EM ASIA CREDIT: MNI EM Credit Market Update - Asia

February consumer confidence fell to 126.4 from 127.2, the second consecutive decline bringing it to its lowest since November. Sentiment is still around 2 points above the Q4 2024 average though, signalling continued solid consumption growth and possibly a pickup in Q1 from Q4’s 5.0% y/y (see chart below). 

Indonesia consumption

• Bank Indonesia has cut rates twice now to “drive economic growth” and it continues to use macroprudential policies to support the economy, which is likely to be maintained given rupiah weakness in the face of global uncertainty (USDIDR +0.5% today to 16425.5). In February it said that growth is “solid” but “must still be encouraged”, which suggests that it would like to reduce rates further if the currency will allow.
• The decline in consumer confidence last month was driven by the expectations component which fell 1.5% m/m driven by broad-based weakness, while economic conditions rose 0.6% m/m driven by the durable goods purchase measure. Current and expected employment indices were lower.
• Consumer confidence is a good indicator for real quarterly consumption. Monthly data has not been as robust though with retail sales volumes lacklustre up 1.8% y/y in December. Auto sales growth is off its early 2024 lows but continues to contract falling 11.3% y/y in January. Credit growth to individuals is also off its high growing 3.2% y/y in January down from 9.8% y/y in January 2024.
• Tourist arrivals remain robust rising 13.9% y/y in December but this was down from December 2023’s 32.5% y/y.

+4,050 of TYM5 at 111-17+, post-time 04:08:07 GMT. The contract has traded higher since and is currently at +111-19.

ACGBs (YM +7.0 & XM +6.0) are stronger after today’s consumer and business confidence data.

• March Westpac consumer confidence jumped 4.0% m/m to 95.9, the highest in three years, boosted by the RBA’s 18 February 25bp rate cut, the start of an easing cycle.
• NAB business confidence continued its trend of oscillating around the zero mark. Business conditions were one point higher at +4 driven by profitability and trading. Prices were encouraging, signalling a further moderation in inflation in Q1 but costs picked up.
• Cash US tsys are 2-3bps richer after yesterday’s robust bull-steepener.
• Cash ACGBs are 6-7bps richer with the AU-US 10-year yield differential at +20bps.
• Swap rates are 7-8bps lower, with the 3s10s curve steeper.
• The bills strip has bull-flattened beyond the first contract, with pricing flat to +10.
• RBA-dated OIS pricing is 1-8bps softer across meetings today.
• Tomorrow, the local calendar will be empty. Melbourne Institute inflation expectations for March print on Thursday. The previous month they jumped 0.6pp to 4.6%, the highest since November 2023.
• Tomorrow, the AOFM plans to sell A$800mn of the 3.50% 21 December 2034 bond.