ASIA FX: USD/Asia Pairs Lower Despite Equity Weakness, Won Outperforms

• The record Treasury futures trade appears to have been an unwinding of a long position in the TYM5 contract, as open interest in the contract dropped. The Tsys block trade saw a seller offload 78,000 TYH4 futures in early London trading, with a DV01 $5.1m.
• Simultaneously, S&P 500 futures surged 2.29%, while volume also increased as Treasuries sold off. Leading into Tuesday’s US session, bond contracts had been rising alongside open interest before an abrupt decline began when equities were at intraday lows, as per BBG

Chart. TYM5 Sells Off As S&P Futures Rally

JGB futures are weaker, -17 compared to settlement levels, but off session cheaps.

• “The Bank of Japan continues to look for opportunities to raise interest rates further, but is unlikely to rush into doing so, as underlying inflation has yet to reach the central bank's target of 2%, according to one of its two deputy governors.” (per DJ via BBG)
• “Bank of Japan Governor Kazuo Ueda called for global cooperation on Wednesday, saying geopolitical tension could impact financial stability such as by causing sudden reversals of cross-border capital flows. "Looking ahead, the resilience of Asian emerging market economies will be tested by rising geopolitical tension in several ways," Ueda told a seminar hosted by the International Monetary Fund in Tokyo.” (per RTRS)
• Cash US tsys have twist-steepened, with yields 4bps lower to 1bp higher, in today’s Asia-Pac session after yesterday’s heavy session.
• The cash JGB curve has bear-steepened, with benchmark yields flat to 4bps cheaper. The benchmark 10-year yield is 2.1bps higher at 1.445 % versus the cycle high of 1.466%.
• The swaps curve has also bear-steepened, with rates flat to 4bps higher. Swap spreads are mostly wider.
• Tomorrow, the local calendar will see International Investment Flow and Tokyo Avg Office Vacancies data alongside 30-year supply.

Q4 GDP rose 0.6% q/q to be up 1.3% y/y, in line with consensus. It showed a tentative recovery in growth but it remains soft. While Westpac expects monetary easing to provide some support to the consumer this year, its limited nature is likely to result in “muted” consumption. In addition, heightened uncertainty from US trade policy and Australia’s upcoming federal election could weigh on growth. 

• Westpac said that “the main takeaway from the December update is that the expected tentative recovery in private demand is underway but unfolding slowly. The pick-up in household consumption, supported by tax cuts is flowing through, but growth is still weak. Income growth has lifted, wage income picking up 2.0%qtr, the six-month annualised pace has also risen for the first time since December quarter 2023 to 4.3%yr.”
• “However, private investment remains mixed, dwelling investment still softening and only modest, unconvincing gains in business investment.”
• “Private demand on a per capita basis continues to decline.”
• “Total new government spending came in as expected and continues to rise strongly, reaching a record share of the economy at 27.7% of GDP, up from the previous peak of 27.6% last quarter.”
• “The household savings ratio nudged up from 3.6% to 3.8% – consistent with households continuing to put income gains towards rebuilding financial buffers rather than spending.”
• “Labour productivity continued to fall in annual terms, GDP per hour worked down -1.2%yr. Looking beyond the headline, underlying trends still suggest that aggregate productivity is being skewed by the expansion of the non-market sector and a trend decline in mining productivity.”
• “Nominal ULCs are now running at 4.7%yr, a touch above the outcomes recorded over 2019 when underlying inflation was below the target band.”