US TSYS: Tsys Futures Off Wednesday Highs As Geopol Tensions Decrease

• Treasury futures are trading towards session lows although have spent the day rangebound. TUU4 is - 01⅞ at 102-25, while TYU4 is - 06 at 112-04+.
• We still trade towards the highs made overnight, which came on the back of the Fed signaling potential rate cuts at the September meeting and was also fueled by a haven bid as escalations increased between Israel & Iran, there hasn't been any major update during the Asia session on this issue.
• Cash treasuries curve have flattened today, with better selling int he 3 & 5yr tenors. The 10yr +2.5bps at 4.055% just off the lowest level since February
• Rate cut pricing a touch softer today, although a full cut is expected in September and a cumulative 71bps of cuts by the December meeting
• The focus is now turning to US ISM later today and nonfarm payrolls on Friday.

JGBS: Cash Curve Twist-Flattening, Post-Taper BoJ Rinban Operations Tomorrow

JGB futures remain sharply higher, +20 compared to the settlement levels.

• Outside of the previously outlined International Investment Flow and Jibun Bank PMI Mfg data, there hasn't been much in the way of domestic drivers to flag.
• In yesterday’s statement, the BoJ included hawkish forward guidance, indicating that if the economy evolves as projected in the Outlook for Economic Activity and Prices, further policy tightening will occur. During the press conference, Governor Ueda mentioned that 0.50% is not a ceiling for the BoJ policy rate.
• As a result, some commentators predict a rate hike to 0.5% in December, followed by two more increases next year, reaching 1% by the end of 2025. Conversely, others believe inflation momentum will stay sluggish, and another rate hike by December is not guaranteed. (See MNI BoJ Review here)
• Cash US tsys are 2-3bps cheaper in today’s Asia-Pac session, partially reversing some of yesterday’s post-FOMC strength.
• The cash JGB curve has twist-flattened, pivoting at the 5s, with yields 1bp higher to 4bps lower.
• The swaps curve has also twist-flattened, with rates 1bp higher to 2bps lower.
• Tomorrow, the local calendar will see Monetary Base data alongside BoJ Rinban Operations covering 1-10-year JGBs. After yesterday’s JGB taper announcement, tomorrow’s operations will likely garner more market interest.

AUSSIE BONDS: Extends Yesterday’s Post-CPI Rally After Fed Chair Powell’s Dovish Tilt

ACGBs (YM +3.0 & XM +4.0) are richer and sit mid-range after extending yesterday’s post-CPI rally in response to Fed Chair Powell’s slight dovish tilt at the FOMC presser.

• Cash ACGBs sit 17-21bps richer compared to pre-CPI levels, with a steeper 3/10 curve.
• The AU-US 10-year yield differential is 4bps wider at +1bps after yesterday’s 11bp narrowing. At +1bp, the differential sits in the middle of the +/- 30bp range it has traded in over the past 18 months.
• (AFR) Almost all the economists calling for an interest rate rise as soon as next week now concede the Reserve Bank of Australia’s next move will be a cut after new data showed underlying inflation eased last quarter. (See link)
• Swap rates are 4-5bps lower, with the 3s10s curve flatter.
• The bills strip has bull-flattened, with pricing +1 to +5.
• RBA-dated OIS pricing is flat to 4bps softer today and 7-27bps softer than pre-CPI levels across meetings, with 2025 meetings leading.
• Terminal rate expectations have tumbled to 4.34% (versus the current effective rate of 4.32%) from 4.42% before yesterday’s CPI data.
• Easing expectations have returned with the expected year-end official rate falling to 4.18%, its lowest level since the mid-June RBA meeting.
• Tomorrow, the local calendar is empty apart from the AOFM’s planned sale of A$600mn of 3.75% 21 May 2034 bond.

AU STIR: RBA Dated OIS - Year-End Easing Expectations Return

RBA-dated OIS pricing has softened 7-28bps from pre-CPI levels across meetings, with 2025 meetings leading.

• Terminal rate expectations have tumbled to 4.34% (versus the current effective rate of 4.32%) from 4.42% before yesterday’s CPI data.
• Easing expectations have returned with the expected year-end official rate falling to 4.19%, its lowest level since the mid-June RBA meeting.

Figure 1: RBA-Dated OIS – Pre- Vs. Post-CPI

Source: MNI – Market News / Bloomberg

AUSTRALIAN DATA: Q2 Goods Trade Surplus Narrows & Terms Of Trade Deteriorate

Australia’s June goods trade surplus widened due to a downward revision to May from weaker export growth. The Q2 merchandise trade surplus narrowed about $4bn from Q1 and with Q2 trade prices showing export prices sinking 5.9% q/q while import prices unexpectedly rose 1% q/q, there is a risk of a net export contraction in the national accounts. However, we don’t have services trade data yet.

Australia trade prices y/y%

Source: MNI - Market News/Refinitiv

• The May merchandise trade surplus was revised down $0.7bn to $5.05bn and June came in at $5.59bn due to exports outpacing imports. The surplus has been trending lower for two years with the terms of trade also lower over that time.
• Exports rose 1.7% m/m to be down 2.8% y/y up from -9.3% y/y with a strong rise in other mineral fuels and rural shipments. All key commodity groups saw stronger July exports.
• Imports rose 0.5% m/m and 8.6% y/y up from 3% y/y in May. The monthly increase was driven by capital goods up 3% m/m and 2.5% y/y, which saw most categories rise on the month but there was also a 41.2% m/m rise in volatile aircraft. While consumer goods fell 1.3% m/m in June, due to auto imports, they have been strong rising 10.9% y/y.

Source: MNI - Market News/ABS

AUSTRALIAN DATA: Weak Exports To Key Export Destinations

Shipments to Australia’s major merchandise export destinations have been weak as softer commodity prices weigh on values but volume growth was robust in June.

• Exports to China fell 11% y/y in June after -2.8% in May. It is worth noting that the data is volatile and non-seasonally adjusted. Korea was also weak falling 11.6% y/y and Japan -5.4% y/y, although this was an improvement from -27.9%. Taiwan, India and NZ all recorded annual contractions but growth to the US and UK was robust. Export growth to the US is generally outperforming that to China.
• Global import volume growth has been weak this year, especially to developed markets.
• There was strong volume growth in shipments of key commodities in June with iron ore and coal recording the second consecutive monthly rise driven by Japan and China but export to Korea were weak. LNG volumes fell 4.5% m/m after rising 0.5%.
• However, prices fell on the month except for hard coking and thermal coal. Iron ore was down around 5% m/m while LNG fell 4.5% m/m, the fifth consecutive drop.

Australia exports by destination y/y%

Source: MNI - Market News/ABS

NZGBS: Closed On A Strong Note, August Cut Priced As A Coin Toss

NZGBs closed on a strong note, with benchmark yields 6-7bps lower and the 2/10 curve flatter.

• Outside of the previously outlined home values, there hasn't been much in the way of domestic drivers to flag.
• Today’s weekly supply saw solid absorption across all the lines, with the Apr-37 bond the standout performer. Its cover ratio was 6.32x versus 3.16x at its 18 July auction.
• The NZ-US 10-year yield differential remains unchanged, with cash US Treasuries approximately 2bps cheaper in today’s Asia-Pacific session following yesterday’s strong post-FOMC rally. Meanwhile, the NZ-AU 10-year differential has tightened by 4bps to +20bps, following yesterday’s strong post-Jobs outperformance by ACGBs.
• Swap rates closed 4-5bps lower, with implied swap spreads wider.
• RBNZ dated OIS pricing closed 2-7bps softer across meetings beyond October, with mid-2025 leading. The market gives a 25bp cut in August a 53% probability. A cumulative 74bps of easing is priced by year-end.
• Tomorrow, the local calendar is empty.

FOREX: USD/JPY Tests Retracement Level, Before Weaker China PMI Stabilizes USD Sentiment

The BBDXY USD index is modestly lower in Thursday trade to date. We were last near 1253.30, against earlier lows of 1251.8.

• Early focus remained on USD/JPY downside. After edging up to 150.32 the pair quickly reversed lower, eventually getting to 148.51 after the Tokyo fix.
• Further liquidation of yen shorts appears to be a continued driver of sentiment in the space, while early options volumes was skewed towards USD shorts with lower strike levels in the pair.
• Sentiment started to stabilize after the China Caixin PMI came in well below expectations (which also aided higher USD/CNH levels). USD/JPY was last near 149.50, still around 0.30% stronger in yen terms. The earlier low was just under a Fib retracement level (148.54).
• AUD/USD has mostly underperformed, which has been a consistent theme since yesterday's CPI miss. The pair last near 0.6530, off 0.15%. The China PMI miss didn't helped, although metal prices are a touch higher. China/HK equities are down modestly at the lunch break.
• NZD/USD has traded relatively steady, last 0.5955. The AUD/NZD cross last near 1.0965/70, which is where we post yesterday's CPI miss.
• In the cross asset space, US equity futures are firmer, led by the Nasdaq (with META up late US hours post better revenue). US yields are firmer after Wednesday's sharp losses, but gains are not beyond 2.5bps at this stage.
• Looking ahead, we have the BoE decision, along with final EU PMI reads. Later US jobless claims, July manufacturing ISM/PMI, Challenger job cuts and Q2 productivity/ULC print.

ASIA STOCKS: China & HK Equities Lower As PMI Misses, Home Sales Drop

Hong Kong & Chinese equities are lower today following Caixin China PMI Mfg unexpectedly contracting in July. While the Fed's dovish tone overnight and talk of potential cuts in September, investors remained cautious and still expect Hong Kong lenders wont start cutting rates until mid-2025. Chinese property stocks fell after new home sales dropped 19.7% in July, indicating that recent policy measures might be insufficient for a sustainable recovery

• Major large-cap indices are just off earlier lows with the HSI down 0.25% while the CSI 300 is off 0.45%. Property stocks are the worst performing with the Mainland Property Index is 2.90% lower & CSI 300 RE Index is off 2.40%. Tech stocks have missed the global rally overnight with the HSTech Index off 1.30%
• China’s manufacturing activity contracted in July for the first time in nine months, with the Caixin PMI dropping to 49.8 from 51.8, indicating weakening export momentum. This unexpected decline highlights concerns about the country's economic outlook, exacerbated by subdued consumer demand and external uncertainties such as potential tariffs.
• China has seen a significant increase in A-share stock buybacks, with 1,804 companies repurchasing 115b yuan worth of shares in the first seven months of 2024, surpassing last year's totals. This surge, mainly in the electronics, electrical equipment, computers, pharmaceuticals, and non-ferrous metals industries, aims to boost investor confidence. The Shanghai SE A Shares Index is little changed this year, while the Shenzhen A Share Index is off about 12% for the year.
• The US is considering new restrictions on China's access to advanced AI memory chips and related equipment, targetting major semiconductor firms that use US products. These measures, part of a broader package including sanctions on over 120 Chinese firms, aim to limit China's ability to produce high-bandwidth memory chips and advanced dynamic random access memory. The Biden administration is also pressuring allies such as South Korea, Japan, and the Netherlands to adopt similar controls, according to BBG.
• Later today we have Hong Kong Retail Sales data

ASIA PAC STOCKS: Japanese Equities Drop On Yen Rally, Asian Tech Stocks Higher

Asian equities are mixed today, with Japanese stocks experienced sharp declines, driven by a stronger yen and a significant drop in real estate shares following the BoJ rate hike. In contrast most other markets are trading higher with Australian equities led higher by gains in mining and real estate stocks and optimism over potential Federal Reserve rate cuts, while the market is no longer pricing in a chance of a hike by the RBA next month. South Korean & Taiwan equities are also both higher after semiconductor stocks surged higher in the US session.

• Japanese equities have been under significant selling pressure today, with major benchmarks down about 3%. The declines are primarily attributed to a stronger yen, which is affecting exporters and reducing profit margins. Real estate shares have also taken a hit, plunging almost 7% following the BoJ's decision to raise its benchmark interest rate to 0.25%, financials held up well for most of the day, before selling occuring in the second half of the session with the Topix Bank Index down 1.20%, the Nikkei 225 is currently 2.80% lower, while the Topix is 3.60% lower.
• South Korean equities are higher today largely tracking the rally in US tech stocks overnight, the KOSPI is 0.70% while, underperforming the small-cap KOSDAQ Index which is up 1.40%.
• Taiwan equities have gapped higher after the Philadelphia SE Semiconductor Index surged 7% during the US session, TSMC is currently 2.60% higher. Foreign investors continue to heavy sell local stocks with TSMC seeing $5.8b in net sales on July. Currently the Taiex is 1.95% higher.
• Australian equities have hit a new intraday record high, driven by gains in mining and real estate stocks, following the Fed signally potential rate cuts in September, while the AU OIS market no longer pricing in a chance of a hike up upcoming RBA meetings, the ASX 200 is 0.45% higher. New Zealand equities are 0.50% today.
• In EM Asia markets are mixed with the Malaysian KLCI down 0.10%, Singapore's Straits Times down 0.85%, while the Philippines PSEi is 0.45% higher, Indonesian JCI is up 0.70%, India's Nifty 50 up 0.70% while Thailand's SET is 0.60% higher.

JAPAN DATA: Offshore Investors Offload Equities, Japan Investors Sell Offshore Bonds

Offshore investors sold down their local Japan equity holdings for the second straight week. -¥670.5bn in net outflows from this space was the largest weekly outflow since the second last week of March this year. This fits with the price action around Japan equities and general risk aversion we saw through last week. Tech sentiment has seen stabilized somewhat in global markets, so flows may stabilize for this week.

• Offshore investors were meaningful buyers of local bonds, nearly ¥1200bn in net inflows. This was the largest weekly inflow since the middle of May. It doesn't arrest the negative trend in terms of outflows seen since March though.
• In terms of Japan outbound flows, we saw another -¥700.5bn in net selling of offshore bonds. This keeps the trend in place of net outflows, which fits with the unattractive investment proposition of offshore bonds (on a hedged FX basis) for local investors.
• Local investors added to offshore equity holdings.

Table 1: Japan Weekly Investment Flows

Source: MNI- Market News/Bloomberg

ASIA EQUITY FLOWS: Foreign Investors Continue Dumping Taiwan Equities

• South Korea: South Korean equities saw inflows of just $66m yesterday, and we now sit on an outflow of $381m over the past five trading days. Shortly we have local trade balance data, and S&P PMIs. The 5-day average outflow is $76m, compared to the 20-day average inflow of $58m and the 100-day average inflow of $95m. Year-to-date, South Korea has experienced substantial inflows totaling $18.367b.
• Taiwan: Foreign investors sold $701m in equities yesterday, resulting in an outflow of $4.036b over the past five trading days, it has been a one way street for the Taiwanese market recently with $11.5b of outflows in July, while the Taiex has dropped 9% from its peak in mid July, there could be some relief on the way after the Philadelphia SE Semiconductor Index surged 7% overnight. The 5-day average outflow is $807m, higher than the 20-day average outflow of $562m and the 100-day average outflow of $137m. Year-to-date, Taiwan has experienced outflows totaling $7.18b.
• India: Indian equities saw outflows of $342m yesterday, leading to a net outflow of $840m over the past five trading days although these outflows have been match with local buyers with the Nifty 50 up 2% over the same period. The 5-day average outflow is $168m, compared to the 20-day average inflow of $187m and higher than the 100-day average outflow of $51m. Year-to-date, India has experienced inflows totaling $4.038b.
• Indonesia: Indonesian equities recorded inflows of $130m yesterday, leading to a net inflow of $134m over the past five trading days, it has been a muted month for Indonesian equities with the JCI stuck within a tight range of 7,200 - 7,350. The 5-day average is an outflow of $27m, below the 20-day average inflow of $17m and close to the 100-day average outflow of $14m. Year-to-date, Indonesia has experienced outflows totaling $16m.
• Thailand: Thai equities saw inflows of $8m yesterday, resulting in a net inflow of $12m over the past five trading days. The SET has seen a strong bounce after testing the yearly lows on July 25, the test now will be on whether it can break above 1,320, a level it fell below back in early June. The 5-day average inflow is $2m, better than the 20-day average outflow of $3m and the 100-day average outflow of $26m. Year-to-date, Thailand has seen significant outflows amounting to $3.278b.
• Malaysia: Malaysian equities experienced inflows of $26m yesterday, leading to a 5-day net outflow of $55m. The 5-day average outflow is $11m, lower than the 20-day average inflow of $14m and the 100-day average outflow of $3m. Year-to-date, Malaysia has experienced inflows totaling $109m.
• Philippines: The Philippines had a small outflow of just $300k on Wednesday, resulting in a net outflow of $21m over the past five trading days. Flows have been muted recently, although the PSEi has continued to trend higher, and finished July up 4.10%. The 5-day average outflow is $4m, compared to the 20-day average inflow of $3m and the 100-day average outflow of $7m. Year-to-date, the Philippines has seen outflows totaling $467m.

Table 1: EM Asia Equity Flows

OIL: Raised Geopolitical Tensions & Fed Supporting Higher Oil Prices

Oil prices have continued yesterday’s rally during APAC trading today. They have been supported by a concurrent set of factors including increased geopolitical risks involving Iran, fifth consecutive weekly US crude stock drawdown, the market flashing oversold and a more dovish Fed Powell. After falling 0.6% on Wednesday, the USD index is slightly lower today supporting dollar-denominated commodities.

• Brent is up 0.9% to $81.53/bbl after rising 4.4% yesterday. It is off its intraday high of $81.64 as China’s manufacturing Caixin PMI for July fell to 49.8, after 51.8 and expectations of 51.5. The benchmark fell to $81.13 following the data, as oil markets continue to worry about the strength of China’s demand, the world’s largest crude importer.
• WTI is 1.0% higher at $78.68/bbl following Wednesday’s +5.2%. It rose to $78.74 and then fell $78.31.
• OPEC holds a review meeting today and while delegates have said there is unlikely to be a change in the intention to reduce output cuts in Q4, despite prices falling in July.
• Geopolitical tensions have risen with Israel reportedly killing the political leader of Hamas in Tehran. Iran’s Ayatollah Khamanei has called for a direct attack on Israel, according to the NY Times, while Israeli PM Netanyahu has cautioned that there are “challenging days ahead”. Iran is the 7^th largest global oil producer.
• EIA reported US crude inventories fell 3.44mn barrels last week, the fifth consecutive drawdown worth 27.6mn barrels.
• Later US jobless claims, July manufacturing ISM/PMI, Challenger job cuts and Q2 productivity/ULC print. The BoE decision is announced and a 25bp rate cut is expected. There are also European July manufacturing PMIs and euro area June unemployment.

GOLD: Higher After A Dovish Tilt From The Fed & Safe Haven Flows

Gold is slightly lower in today’s Asia-Pac session, after closing 1.5% higher at $2447.60 on Wednesday, following the FOMC decision. The yellow metal was up ~5% in July.

• Fed Chair Powell’s comments leaned marginally to the dovish side, leaving the door open to a rate cut at the next FOMC meeting in September provided the next two CPI reports give no cause for alarm.
• A late surge saw projected Fed rate cut pricing into year-end strengthen vs. early Wednesday levels: Sep'24 cumulative -28bps, Nov'24 cumulative -47bps, Dec'24 -72bps.
• Bullion directly, and indirectly via US Treasuries, benefited from a haven bid on reports Iran is preparing a direct strike on Israel.
• US Treasury yields pushed to their lowest levels since early February. The US 2- and 10-year yields finished ~10bps lower.
• Lower rates are typically positive for gold, which doesn’t pay interest.
• According to MNI’s technicals team, this week’s gains are constructive. A stronger reversal would refocus attention on $2,483.7, the Jul 17 high, and a bull trigger. Initial support is at $2,353.2, the Jul 25 low.

ASIA FX: CNH Lags USD Sell Off, MYR and THB Outperform

USD/Asia pairs are lower across the board, except for USD/CNH, with the weaker Caixin PMI print for July weighing on yuan sentiment. Outside of Japan and China regional equity sentiment has been positive, while carry over USD weakness from Wednesday's session has been in play as well. MYR and THB spot gains have been strong, with the ringgit hitting highest levels in around a year against the USD. KRW is also rallying firmly. Other regional currencies have posted more modest gains.

• USD/CNH got to lows of 7.2100 before rebounding. The USD/CNY fix was only set modestly lower, although a bigger shift came post the Caixin manufacturing PMI miss, which fell sub 50.0. This highlights China's on-going growth challenges. For USD/CNH we got to the highs 7.2300 region before selling interest emerged. Local equities were weaker in the first half of the session.
• Spot USD/KRW is back to the low 1360 region, fresh lows back to early June for the pair (last near 1364). The positive local equity backdrop (aided by positive US tech futures is helping sentiment. Offshore investors have purchased $173mn of local equities so far today. Earlier data showed weaker than expected export growth but the trends remains reasonable.
• USD/TWD is lower but has lagged the broader softness in the USD, particularly compared with North East Asia FX. Equity outflows were very large in July, the biggest since the Covid pandemic. Onshore equities are rebounding though and the domestic economic backdrop is firm, so we may see some paring of long USD/TWD positions.
• In South East Asia FX, MYR continues to surge. USD/MYR got to lows of 4.5455, levels last seen in August 2023. On-going USD weakness, coupled with less domestic outflow pressures as local pension fund KWAP is revisiting plans for offshore flows, are clear positives for the rinngit.
• USD/THB is also lower, last near 35.45, multi month lows for the pair. Gold gains, coupled with easing Fed expectations are clear baht supports. Focus on the digital wallet rollout and how that impacts the domestic economy will be in focus.
• USD/IDR is tracking lower, last near 16220, but is lagging the likes of MYR and THB. Earlier inflation data was supportive of possible rate cuts later in the year, although a lot will depend on how USD/IDR evolves.

TWD: Can USD/TWD Play Catch Up With Other North Asia FX?

USD/TWD sits in the 32.75/80 region. We are slightly down from recent highs (32.92), but the pair is lagging the USD sell off against the other North Asia currencies. We tested the 20-EMA earlier near 32.70, while further south is the 50-day around 32.52.

• The chart below plots the USD/TWD against USD/JPY, USD/KRW and USD/CNY since the start of the year (all indexed to 100.00).
• USD/TWD had a much more modest run up than USD/JPY into the first half of July, so seeing less downside as USD/JPY rolls over is not surprising for TWD. Still, USD/TWD has mirrored USD/KRW fairly closely in 2024, but hasn't seen much downside with the recent USD sell off.
• The same also applies for USD/CNY, albeit with lower magnitude moves.
• Taiwan equities are strongly firmer, up nearly 2% today, albeit still off recent highs. Last month saw just over $11.5bn in net equity outflows from offshore investors. This was the largest since early 2020 and the onset of the Covid pandemic.
• The tech equity outlook is uncertain given concerns around valuations, trade tensions and potential rotation into different sectors that may benefit from easier Fed policy.
• Still, even some slowing in terms of outflow momentum may alleviate pressures on TWD.
• Data this week has been positive. Late yesterday Q2 GDP rose 5.09%y/y, versus 4.80% forecast. The Monitoring Indicator, released on Monday, showed a healthy economy. The July PMI eased but remains close to recent highs.
• A healthy domestic backdrop should also help the local currency at the margins. Still, an offset comes from unattractive carry, implied rates sit at 1.35% for 3 month horizon.

Fig 1: North Asia USD Trends In 2024, TWD Lagging Recent USD Weakness

Source: MNI - Market News/Bloomberg

INDONESIAN DATA: Inflation Well Contained, FX Stability Key To First Rate Cut

Indonesia’s July CPI inflation was not only lower-than-expected but also eased to its lowest rate since February 2022. Headline moderated to 2.1% y/y from 2.5% driven by lower food inflation as new harvests increase supply. In contrast, core inflation, while still low, picked up slightly to 1.95% y/y from 1.9% in May. Inflation remains well contained within BI’s 1.5-3.5% band and is unlikely to be a reason to keep it on hold once the Fed begins easing, which the market has fully priced in for the September FOMC meeting.

Indonesia CPI y/y%

Source: MNI - Market News/Refinitiv

• FX stability remains the focus of monetary policy, especially given recent depreciation pressures on the rupiah. The JP Morgan IDR NEER was down 4% y/y in July and USDIDR 8.1% y/y higher.
• BI would likely want to see the rupiah appreciate closer to or even through its Q3 16000 forecast against the USD before easing policy. It is also concerned about the impact of the weaker currency on import prices. Imported inflation improved to +0.5% y/y in May but the NEER is suggesting that it could rise again over the coming months.

Source: MNI - Market News/Refinitiv

• The monthly drop in headline CPI was driven by lower food prices including tomatoes, chili and chicken. Volatile food inflation rose 3.6% y/y with annual rice price inflation rising again after the peak harvest season. Education added upward pressure, which is expected to continue over the coming months.

INDONESIAN RATES: Bond Market Wrap - Supportive Data Aids Lower Yields

• Indonesian bonds had a very strong day following supportive data.
• Having got the overnight lead from the FED, bonds opened stronger with yields generally lower across the most parts of the curve.
• Earlier in the year, the Central Bank was forced to raise rates in the face of a resurgence in inflation.
• Today’s CPI print showed that this action was proving to be the right one a decline from 2.51% to 2.13%.
• The CPI paves the way for the Central Bank to potentially cut rates.
• Indonesian bond yields down 2-5bps across the curve.

2yr 6.416% (+1bp) 5yr 6.628% (-5bp) 6.86% (-2bp) 6.973% (-3bp)

CHINA RATES: Bonds Bucking Regional Trend, Despite Weaker PMI

• China’s Caixin manufacturing – a guide to private company activity – contracted for the first time in nine months in July.
• The data reinforces the trend of a stalling economy placing focus on policy action from the authorities.
• Despite the strong overnight move in bonds and the weaker than expected PMI, bonds were mixed across the curve, with yields underperforming relative to peers.

2yr 1.508% (+0.5bp) 5yr 1.827% (-1.5bp) 10yr 2.132 (-0.5bp) 30yr 2.36% (+0.5bp)

CHINA DATA: Caixin PMI Weaker Than Forecast, Back Closer To Official PMI

• Following this week’s official PMI showing Chinese manufacturing is contracting, today’s Caixin PMI Manufacturing showed a similar trend.
• The Caixin PMI concentrates on private sector manufacturing companies, which tend to be smaller and more export-oriented.
• Surveys suggested that the Caixin was to show a continued expansion
• The data release came in at 49.8, much weaker than expected. Output falls to 50.2 vs 54.6 in June.
• This was the lowest reading since Oct. 2023. The release likely points to a decline overseas shipments
• Chinese factories have faced growing uncertainty as the EU moves forward on tariffs and the US election looms with the Republican candidate advocating more tariffs and trade protection.
• Surveys maintained an expected expansion at 51.5
• This release highlights the challenges to authorities to support the economy.

ASIA PMIS: South Korea & Taiwan PMI's Ease Off Recent Highs

The manufacturing PMIs for both South Korea and Taiwan eased in July but remain in expansion territory. South Korea's outcome was 51.4 versus 52.0 in June. Taiwan's was 52.9 versus 53.2 prior.

• In terms of the detail, the output sub index for South Korea fell to 52.5, from 53.1. New orders also eased from the June reading. For Taiwan output eased to 53.9 from 54.9, while new orders also fell.
• The average PMI reading for the two economies has edged off recent highs (back to 52.15).
• It is still pointing to positive trade momentum growth (see the chart below), although as we have noted recently trends through Q3 will need to be watched, given the pull back in some key commodity prices and concerns around China growth momentum, which took a further set back from the pullback in the Caixin PMI earlier.

Fig 1: South Korea & Taiwan Average PMIs Versus Global Trade Volumes Y/Y

Source: MNI - Market News/Bloomberg

ASIA PMIS: ASEAN Sees Mixed But Steady Manufacturing Growth

Despite Indonesian manufacturing contracting for the first time in almost three years, the July S&P Global ASEAN PMI was relatively stable at 51.6 indicating moderate industrial growth in the region with Vietnam and Thailand outperforming. Orders growth rose but was domestically-driven as export orders fell again with shipping having an impact. The outlook improved for the seventh straight month though. However, cost inflation picked up and was passed on with output inflation rising again, which central banks will monitor closely as they contemplate easing.

• Indonesia’s manufacturing PMI fell to 49.3 from 50.7, signalling a contraction in activity driven by falling output and orders and a resultant drop in employment. The contraction in exports improved moderately but it seems the weakness is due to shipping delays. The problems in the Red Sea also impacted inputs. Cost inflation saw some improvement in July but the previous rise due to rupiah depreciation and higher commodity prices resulted in output inflation rising. Confidence in the outlook for sales and market conditions improved.
• In contrast, Thailand saw the PMI improve to 52.8 from 51.7, highest since June 2023, with positive new orders growth returning and a subsequent increase in output and employment. Orders growth was also above trend. Cost inflation fell again but selling inflation remained above the pre-Covid average. Producers remain optimistic.
• The Philippines was another country driving regional output growth with the PMI steady at 51.2 as domestic demand improved, but slowed from overseas, and employment grew. Even though input inflation rose to a 5-month high, selling prices grew at a slower rate. The Philippines also reported shipping problems due to port congestion. Output is cautiously expected to improve over the year ahead.

Source: MNI - Market News/Bloomberg