- The USD is down sharply, the BBDXY index to fresh YTD lows. Hopes that Trump will not apply fresh tariffs on China is driving the move. China and Hong Kong equities have outperformed. US yields are down modestly.
- The BoJ hiked rates as expected, with some hawkish undertones in the statement.
- Today we have S&P Global US Manufacturing PMI, U. of Mich. Sentiment & Existing Home Sales in the US. Preliminary PMIs are also due in the EU and UK, while Lagarde also speaks.
MARKETS
US TSYS: Tsys Yields Lower Following Trump Comments, Curve Steepens
- Tsys futures are trading near session highs, with the short-end outperforming. TU is trading above yesterday's highs, last +01¼ at 102-24+, just off session highs of 102-25. TY is +03 at 108-15, however the trend remains bearish, the contract did trade through the 20-day EMA, at 108-17+ during the week which does expose 109-06, the Dec 31 high, and 109-15, the 50-day EMA, with a clear break of the 50-day average needed to strengthen a bullish theme. The bear trigger is unchanged at 107-06, the Jan 13 low.
- Tsys rallied as the second part of the Trump interview on Fox aired, with particular focus on comments he made around not wanting to have to impose tariffs on China, and that Trump & Xi had good discussions.
- Cash tsys yields are just off session lows, with curves bull-steepening. The 2yr is -3bps at 4.259%, while the 10yr is -1.6bps at 4.268%. The 2s10s curve is +1.5bps at 36.380, after rising 5bps on Thursday.
- Overnight in tsys options, demand emerged during US afternoon for bullish plays targeting a 10yr yield move back toward 4% within a couple of months, while in SOFR options early flows included upside position in the Dec25 tenor, targeting an additional 100bp of rate cuts on top of current market pricing for Fed policy this year.
- Today we have S&P Global US Manufacturing PMI, U. of Mich. Sentiment & Existing Home Sales.
JGBS: Cheapen After BoJ Hike To 0.50%
JGB futures have weakened to fresh session lows after the BoJ delivered the much anticipated 25bp rate hike to 0.50% with a vote of 8-1. Board member Nakamura voted against the rate hike. JBH5 is currently trading at 140.77, -16 compared to settlement levels versus the session low of 140.67.
- The BoJ projects the fiscal year 2025 core CPI at 2.4%, up from the previous estimate of 1.9%. It also views price risks for fiscal 2025 as leaning to the upside. For fiscal year 2026, the BoJ forecasts core CPI at 2.0%, slightly higher than the prior projection of 1.9%. The forecast for fiscal year 2024 core CPI is now at 2.7%, compared to the earlier estimate of 2.5%.
- The BoJ notes that Japan's real interest rate remains at a significantly low level and indicates it will continue raising interest rates if the economic outlook materializes as expected.
- Cash JGBs are flat to 3bps cheaper across benchmarks. The benchmark 10-year yield is 2.7bp cheaper at 1.236% versus pre-lunch level of 1.216%.
- Swap rates are 1-2bps higher after being little changed ahead of the decision.
- In contrast, cash US tsys are 1-3bps richer, with a steepening bias, in today’s Asia-Pac session after yesterday’s twist-steepener.
STIR: BoJ Dated OIS Slightly Firmer After BoJ Rate Hike
BoJ-dated OIS pricing is flat to 3bps firmer across meetings compared to pre-MPM levels after the BoJ delivered the anticipated 25bp rate hike to 0.50% with a vote of 8-1. Board member Nakamura voted against the rate hike.
- Market expectations going into today's MPM indicated a 98% probability of a 25bp hike today, a cumulative 99% chance by March, and a more than full 25bp increase by May 2025 (108%).
- As it currently stands, March has a 2% chance of another 25bp hike. A 25bp increase is not fully priced until December.
Figure 1: BoJ-Dated OIS – Post-BoJ Vs. Pre-BoJ MPM (January)
Source: MNI – Market News / Bloomberg
BOJ: Hikes, Confidence In Realizing Outlook Firmer, Inflation Forecasts Higher
As widely expected the BoJ raised rates by 25bps, taking the policy rate to 0.50%. The board voted 8-1 in favour of the move, with board member Nakamura dissenting (voting against a hike).
- The central bank also raised its inflation forecasts, which was also widely expected. For core ex fresh food it was raised to 2.4% from 1.9% for the 2025 fiscal year. For 2026 it was raised to 2% from the previous 1.9%. It also noted upside risks to the fiscal 2025 price outlook, although it noted this in the previous outlook.
- GDP forecast for the 2025 and 2026 fiscal years didn't shift.
- In terms of the commentary, the central bank said it would keep raising rate if the outlook is realized. It also noted that real rates remain significantly low. This coupled with economic growth risks evenly balanced, while inflation risks are tilted higher has left a somewhat hawkish impression after today's meeting outcome. The BoJ stated the certainty around realizing the outlook is also rising.
- Still, the BOJ stated that financial conditions will remain easy (i.e. they aren't at neutral yet), while also noting high uncertainties around the outlook.
- Focus now shifts to the BoJ press conference from Governor Ueda, which will cross in a a little over 2 and a half hours.
JAPAN DATA: Headline CPI Above Forecasts, But Food & Utilities Main Drivers
Japan Dec national inflation was a touch above expectations for the headline, which rose 3.6% y/y, versus 3.4% forecast (prior was 2.9%). The core ex fresh food measure was 3.0%y/y, in line with forecasts (prior 2.7%). The ex fresh food, energy measure was 2.4%y/y, also in line with forecasts and the prior outcome. A broader measure of core inflation, which strips out all food and energy was 1.6% t/t in Dec, down slightly from Nov's 1.7% pace.
- For headline inflation, base effects will help keep y/y momentum elevated in the near term, likewise for the core ex fresh food measure. The measure which also excludes energy is likely to be benign though given early 2024 y/y trends.
- In terms of the detail, in m/m terms we had goods inflation up 1.1% versus 0.2% prior. Services ticked up to 0.1% in seasonally adjusted terms, but these gains are usually revised back to flat in subsequent readings.
- Food inflation was +1.0%m/m, driven by a 5.7% rise in fresh food. Utilities also posted a 4.2% m/m rise. This should start to wane though with the government re-introducing energy subsidies.
- Household good, clothing and medical care all recorded m/m falls. In y/y terms, outside of strong food and utility rises, we saw fairly steady y/y trends in most other categories.
- The chart below plots the 3 month inflation metrics. The above detail suggests less concern around the headline trends from a core/underlying inflation standpoint. Still, it does lend support to an expected inflation forecast upgrade from the BoJ later, which is expected to accompany a 25bps rate hike.
Fig 1: Japan National CPI Y/Y Trends
Source: MNI - Market News/Bloomberg
AUSSIE BONDS: Slightly Mixed On A Data-Light Day, Cash Us Tsys Richer
ACGBs (YM +2.0 & XM -0.5) are slightly mixed on a subdued data-light Sydney session.
- Outside of the previously outlined S+P Global PMIs, there have been few domestic drivers to flag.
- Offshore, the BoJ raised rates by 25bps, as widely expected, taking the policy rate to 0.50%. The board voted 8-1 in favour of the move (1 vote against a hike).
- Cash ACGBs are flat to 2bps richer with the 3/10 curve steeper. The AU-US 10-year yield differential is at -15bps.
- Cash US tsys are 1-3bps richer, with a steepening bias, in today’s Asia-Pac session after yesterday’s twist-steepener.
- Swap rates are 1-2bps lower, with the 3s10s curve steeper.
- The bills strip +1 to +3 across contracts.
- RBA-dated OIS pricing is flat to 3bps softer across meetings today. A 25bp rate cut is more than fully priced for April (113%), with the probability of a February cut at 73% (based on an effective cash rate of 4.34%).
- The local market is closed on Monday for the Australia Day holiday.
- Next week, the AOFM plans to sell A$300mn of the 4.75% 21 June 2054 bond on Tuesday. The AOFM also plans to sell A$800mn of the 2.50% 21 May 2030 bond on Friday.
BONDS: NZGBS: Modest Bull-Flattener, Outperforms $-Bloc
NZGBs closed showing a bull-flattener on a data-light day, with benchmark yields flat to 2bps lower.
- Domestic credit card spending on all cards rises 1% m/m (-1.4% y/y), according to the RBNZ.
- NZGBs outperformed their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield differentials 4bps and 3bps tighter respectively.
- Cash US tsys are 1-3bps richer, with a steepening bias, in today’s Asia-Pac session after yesterday’s twist-steepener.
- Swap rates closed 1-2bps lower.
- RBNZ dated OIS pricing closed slightly firmer across meetings. 47bps of easing is priced for February, with a cumulative 109bps by November 2025. Relative to pre-CPI levels, pricing is slightly mixed, with meetings out to July 2-3bps softer and meetings beyond ~2bps firmer.
- The local calendar is empty until the release of Filled Jobs data on Tuesday.
FOREX: USD Index To Fresh 2025 Lows After Trump Tariff Comments
The USD BBDXY index has hit fresh lows for 2025, last close to 1298, down around 0.30% for the session so far. The first move came as headlines crossed from US President Trump around not wanting to use tariffs on China, while yen has rallied post the BOJ's 25bps rate hike, which had some hawkish undertones.
- The remarks made by Trump around tariffs (as part of the second leg of his Fox News Interview) don't suggest tariff hikes are off the table for China, but will be welcomed by the market in the sense there is potential for negotiations between the two side and an imminent tariff hike may not be on the cards.
- Higher beta plays like AUD and NZD moved quickly firmer, outperforming other parts of the G10 space, although this is now less apparent, particularly with yen playing catch up.
- AUD/USD was last 0.6310/15, against session highs of 0.6324. The 50-day EMA resistance, close to 0.6330, is nearby. NZD/USD is up to 0.5700/05. Session highs rest at 0.5711.
- USD/JPY was initially volatile through the BoJ announcement. We saw highs of 156.41 before a sharp pull back to 155.01, close to recent lows and important support points.
- The BoJ hiked 25bps as expected, but the combination of expressing confidence in realizing the outlook, which would prompt further rate rises, along with higher inflation forecasts, has left hawkish impressions on the market.
- Downside focus will rest on the high 154/low 155.00 region. the 50-day EMA is just above 155.00, while 154.64, is a trendline drawn from the Sep 16 ‘24 high. A break sub these levels is likely to signify a deeper correction in the pair.
- In the cross asset space, US yields are lower (post Trump comments), which has helped push US-JP yield differentials down, another yen positive. US equity futures are down slightly. Regional equities are mixed, with China/HK markets outperforming (again related to the Trump comments).
- Looking ahead, the main focus will be on preliminary PMI reads for the UK, EU and US. We also have some ECB speak, headlined by Lagarde.
ASIA STOCKS: China Equities Rally Following Trump Comments
Chinese equities are rallying, supported by a softer tone from President Donald Trump on tariffs. The Hang Seng China Enterprises Index climbed over 2%, while the yuan strengthened to its highest level in six weeks in both onshore and offshore trading. This follows Trump’s remarks indicating a preference to avoid significant tariffs on China, easing market fears of aggressive trade actions.
- Investors remain cautious, however, as Chinese assets are under pressure from concerns about economic slowdown and limited stimulus measures from Beijing. Despite recent gains, volatility is expected to persist due to the unpredictable nature of U.S.-China trade relations and broader economic uncertainties.
- China's recent measures could inject at least 1t yuan ($138b) into its struggling stock market in 2025, with JPMorgan's most bullish estimate predicting up to 13t yuan over three years. The initiatives require state-owned insurers to allocate 30% of new premiums to onshore stocks annually starting in 2025, and mutual funds to increase holdings by at least 10% annually.
- Analysts estimate flows from these policies to range widely: Citi projects over 1t yuan in 2025, UBS predicts 1.7t yuan, and Huajin forecasts 860b to 1.35t yuan. These injections aim to counteract pressure on Chinese equities, which have suffered from fears of economic slowdown and external risks. Investors remain skeptical about the efficacy of recent stimulus measures introduced by Beijing.
ASIA STOCKS: Asian Equity Flows Mixed, India Continues To See Heavy Outflows
Mixed flows in the tech heavy markets of SK & Taiwan on Thursday. India has now seen 14 straight session of continuous selling, with an outflows of about $6.5b this year.
- South Korea: Registered outflows of -$499m yesterday, contributing to a 5-day total of -$958m. YTD flows are slightly negative at -$457m. The 5-day average is -$192m, worse than the 20-day average of -$22m but better than the 100-day average of -$154m.
- Taiwan: Recorded inflows of +$537m yesterday, bringing the 5-day total to +$1.81b. YTD flows remain negative at -$724m. The 5-day average is +$362m, significantly better than the 20-day average of -$65m and the 100-day average of -$102m.
- India: Saw outflows of -$349m yesterday, resulting in a 5-day total of -$2.43b. YTD flows are deeply negative at -$6.46b. The 5-day average is -$486m, worse than the 20-day average of -$371m and the 100-day average of -$99m.
- Indonesia: Recorded inflows of +$1m yesterday, leading to a 5-day total of -$7m. YTD flows are negative at -$188m. The 5-day average is -$1m, better than the 20-day average of -$7m but in line with the 100-day average of -$1m.
- Thailand: Registered outflows of -$129m yesterday, contributing to a 5-day total of -$98m. YTD flows are negative at -$283m. The 5-day average is -$20m, worse than the 20-day average of -$14m and the 100-day average of -$10m.
- Malaysia: Recorded outflows of -$38m yesterday, resulting in a 5-day total of -$138m. YTD flows are negative at -$519m. The 5-day average is -$28m, worse than the 20-day average of -$25m and the 100-day average of -$22m.
- Philippines: Saw outflows of -$3m yesterday, bringing the 5-day total to -$16m. YTD flows are negative at -$96m. The 5-day average is -$3m, better than the 20-day average of -$5m but slightly worse than the 100-day average of -$2m.
Table 1: EM Asia Equity Flows
ASIA STOCKS: Asian Equities Edge Higher Following Trump Comments
Asian equities climbed to a one-month high, with the MSCI Asia Pacific Index gaining 0.8%, driven by optimism following U.S. President Donald Trump's softened stance on tariffs against China. The Hang Seng China Enterprises Index led gains, rising 2.2%, while the CSI 300 Index added 1%. Technology stocks like Tencent and Alibaba were top contributors. Japan's Topix and Nikkei saw choppy trade now trading just 0.10% higher for the session after the BoJ raised its key policy rate by 25bps, the largest hike in 18 years, strengthening the yen and pressuring exporters.
- South Korea’s Kospi Index rose 0.8%, buoyed by foreign fund inflows into tech stocks, while Australia’s ASX 200 edged up 0.4%. In contrast, New Zealand’s NZX 50 fell 0.2%, and several Southeast Asian markets, including Malaysia and the Philippines, declined.
- Investors remain cautious amid mixed signals from central bank policies and economic uncertainties, with traders awaiting further clarity from BOJ Governor Kazuo Ueda’s upcoming comments.
- US equity futures are trading slightly lower on the day, with NASDAQ futures down 0.15%, while S%P 500 futures are -0.10%.
- Next week will be heavily interrupted by Chinese New years with many markets closing throughout the week.
Gold Set for New Record as Trump Softens on China Tariffs.
- President Trump told Fox News on Thursday night that he’d ‘rather not use’ levies against China, causing the dollar to drop, giving Gold a late boost.
- For much of the week gold prices appeared supported by their safe-haven status but the week’s rally showed signs of softening before Trump addressed Davos in comments that drove volatility.
- Trump had already levelled comments at Mexico, Canada, China and the EU warning them during the week of the potential for tariffs.
- Opening the day at US2,754.87 gold traded as high as $2,777.37 before backing off to $2,770.98.
- At these prices, gold is setting new records for all time prices and some analysts believe could go higher in 2025.
Oil Down for First Weekly Loss this Year Thanks to Trump.
- During his first term in office, President Trump employed a line of attack on Saudi Arabia and OPEC+ aimed at driving down the price of oil.
- Yesterday he restarted that approach stating clearly “I am going to ask Saudi Arabia and OPEC+ to bring down the cost of oil,” whilst addressing the gathering of world leaders at Davos.
- OPEC+ has been holding back on supply to support prices as new sources of oil hit markets globally that are outside OPEC+ control.
- It is estimated that there is 1 million plus spare daily capacity available that could be released.
- The comments naturally had the immediate effect on prices with WTI falling from an intra-day high of US$76 bbl to open the trading day in Asia at $74.26 where it pared back some of those losses to reach $74.55.
- For the week, WTI is on track to finish over 4% lower.
- Brent followed a similar pattern having peaked at US$79.60 bbl it opened the Asian trading day at $77.86 rising marginally to $78.23.
- For the week Brent is on track to finish over 3% lower.
- This week Trump’s comments on potential tariffs have impacted most markets in different ways and with Canada in his sights for some of the first tariffs, there is evidence that exporters are trying to get ahead of that.
- US imports of Canadian oil are running at a record with the possibility of tariffs seeing more oil being pumped to US refineries.
- Crude inventories however declined for the ninth week straight and are now at their lowest level since early 2022.
CHINA: Country Wrap: New Initiative Analysis Positive for Equity
- Analysts predict China's new initiatives will inject at least 1 trillion yuan into its stock market in 2025. JPMorgan Chase & Co. estimates the total flows could reach 13 trillion yuan over three years. Other banks, including Citigroup Inc. and UBS Group AG, also predict significant inflows, ranging from 620 billion yuan to 1 trillion yuan. (source: BBG)
- China will need to provide around an additional CNY3 trillion in fiscal funds in 2025 alongside greater economic reforms to maintain 5% GDP growth, a senior policy advisor told MNI, adding Beijing should raise the deficit-to-GDP ratio 100 basis points to about 4%. (source: MNI – Market News)
- All major bourses are strong again today with Hang Seng +1.80%; CSI 300 +0.96%, Shanghai Comp +0.73%; Shenzhen +0.90%.
- CNY : Yuan Reference Rate at 7.1705 Per USD; Estimate 7.2804
- A slight drift higher in 10YR CGB by 1bp to 1.675%
INDIA: Manufacturing PMI Up, Services Down.
- India’s economy remains in very good shape with January’s preliminary PMI Manufacturing at +58 from +56.4 prior.
- Services declined marginally but remained in strong expansion at +56.8 from +59.3 prior.
- The composite declined modestly to +57.9 from +59.2.
- For manufacturing this the highest reading since December.
- Output is up to 60.3 with new orders rising from month prior.
- New orders are at their highest level since July of last year.
- The RBI next meets on February 7 and based on current data, there is no reason for policy changes.
SINGAPORE: MAS Eases, Reducing SGD NEER Slope Slightly
The MAS has eased monetary policy, with its policy statement noting it will slightly reduce the pace of SGD NEER appreciation. There is no change to the width of the policy band or where the SGD NEER is centered. The market consensus was for an easing, although there were some forecasters who saw no change. This was also our bias, although we noted it was a close call.
- The MAS statement noted "Singapore’s GDP growth is projected to moderate over 2025. The impact of shifts in global trade policies could weigh on the domestic manufacturing and trade-related services sectors. For now, the Singapore economy is forecast to expand at a slower pace of 1.0–3.0% this year, from 4.0% in 2024, with the level of output keeping close to potential for 2025 as a whole."
- On inflation: "Overall, the pace of consumer price increases has moderated across a broad range of goods and services, and core inflation is presently low and stable." "MAS Core Inflation is now forecast to average 1.0–2.0% in 2025, lower than the 1.5–2.5% projected in the October 2024 MPS. Business cost- and demand-driven inflationary pressures are expected to remain contained." See the full policy statement here.
- Expectations for softer growth this year, coupled with downside inflation surprises in Q4 of last year has been enough to tip the MAS's hand into easing.
- A modest reduction in the SGD NEER appreciation may be in the 0.5-1.0% range, although only time will tell on this front. There will still be scope for further easing as we progress through 2025, although outside of a strong external shock, moves are likely to be modest.
ASIA FX: USD/CNH Testing Sub 7.2500 On Tariff Hopes
Asian currencies are stronger across the board, albeit with North Asian currencies lagging some gains seen in South East Asia. Broader USD sentiment is softer, following earlier Trump tariff comments, while yen is rallying following an arguably hawkish BoJ hike.
- There has been strong focus on USD/CNH, which is dipping sub 7.2500 at the time of writing, fresh lows for this week. We sit a little higher now, but a clean break sub 7.2500 could see Dec lows at 7.2420/25 targeted, while late Nov lows were around 7.2300. This would also put us sub the 100-day EMA.
- Trump's remarks, which were the second part of his Fox News interview, highlighted he would rather not use tariffs on China. The comment was made in the context of whether the US could strike a deal with China around a variety of issues, including trade. Trump said tariffs were a powerful tool that the US could use, while also suggesting China would likely need/want US energy resources.
- The above remarks don't mean fresh tariff hikes are off the table for China, but does suggest the two sides may be able to negotiate or that earlier threats this week around a Feb 1tariff hike for China may not be realized. There is no doubt that pre-inauguration that fresh tariffs could have already been imposed on China by now.
- The CNH is up close to 0.50% at this stage. The won and TWD are also firmer, but lagging percent gains seen in CNH. USD/KRW got to lows of 1428.2, but sits back above 1430 now. USD/TWD is only down a touch, last near 32.70/75.
- In SEA, THB is leading up nearly 0.90% at this stage.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 24/01/2025 | 0700/0800 | ** |  SE | PPI |
| 24/01/2025 | 0700/0800 | ** | SE | Unemployment |
| 24/01/2025 | 0800/0900 | ** |  ES | PPI |
| 24/01/2025 | 0815/0915 | ** |  FR | S&P Global Services PMI (p) |
| 24/01/2025 | 0815/0915 | ** | FR | S&P Global Manufacturing PMI (p) |
| 24/01/2025 | 0830/0930 | ** |  DE | S&P Global Services PMI (p) |
| 24/01/2025 | 0830/0930 | ** | DE | S&P Global Manufacturing PMI (p) |
| 24/01/2025 | 0900/1000 | ** |  EU | S&P Global Services PMI (p) |
| 24/01/2025 | 0900/1000 | ** | EU | S&P Global Manufacturing PMI (p) |
| 24/01/2025 | 0900/1000 | ** | EU | S&P Global Composite PMI (p) |
| 24/01/2025 | 0930/0930 | *** |  GB | S&P Global Manufacturing PMI flash |
| 24/01/2025 | 0930/0930 | *** | GB | S&P Global Services PMI flash |
| 24/01/2025 | 0930/0930 | *** | GB | S&P Global Composite PMI flash |
| 24/01/2025 | 1000/1100 | EU | ECB's Lagarde in dialogue on the global economic outlook | |
| 24/01/2025 | 1100/1100 | ** | GB | CBI Distributive Trades |
| 24/01/2025 | 1100/1200 | EU | ECB's Cipollone in panel discussion on the effects of CB digital currencies | |
| 24/01/2025 | 1330/0830 | ** |  US | WASDE Weekly Import/Export |
| 24/01/2025 | 1330/0830 |  CA | StatsCan Labour Force Survey: Revisions, 1987 to 2024 | |
| 24/01/2025 | 1445/0945 | *** | US | S&P Global Manufacturing Index (Flash) |
| 24/01/2025 | 1445/0945 | *** | US | S&P Global Services Index (flash) |
| 24/01/2025 | 1500/1000 | *** | US | NAR existing home sales |
| 24/01/2025 | 1500/1000 | ** | US | U. Mich. Survey of Consumers |
| 24/01/2025 | 1800/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |
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