policy measures required may far exceed the simple implementation of tariffs.”  https://x.com/Barchart/status/1925995602552275398
• Andreas Steno Larsen on X : “ A 25-30% weaker USD (over the next 1-2 years) solves most of Trump's problems, trade deficits will vanish. https://x.com/AndreasSteno/status/1925974036552499565
• These views highlight the  broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows.

• We are approaching some key Weekly support towards the 1200 area in the BBDXY. A break below here could signal the move is about to accelerate.

  Fig 1: Dollar Leads Swings in the US external balance

  

  source : Deutsche Bank/Barchart on X - https://x.com/Barchart/status/1925995602552275398

   

   

The March CPB global trade data showed a significant pickup in export growth as countries, especially in Asia, try to beat the imposition of US duties. Reciprocal tariffs were announced on April 2 and then delayed until July 9 to allow negotiations to take place. Exporters are likely to continue front loading shipments in case agreements are not reached, increasing inventories and thus the likelihood of a drop in trade in H2. 

• Global trade rose 2.2% m/m in March to be up 6.6% y/y, fastest since December 2021, after 0.5% & 3.0% in February. Exports rose 2.3% m/m and 5.9% y/y up from 2.0% y/y with both DM and EM posting monthly increases. The Baltic Freight Index and manufacturing PMI suggest there will be a correction. 

Global trade y/y% vs Baltic Freight Index

Source: MNI - Market News/LSEG

• Shipments from developed markets rose 1.2% m/m and 3.9% y/y after 1.4% y/y. This was the fifth consecutive monthly rise. Advanced Asia saw exports increase 12.1% y/y, while Japan’s rose 6.6% y/y. The euro area rose 0.5% y/y, highest since November 2022, and the US by 4.3% y/y.
• EM Asia also saw strong export growth with China up 16.9% y/y and excluding China +6.4% y/y. Latin America increased 10.2% y/y. Mexico received some reprieve from US duties through USMCA-compliant goods worth around half of US imports from Mexico but still faces universal tariffs on steel and autos. Overall EM exports rose 3.7% m/m to be up 9.1% y/y following February’s 3.1% y/y. 

Global exports y/y%