ASIA STOCKS: China & Hong Kong Equities Lower On Trade Tensions

JGB futures are holding weaker but off session lows, -16 compared to settlement levels, on the first day of trading since 30 December. 

• According to MNI’s technicals team, medium-term trend signals on the continuation chart continue to point south. A resumption of the trend would pave the way for a move towards 141.56, a Fibonacci projection point on the continuation chart. A stronger recovery would open 144.48, the Nov 11 high.
• BoJ Governor Ueda sent a fresh reminder that he’s going to raise the benchmark rate if the economy continues to improve this year.
• “Our stance is that we will raise the policy interest rate to adjust the degree of monetary easing if economic and price conditions keep improving,” Ueda said. The governor spoke at a conference held by the Japanese Bankers Association. (See BBG link)
• Cash US tsys are ~1bp cheaper in today’s Asia-Pac session.
• Cash JGBs are 1-3bps cheaper across benchmarks beyond the 1-year (+3.4bps). The benchmark 10-year yield is 2.3bps higher at 1.123% after earlier testing the cycle high of 1.134% set on 30 December 2024.
• Swap rates are 1-5bps higher, with the 20-30-year zone leading. Swap spreads are mixed.
• Tomorrow will see Monetary Base data and 10-year supply. 

FX trends have been mixed in the first part of Monday trade. The USD indices sit down a touch, off earlier highs, with JPY and CHF underperforming other G10 currencies. The BBDXY index was last just under 1312, still within striking distance of recent cycle highs above 1316.

• USD/JPY has firmed but hasn't tested above 158.00. We were last near 157.70/75, around 0.30% weaker in yen terms. USD/CHF was close to 0.9100.
• US yields have firmed, following on from recent US data beats and cautious Fed commentary around the inflation outlook. We are away from best levels from a yield standpoint, up a little over 1.5bps at the back end of the curve. The 10yr at 4.61% is short of late 2024 highs near 4.64%.
• Comments from BoJ Governor Ueda crossed the wires earlier. The were consistent with remarks from late Dec, around the timing of the next rate move is dependent on the growth/inflation outlook and wages are a key variable.   
• We had final PMI reads for the Japan and Australian PMIs (services) but they didn't shift sentiment. China's Caixin services PMI printed stronger than forecast, but also didn't shift sentiment greatly. Regional equity trends are mixed.
• AUD and NZD sit higher, but still close to recent lows. AUD/USD around 0.6225, while NZD/USD is in the 0.5620/25 region.
• EUR/USD has been supported sub 1.0300.
• CAD is around 0.30% firmer, with USD/CAD last near 1.4400. Session lows in the pair were at 1.4388. Support for CAD was evident post local news wire headlines that PM Trudeau may resign this week ahead of a caucus meeting on Wednesday.
• Later the Fed’s Cook speaks. US & European December services/composite PMIs and preliminary December German CPI data are released.

ACGBs (YM -7.0 & XM -7.5) are cheaper after extending weakness induced by US tsys’ heavy close on Friday. This movement aligns with today's Asia-Pac session, where cash US tsys are 1-2bps cheaper, showing a slight steepening bias.

• Cash ACGBs are 7-12bps cheaper, with the 5-year underperforming. The AU-US 10-year yield differential is at -16bps.
• Outside of the previously outlined S&P Global Dec. PMIs, there hasn't been much by way of domestic drivers to flag.
• Swap rates are 6-7bps higher.
• The bills strip is showing -3 to -6 across contracts.
• RBA-dated OIS pricing is flat to 6bps firmer across meetings. A 25bp rate cut is more than fully priced by April (114%), with a February cut at a 57% chance.
• Tomorrow, the local calendar will see Building Approvals data. However, the highlights of the week are likely to be November CPI on Wednesday and retail sales on Thursday.
• November CPI is likely to be watched closely ahead of Q4 data on January 29. It will also include more updates for services components than the October release. Bloomberg consensus is forecasting headline to pickup 0.1pp to 2.2%. Trimmed mean was 3.5% the previous month.
• AOFM Bond issuance is expected to resume in the week beginning 13 January 2025.