ASIA FX: Yuan Softens On Tariff Threat, KRW & TWD Outperform, Aided By Equities
Jan-22 05:46
Tariff threats have softened yuan sentiment, although USD/CNH remains comfortably within recent ranges. We were last above 7.2800, where we have spent much of the session, after earlier headlines crossed from US President Trump around a 10% tariff threat on China around drug flows into the US. KRW and TWD have fallen modestly, but have outperformed yuan weakness seen so far today.
- USD/CNH remains sub Tuesday highs, 7.2965, while current levels (7.2860) are close to the 50-day EMA. Trump tariff rhetoric, which he stated could be delivered on Feb 1 (the same day as Canada and Mexican tariffs could be imposed), is keeping yuan sentiment on edge. Some analysts noted the 10% threat is not as bad as earlier Trump tariff threats. Still, onshore and Hong Kong equity market sentiment has tracked weaker today.
- Implied vols for USD/CNH remain comfortably off recent highs, last 5.235% for the month. We got above 6.67% on Monday.
- Spot USD/KRW opened weaker, but found support at 1430. We last track in the 1437 region, little changed so far for the session. Earlier sentiment was supported by positive equity gains. At the same news conference where Trump made tariff threats, he also unveiled an AI investment initiative, led by key industry players. This has supported tech related sentiment. The Kospi is +1.25% higher at this stage. Broader USD gains halted USD/KRW downside though.
- USD/TWD sits modestly higher, last near 32.75/80. Recent lows around 32.66 have coincided with the 50-day MA support point. The Taiex is up over 1.1%.
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CHINA: Country Wrap – Bond Yields Continue to Fall.
Dec-23 05:42
- Despite efforts last week to halt the move lower in yields, China’ s bond yields dropped in this morning’s trading. (source: MNI – Market News)
- Central Bank Withdraws Liquidity via OMO. (source: MNI – Market News)
- CNY Fixed Below Estimates. (source: MNI – Market News).
- China Protests US Weapon Sales to Taiwan, Vows to Take Action (source: BBG).
- China major indices were up today with the exception of Shenzhen. Hang Seng +0.58%, CSI 300 +0.62%, Shanghai +0.10%, Shenzhen -1.4%
- CNY : Yuan Reference Rate at 7.1870 Per USD; Estimate 7.2901
- Bonds: the move lower in yield continues with a strong day today, CGB 10YR 1.72%.
GOLD: Gold Up on Poor US Data Friday.
Dec-23 05:27
- Gold was left floundering into the end of last week, only to receive a small kicker from weaker than expected PCE data in the US.
- Gold had been hovering around US$2600 in early trading Friday only to jump to $2622.91 at the close and it has hovered around that level all day in Asia.
- With lower rates typically good for gold, the muted Personal Consumption Expenditure revives the debate on how many rate cuts in the US in 2015.
- Having had a very good year in 2024 on a view of rate cuts, gold appears evenly poised in the coming months, pending the outlook for rates.
- The FED had indicated that the possibility exists for less rate cuts that is currently priced in and this has the potential to be challenging for gold.
- Tonight sees Building Permits, Chicago Fed National Activity Index Durable Good and New Home Sale releases for further guidance on rates.
EQUITIES: Asian Equities Rallying, Semiconductors Outperform
Dec-23 05:12
- Asian markets rebounded today, lifted by easing US inflation and renewed Fed rate rate-cut bets. Japan's Nikkei 225 rose 1.10%, while the Topix climbed 0.9%, driven by Toyota Motor and bank stocks ahead of BOJ minutes and Governor Ueda's speech. Hong Kong’s Hang Seng gained 0.7%, supported by record mainland Chinese buying of HK$778b ($100b) in 2024, as a weaker yuan and Beijing’s stimulus fueled demand.
- South Korea's Kospi jumped 1.470% and Taiwan's Taiex advanced 2.50%, with tech stocks like TSMC and Hon Hai leading gains. Australia’s ASX 200 jumped 1.4%, tracking the rally in U.S. equities. Mainland China saw modest gains as Premier Li Qiang called for innovation in semiconductors, while investor sentiment remained cautious due to global trade concerns. The broader MSCI Asia Pacific Index snapped a six-day losing streak, offering some respite after recent volatility sparked by robust U.S. data and reduced Fed rate-cut expectations for 2025.
- There were heavy outflows on Friday in the tech heavy markets of South Korea and Taiwan, foreign investors have returned somewhat to Korea today, although inflows are well below what is needed to cover recent outflows, with just $100m inflows so far today, with majority of the flows heading into financial stocks.
