EM ASIA CREDIT: Tower Bersama Infrastructure: Boosts liquidity lines

The May meeting minutes confirmed that staying on hold, 25bp and 50bp rate cuts were discussed. It appears that not only is there considerable uncertainty regarding the outlook but that the Board prefers to remain cautious and move “predictably”, as a result it cut by the widely expected 25bp, which was also assumed in its updated staff projections. Given not just global uncertainties but also around the level of monetary restrictiveness and tightness in the labour market, another cut in July is not fixed and will be highly data and event dependent. 

• Rates were cut by 25bp as that was assumption in the forecasts brought underlying inflation close to the band mid-point, the “progress made on inflation”, the “slightly softer outlook for domestic consumption”, global developments would like slow Australian growth, it was “predictable” and would leave room to respond to events. 
• The Board decided to limit the move to 25bp because Australian data was yet to show any “adverse impact on domestic demand” from global events, concerns about Australia’s supply-side including productivity, “two-sided” uncertainty over the degree of labour market tightness, impact of a demand recovery on profit margins, trade policy outcomes and effects on global supply chains are still unknown, and it would be difficult to unwind “too rapid” easing.
• The arguments to hold policy included that the stance of current policy is not judged “very restrictive”, headline inflation would rise again when electricity rebates ended, “labour and product markets remained relatively tight”, case to wait and see how global trade policy evolved and there were currently “few observable effects on the Australian economy”.
• Domestic developments on their own warranted monetary policy easing, while global developments “strengthened the case”. The combination of the two is likely to be important for the rate outlook. 

USD/CNH is holding modestly lower in latest dealings, last near 7.2000, slightly up from session lows (7.1966). It is outperforming a slightly firmer USD trend against the majors (BBDXY index up close to 0.15%), as onshore China markets return from yesterday's long weekend. 

• We had the Caixin manufacturing PMI print a short while ago, which came in well below market forecasts (48.3, versus 50.7 expected). The points to the tariff impact, given the survey focuses on export orientated/small SMEs. In the middle of May we did see the US and China agree to lower tariff levels for 90 days.
• Firm focus remains on US-China trade talks, with the US side seemingly pushing for a Trump-XI call, but no confirmation yet that such a call will take place (we are likely to find out after the event in any case).
• The soft Caixin print hasn't impacted FX sentiment negatively though. Clear of month end flows from late last week may be helping sentiment at the margins.
• USD/CNH implied vols remain quite depressed, the 1 month last near 4.27%, just up from recent lows near 4%.
• The USD/CNY fixing earlier provided no fresh encouragement for yuan bills, as it was set comfortably above market consensus estimates. 

After an exceptional period of inflows into the major markets, it appears that this trend has stalled for now as constant daily flows are interrupted with outflows, with Taiwan and India the latest to experience a significant outflow.

• South Korea: Recorded inflows of +$172m yesterday, bringing the 5-day total to +$265m. 2025 to date flows are -$11,205. The 5-day average is +$53m, the 20-day average is +$53m and the 100-day average of -$112m.
• Taiwan: Had outflows of -$1,885m as yesterday, with total outflows of -$2,332m over the past 5 days. YTD flows are negative at -$12,778. The 5-day average is -$466m, the 20-day average of +$222m and the 100-day average of -$134m.
• India: Had outflows of -$585m as of the 30th, with total inflows of +$50m over the past 5 days.  YTD flows are negative -$10,528m.  The 5-day average is +$10m, the 20-day average of +$87m and the 100-day average of -$113m.
• Indonesia: Had outflows of -$172m as of yesterday, with total outflows of -$45m over the prior five days.  YTD flows are negative -$2,898m.  The 5-day average is -$9m, the 20-day average +$9m and the 100-day average -$31m.
• Thailand: Recorded outflows of -$47m as of 29th, outflows totaling -$84m over the past 5 days. YTD flows are negative at -$1,755m. The 5-day average is -$17m, the 20-day average of -$2m and the 100-day average of -$18m.
• Malaysia: Recorded outflows of -$107m as of the 30th, totaling -$240m over the past 5 days. YTD flows are negative at -$3,424m. The 5-day average is -$56m, the 20-day average of +$8m and the 100-day average of -$24m.
• Philippines: Saw inflows of +$8m yesterday, with net outflows of -$259m over the past 5 days. YTD flows are negative at -$515m. The 5-day average is -$52m, the 20-day average of -$13m the 100-day average of -$5m.