EM ASIA CREDIT: Singapore Telecom: Shows support for Optus

Macro: Last week was a data light week in China with the Loan Prime Rates a non-event with no change as expected, as Chinese banks face sustained pressure on net interest margin and return on equity that could last beyond 2026.  FDI reported late Friday and was again very weak.  This week on the data front will be Industrial Profits on Wednesday, followed by Official PMIs over the weekend.  Official Manufacturing PMIs have contracted the last for the last four months whilst the Services PMI has barely kept expanding.  Trends are likely to remain the same with the July release.  Industrial Profits since mid-2024 has struggled with contraction.  Industrial profits are weighed down by slow demand, poor consumer and investor confidence and ongoing deflationary pressures all of which are expected to continue.

Valuations:  USD/CNY versus the USD/CNY fixing shows the fixing is at fresh lows back to Nov last year, but USD/CNY spot is still comfortably above 2025 lows (near 7.1490). Likewise USD/CNH remains comfortably above 2025 YTD lows, tracking familiar ranges above 7.1700 in latest dealings.  The CSI 300 P/E has run up over the last few weeks.  If you take out the post COVID jump / stimulatory led jump of early 2021, the current P/E on the CSI 300 is nearing the highs. 

Fig1: CSI 300 Price to Earnings Last Five Years

Technicals:  The technicals for local bonds remains very strong.  Last week's daily OMO resulted in over CNY1.3bn of liquidity injection which our analysis suggests remains a strong technical for bond demand.  For the major bourses, they are all trading above major moving averages.  The laggard is the Hang Seng which with Friday's gains, bounced off the 20-day EMA.  Relative to the other major bourses (which trade materially higher than the 20-day EMA), this suggests that the Hang Seng could play catch up should the week ahead be positive for equities. 

Figure 2:  Hang Seng Index vs 20, 50, 100 and 200 Daily Moving Averages

Sentiment:  Whilst the economic data shows a sluggish economy, the stock market says otherwise as investors, with little alternative, buy equities.  Earnings have been eroded by deflationary pressures, poor consumer sentiment yet the belief that further stimulatory measures may be forthcoming and that the economy has potentially upside potential, has over ridden this.  

Geopolitics:  Russian, Indian and China's leaders will  converge in Tianjin for the Shanghai Cooperation Organization summit this week, among leaders from over 20 countries and heads of 10 international organizations coming together to address urgent regional and global issues. The Kremlin is pressing for a long-awaited trilateral meeting in an attempt to revive the Russia/India/China alliance as a counter to the US Trade War. If it did find new life, it would send a powerful signal that the geopolitical heavyweights are aligning in the face of US pressure. However, long held tensions between India and China, and economic differences between the three, make that outcome unlikely. 

Gold prices rose a percent on Friday rising sharply following indications from Fed Chair Powell that the FOMC is shifting towards easing again. He said on Friday “with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance”. There is now around an 83% chance of a September 17 rate cut priced in. The US dollar sank on the news with the BBDXY finishing Friday down 0.8% and Treasury yields were sharply lower. 

• Gold increased 1% to $3371.86/oz on Friday to be up 1.1% last week and 2.5% in August to date. It fell to $3321.55 before jumping to $3378.83, still below initial resistance at $3409.2. It is currently trading around $3365.5. Moving average studies are in a bull mode, while the sideways trend since April seems to be a medium-term pause in the uptrend. Initial support is at $3268.2, 30 July low.
• Silver continues to outperform rising 2% on Friday to $38.889 after a high of $39.064 to finish the week up 2.3%. It fell to $37.701 before Powell’s speech. It is now almost 6% higher this month. It has started Monday around $38.94. Technicals remain bullish with the metal trading above its 50-day EMA at $37.161. Initial resistance is at $39.655.
• Equities rallied on Friday with the S&P up 1.5% and Euro stoxx +0.5% but the S&P e-mini has started Monday little changed. Oil prices were slightly higher with WTI +0.4% to $63.77/bbl. Copper rose 0.4%.

TYU5 is trading 112-01+, down 0-03 from its close. 

• The US 2-year yield opens around 3.71%, up 0.01 from its close.
• The US 10-year yield opens around 4.267%, up 0.1 from its close.
• Anna Wong on X: “So my takeaway from Powell's speech today is that a September cut is still really down to forecasting the data -- the CPI and the NFP. True, the bias is somewhat in the direction of a cut, but I don't think the sureness in the market pricing accurately reflects the risk.”
• Ben Hunt on X: “Powell explicitly abandoned the idea of *achieving* a 2% inflation rate in this cycle and “reaffirmed” 2% only as a long-term aspirational goal as measured by long-term inflation expectations anchored (whatever that means) at 2%. This is PROFOUNDLY dovish and is ABSOLUTELY a verbal abandonment of the 2% target. For the past 3 years, Powell has said that 2% inflation was not aspirational and not something to get close to, but something to actually achieve. That language is now gone. We will not see 2% in this cycle. This is profoundly dovish.”
• 10-Year Yields held its 4.35% pivot area perfectly and Powell gave the market a reason to add to longs helping yields move lower. While this area continues to hold, bounces should be met with demand. First target the recent lows around 4.18% then the bottom of the range towards 4.10% comes back into focus.
• Data/Events: Building Permits, New Home Sales, Dallas Fed Manf. Activity