ASIA STOCKS: Huge Outflow from Taiwan Dominates. 

RBA Governor Bullock’s press conference reflected the cautious tone of the statement but she said there was a “consensus” for a cut. She said that today’s easing doesn’t mean that rates will follow the market’s rate path as it will need more data and evidence of moderating inflationary pressures before removing more restrictiveness. Currently market pricing has around 3.6% rates by year end. Rates won’t return to pandemic-era levels.

• Bullock warned that the RBA has “to be careful not to get ahead” of itself and that the tight labour market was the strongest argument to stay on hold.
• The stabilisation of trimmed mean at 2.7% in the updated forecasts was mentioned and Bullock pointed out that it was derived using the market’s expected rate path and given that results in inflation staying above the band mid-point its pricing is “unrealistic”. But rates were still cut as it is “more confident” inflation will return to the band and that it didn’t need to be there already to ease.
• Bullock stated that the bank can’t yet “declare victory on inflation” and said that the Board would like to see lower wage and services inflation, sustained moderation in housing costs plus some recovery in supply helped by recovering productivity growth.
• The Board understands disinflation is “bumpy” but it will continue to look for continued easing of inflation in the upcoming quarterly/monthly data. If that reverses though, the Board will have to consider the developments “seriously”.
• The RBA looks at what could impact Australia in the long term and increased protectionism has been a part of that consideration but the issue remains highly uncertain and “unpredictable”. Bullock reiterated that it only includes what it knows in its forecasts. 
• The statement noted that the labour market “tightened a little further in late 2024” and Bullock noted that this could be signalling that there is more economic strength which could potentially stall the disinflation process. 

Asian equities are mostly higher today. Hong Kong stocks are leading gains, with the Hang Seng China Enterprises Index rising 2.40% driven by tech stocks like Alibaba and Xiaomi. Optimism grew following President Xi Jinping’s meeting with business leaders, signaling a more supportive stance toward the private sector. Australia's RBA lowered rates for the first time in 4 years, the ASX200 hasn't liked the hawkish comments from Gov Bullock.

• Japan’s markets advanced, with the Nikkei rising 0.65%, supported by gains in defense stocks after European Union leaders discussed increasing military spending. The Nikkei is testing last weeks highs, with a break here likely to see the Index look to retest the 40,000 area. Tech shares are trading well following positive headlines out of China with expectations that they may ease regulatory pressure on the sector, Tokyo Electron is 2.40% higher.
• Hong Kong listed equities continue to outperform their mainland peers, with the HSI up 2.20%, while the CSI 300 trading just 0.40% higher. Tech stocks are the best performing sector with the HSTech Index +3.50%, while property stocks are underperforming with the Mainland Property Index 0.40% lower.
• Taiwan's TAIEX is 0.40%, while South Korea's KOSPI is 0.50% higher
• Australia’s ASX200 has slipped 0.65% although most of this came prior to the RBA hawkish cut. The AUD is holding near a two-month high. Meanwhile, BHP’s first half profit fell 23%, with weak Chinese demand for iron ore and copper, hurting results

ACGBs (YM -5.0 & XM -4.0) have weakened since RBA Governor Bullock’s press conference, which followed the RBA’s decision to cut the cash rate by 25bps to 4.10%.

• RBA Governor Bullock emphasised that while high interest rates have been effective, inflation is not yet fully under control. She noted the labour market’s unexpected strength and cautioned that market expectations for further rate cuts are not guaranteed.
• Future rate decisions will depend on inflation data, wage pressures, and supply-side recovery. Bullock also stated that the market's projected rate path may be unrealistic if the RBA aims for its 2.5% inflation target.
• Additionally, she clarified that rates will not return to pandemic-era lows. The board carefully weighed multiple factors before making its latest decision.
• Cash US tsys are 1-4bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s holiday.
• Cash ACGBs are 4-5bps cheaper on the day with the AU-US 10-year yield differential at -2bps.
• Swap rates are 4-5bps higher on the day.
• The bills strip has bear-steepened, with pricing flat to -6.
• RBA-dated OIS pricing is flat to 7bps firmer after the RBA Decision across meetings, with December leading.