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Futures In S.Korea Drop After BoK Retains Hawkish Tilt

ASIA RATES
  • INDIA: Yields lower in early trade. Bonds are expected to be supported by a number of factors today including a drop in crude prices as an OPEC+ deal appears to draw nearer, lower US yields after a more dovish than expected testimony from FOMC chair Powell, and signs of waning inflation domestically. Data yesterday showed wholesale inflation rose 12.07%, below estimates of 12.18% and slowing from the 12.94% print in May. Yesterday the curve bull steepened after state run banks were heavy buyers in the short-end after selling illiquid bonds in the most recent GSAP operation. Markets look ahead to Indian trade balance data today; the trade surplus is expected to have widened to $9.4bn. Also on the docket today is a speech from RBI Governor Das at the financial inclusion summit, scheduled for 1030BST/1500IST.
  • SOUTH KOREA: BoK on hold as expected at 0.50%. Futures lower, taking a nosedive during BoK Governor Lee's press conference, while the curve bear flattens. Lee noted that one MPC member called for a 25bps hike, an unexpected hawkish dissent. Lee also said that the need for policy normalization was increasing due to financial imbalances, such as home prices and household debt. Lee did note in his press conference that the BoK could purchase government bonds if needed, he said the Bank could take various market stabilization steps if there's a need to ease volatility in market interest rates.
  • CHINA: The PBOC conducted CNY 100bn of 1-Year MLF's at an unchanged 2.95%, equating to a net drain of CNY 300bn. Given that last week's 0.5ppt RRR cut is expected to result in an additional CNY 1tn into the system it was expected the PBOC would allow all of the MLF funds to roll off. There were some reports mentioned earlier that the PBOC had gauged demand for MLF from commercial banks, and at this MLF operation have cited demand from tax payments. There is still some speculation that the PBOC could cut the LPR rates this month given that the RRR cut will lead to lower funding costs for banks and enable them to charge less on loans. Data showed GDP was slightly below estimates and confirmed a slowdown, but other data points including retail sales, industrial production and fixed asset investment were all strong. Futures in China fell after the data, the first decline in three days.
  • INDONESIA: Yields lower across the curve. The Indonesian government said today that it estimated virus mobility would decline 2-3 weeks after curbs were imposed and that long term growth trajectory was still intact. Several countries shut their borders to travellers arriving from Indonesia, which has become the main hot spot of Covid-19 in Asia. Indonesia's daily number of cases surpassed that of India and reached a new record high of 54,517 on Wednesday. Data showed the trade balance narrowed as exports rose above estimates.
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