EM ASIA CREDIT: LG Electronics (LGELEC, Baa2/BBB/BBB) gets Moody's outlook boost

After underperforming through Monday trade, yen is seeing some degree of catch up in the first part of Tuesday dealings. We tested the 50-day EMA (around 154.97) a short while ago, hitting lows of 154.91, but sit higher in latest dealings. Last around 155.15/20 still +0.30% firmer in yen terms. 

• A clean break under the 50-day EMA could see Dec lows of 154.44 targeted.
• Yen is benefiting from the sharp move lower in US yields, with cash Tsys re-opening after the long weekend. No early tariff action from the returning Trump administration is clearly weighing on the USD, whilst also a US yield headwind, as it will be viewed as less reflationary.
• The chart below plots USD/JPY against the US-JP 10yr and 2yr yield differentials. Recent correlations have arguably been stronger with the 10yr spread, which is still arguing for a downside USD/JPY bias, at least if current trends hold.
• Lack of sharp market volatility/risk aversion on the returning Trump administration will also add to the case for a BoJ hike later this week. Still, this is close to fully priced/expected by the market. 

Fig 1: USD/JPY Versus US-JP Government Bond Yield Differentials 

Source: MNI - Market News/Bloomberg 

India continues to see heavy outflows, while other regions in Asia saw mixed flows on Monday as investors were cautious ahead of Trumps Inauguration. 

• South Korea: Saw outflows of -$345m yesterday, contributing to a 5-day total of -$206m. YTD flows are slightly negative at -$57m. The 5-day average is -$41m, worse than the 20-day average of -$24m but better than the 100-day average of -$156m.
• Taiwan: Saw inflows of +$385m yesterday, leading to a 5-day total of +$442m. YTD flows are negative at -$1.77b. The 5-day average is +$88m, better than the 20-day average of -$21m and the 100-day average of -$122m.
• India: Saw outflows of -$419m Friday, resulting in a 5-day total of -$2.82b. YTD flows are deeply negative at -$4.95b. The 5-day average is -$564m, worse than the 20-day average of -$316m and the 100-day average of -$76m.
• Indonesia: Saw outflows of -$17m yesterday, bringing the 5-day total to +$21m. YTD flows remain negative at -$183m. The 5-day average is +$4m, better than the 20-day average of -$13m and the 100-day average of +$1m.
• Thailand: Saw inflows of +$13m yesterday, contributing to a 5-day total of -$150m. YTD flows are negative at -$209m. The 5-day average is -$30m, worse than the 20-day average of -$12m and the 100-day average of -$9m.
• Malaysia: Saw outflows of -$31m yesterday, leading to a 5-day total of -$254m. YTD flows are negative at -$460m. The 5-day average is -$51m, worse than the 20-day average of -$27m and the 100-day average of -$18m.
• Philippines: Saw outflows of -$2m yesterday, bringing the 5-day total to -$47m. YTD flows are negative at -$83m. The 5-day average is -$9m, worse than the 20-day average of -$7m and the 100-day average of -$1m.

Table 1: EM Asia Equity Flows

ANZ is forecasting Q4 headline CPI to rise 0.5% q/q and 2.2% y/y, the same as Q3 but slightly above the RBNZ’s 2.1% y/y. It is in line with the central bank for non-tradeables (+0.8%/4.7%) but stronger for tradeables (+0.2%/-1.2%). It expects the Stats NZ underlying measures to be towards the upper end of the RBNZ’s 1-3% target band. Assuming that the data print close to expectations, ANZ continues to forecast a 50bp rate cut on February 19 with the outlook dependent on core/domestic inflation.

• ANZ notes that non-tradeables inflation is likely to remain “well above the goldilocks ~3% level that’s typically been associated with headline inflation running around 2%”.
• “The pace of disinflation across non-tradable and core inflation measures is ultimately going to determine where the OCR settles. … Given upside sticky domestic inflation risks, we remain comfortable with our terminal OCR assumption of 3.5%.”
• “Tradable deflation is typically short-lived, meaning the RBNZ still needs to see further progress on the non-tradables front over 2025. And with recent GDP data and key capacity indicators (eg out of the NZIER’s QSBO) suggesting the economy is operating with a considerable degree of spare capacity, we think they’ll get it.”
• “Looking to the CPI outlook for 2025, it’s fair to say that recent NZD weakness and strength in oil prices could see annual headline inflation reaccelerate for a time. … it’s very common for tradable inflation to prove more volatile than forecast (given how hard it is to forecast the exchange rate and global commodity prices), and the RBNZ tends to look through the bulk of temporary fluctuations in tradable prices.”