Jan 24 ,2025
Synopsis:
Asian equities ended higher Friday. Greater China markets spiked higher after Trump suggested he didn't want tariffs on China-made products. Solid gains in Australia and South Korea. Japan benchmarks pared early gains to finish a smidge lower, Southeast Asia mixed but India higher. Taiwan closed for a holiday. US futures a little lower, Europe opened with gains. Dollar down again on BOJ rate hike and Trump comments; AUD, yen and yuan all strengthening. Treasuries mixed, JGB yields higher. Crude sharply lower first thing after Trump remarks on oil prices but have since rallied. Precious metals higher, base metals mixed.
Many Asia assets rallying Friday to cap a strong week. Friday's moves came largely after Trump's comments suggesting he did not want tariffs on China goods. Analysts said that, although somewhat inconsistent at times, Trump's tariff-related comments were less aggressive than feared in his first week in charge, leading to the Hong Kong equity and yuan rally over the week. Also supportive was his comments demanding lower US interest rates, pressing on the US dollar further and giving Asia currencies another boost.
The yen weakened after the BOJ raised interest rates by 25 bp as expected with officials forming a more positive view on wages and inflation. It also upgraded core CPI forecasts to above 2% target, adding at the press conference an upward revision to inflation forecasts should happen in in mid-2025. Also today, Japan core inflation rose to 3% while ex-food and energy inflation was steady at 2.4% while its flash PMI reading showed its strongest rise in private sector activity in four months.
Australia flash PMI showed a sharp increase in activity, while India's reading showed growth slowing and service growth stalling. Elsewhere, Singapore's MAS loosened monetary policy by reducing slope of its policy band as expected citing a quicker-than-expected fall in core inflation. It also lowered its FY2025 growth expectations slightly. Separate data showed manufacturing output rose higher than expected on a surge in the highly volatile pharma sector.
Mitsubishi Motors (7211.JP) said it will opt out of the Nissan-Honda merger for now and intends to remain listed. BYD (1211.HK), Geely (0175.HK) and SAIC (600104.CH) have filed an appeal with a European court challenging the imposition of tariffs by the EU above the regular 10% for auto imports. New World Development (17.HK) is to launch more than 4.4K residential property units for sale in Hong Kong. Rio Tinto (RIO.AU) said it anticipates a drop in Q1 iron ore exports following a cyclone in north-west Australia.
Digest:
BOJ hikes as expected, policy adjustments to continue:
BOJ voted 8-1 to lift the OCR by 25 bp to 0.50%, matching expectations. Nakamura dissented, arguing they should wait until the next MPM to confirm corporate earnings power from sources such as the MOF corporate survey. Statement noted consensus that economic developments were moving in line with their outlook and the likelihood of realizing their projections has been rising. Cited many views from companies stating intention to continue with steady wage hikes at this year's shunto. Also observed growing moves to pass on cost increases. Stressed that real rates expected to remain significantly negative and accommodative financial conditions will continue to support the economy. Guidance reaffirmed rate hikes to continue while economic developments remain in line with the outlook. Outlook Report showed notable upward revisions to core inflation forecasts as well as ex-fresh food & energy to a lesser extent, while GDP growth was little changed. Both inflation metrics now anticipated to remain above 2% throughout the projection period of FY26. Cited higher rice prices, as well as import costs stemming from factors such as yen depreciation. Furthermore, risk balance was placed to the upside for inflation and balanced for GDP. Dot plot implied upside inflation risk concentrated in FY25 while mostly balanced in other years.
BOJ Governor Ueda press conference remarks were incremental:
Ueda comments after the BOJ meeting contained no major surprises (Nikkei, Reuters). Remains upbeat on domestic economic dynamics, encouraged by wage hike momentum, and indicated the rate hike decision was weighted towards developments tracking in line with their projections. In contrast, uncertainty remains extremely high regarding Trump policies and board members are still waiting for a certain level of clarity before incorporating assumptions into their forecasts. Continued to face questions about the terminal rate and reiterated the wide range of theoretical estimates, though did acknowledge there is still "quite some distance" from the current level. Refrained from offering forward-looking signals, stating BOJ has no preconceptions regarding the next move which will continue to be dependent on future developments. Played down the upward revisions to inflation forecasts, noting underlying inflation rising at a moderate pace and does not view current policy as behind the curve. Initial market reactions, especially in FX, pointed to the inflation forecast changes as the main source of hawkish views, feeding a debate about whether BOJ might accelerate the pace of rate hikes. However, there was no meaningful deviation from established general perceptions that BOJ is on track to move once every six months, placing the next window in July.
Trump voices hesitation about imposing tariffs on China:
Markets continue to digest almost daily barrage of tariff headlines following Trump's inauguration on Monday. In Fox News interview aired Thursday, Trump signaled hesitation about imposing tariffs on China, describing them as a "big power" but that he'd rather not have to use them (Bloomberg). Trump went on to praise China President Xi and his relationship with him. Trump's remarks contrasted somewhat with those he made Wednesday calling China a trade abuser that he is weighing 10% tariffs from 1-Feb (Reuters). Fits with pattern of seemingly contradictory developments this week with press reports highlighting Trump's view of tariffs as negotiating leverage in upcoming trade talks while memorandum ordering trade investigations also appeared to ease concerns around immediate action. At same time, Trump has flagged tariffs on Mexico, Canada, EU and China as soon as 1-Feb, citing prior criticisms over unfair trade, fentanyl and illegal immigration. Speaking before Davos on Thursday Trump also repeated threats to impose tariffs if companies did not invest in US.
Monetary Authority of Singapore eases policy rate, says growth to slow in 2025:
Monetary Authority of Singapore (MAS) Friday reduced slope of its SGD policy band but kept mid-point and width of band unchanged. Move effectively eases monetary policy slightly but keeps SGD's nominal effective exchange on an appreciation path albeit at a slower pace in which it can move. Authority said adjustment 'measured', consistent with appreciative path of S$NEER but will ensure price stability. Said it expects Singapore's GDP growth to moderate over 2025 to 1.0-3.0% range from 4.0% in FY2024 after outperforming in H2-24 as impact of trade policies could weigh on manufacturing, trade-related services. Acknowledged inflation fell by more than expected to annualized 1.0%, forecasted FY2025 core inflation to average 1.0-2.0% from 1.5-2.5% projected in October. Headline inflation to range 1.5-2.5%. Noted trade frictions could lead to higher inflation globally but for Singapore this will be offset by disinflationary weaker global demand.
Japan core inflation hits 3% as expected:
Core CPI rose 3.0% y/y in December, matching expectations, marking the highest since Aug-23. Follows 2.7% in the previous month. Ex-fresh food & energy inflation was steady at 2.4%, also in line. Main factor was expiration of government electricity & gas subsidies, contributing an additional 0.31 ppt to the headline over prior month. Other drivers were narrowly mixed. Some support came from marginal acceleration in non-fresh food and an upturn in mobile phone fees. Offsetting factors were slower increases in household durables, leisure durables and accommodation. Goods inflation overall strengthened to 5.4% from 4.1%, entirely driven by non-durables. Outpaced slight firming in services to 1.6% from 1.5%. Annual aggregates showed core CPI rose 2.5% in 2024, above the BOJ 2% target for the third straight year. Ex-fresh food & energy series climbed 2.4%, above 2% for the second year. Both metrics eased from 2023. Going forward, latest JCER consensus indicated expectations that core CPI inflation peaked in Q3 at 2.6% y/y, largely steady until 1Q25 before slowing to below 2% in 2H25.
Notable Gainers:
+11.6% 010130.KS (Korea Zinc Co.): holds EGM; approves adoption of cumulative voting system, setting a cap on the number of directors
+10% 600588.CH (Yonyou Network Technology): guides FY net income attributable (CNY1.72-1.92B) vs FactSet (CNY700.5M)
+4.6% 012330.KS (Hyundai Mobis): reports FY operating profit ahead of StreetAccount estimates
+4.1% 2501.JP (Sapporo Holdings): 3D Investment raises stake to 19.4% from 18.2%
+2.7% 17.HK (New World Development): to launch more than 4,400 residential property units in Hong Kong in FY24/25
+0.0% 373220.KS (LG Energy Solution): guides +5-10% y/y increase in FY25 revenue vs year-ago KRW25.6T
Notable Decliners:
-6.9% 7211.JP (Mitsubishi Motors): reportedly opts out of joining Nissan-Honda merger for now
-6.7% 6146.JP (DISCO Corp.): reports Q3 earnings with revenue and operating income below FactSet estimates
-3.1% 298050.KS (HS HYOSUNG ADVANCED MATERIALS): reportedly looking at selling tire steel cord unit valued at KRW1.5T
-2.6% 006400.KS (Samsung SDI): reports Q4 earnings with revenue and operating profit below StreetAccount estimates
-0.6% 002466.CH (Tianqi Lithium): guides FY net income attributable (CNY8.20-7.10B) vs FactSet (CNY5.38B); to book approximately CNY2.16B asset impairment provision for FY24
Data:
Economic:
Japan January
Flash manufacturing PMI 48.8 vs 49.6 in prior month
Services PMI 52.7 vs 50.9 in prior month
Composite PMI 51.1 vs 50.5 in prior month
Singapore December
Manufacturing production y/y +10.6% versus +10.8% in prior month
Markets:
Nikkei: (26.89) or (0.07%) to 39931.98
Hang Seng: 365.63 or +1.86% to 20066.19
Shanghai Composite: 22.46 or +0.70% to 3252.63
Shenzhen Composite: 23.08 or +1.21% to 1936.34
ASX200: 30.20 or +0.36% to 8408.90
KOSPI: 21.31 or +0.85% to 2536.80
SENSEX: (64.25) or (0.08%) to 76456.13
Currencies:
$-¥: (0.86) or (0.55%) to 155.1990
$-KRW: (9.57) or (0.67%) to 1426.2600
A$-$: +0.00 or +0.56% to 0.6319
$-INR: (0.23) or (0.26%) to 86.2229
$-CNY: (0.04) or (0.59%) to 7.2456
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