ASIA FX: SEA FX Firmer, Higher Yields Still Lagging

JGB futures are weaker, -52 compared to settlement levels, after yesterday’s holiday.

• Outside of the previously outlined Current Account Balance, Trade Balance, and Bank Lending data, the market had a speech by BOJ Deputy Governor Himino to digest.
• "In conducting monetary policy, it is difficult but essential to judge the right timing," Deputy Gov. Ryozo Himino said in a speech to business leaders in Kanagawa prefecture, near Tokyo. He said the bank will discuss whether to raise the policy rate or not at the meeting on Jan. 23-24, based on the latest outlook for the economy and prices. Although the deputy governor didn't strongly signal a hike next week, he said the economy and prices are on track toward the bank's goal. (per BBG)
• Cash US tsys are 1-2bps richer in today’s Asia-Pac session. US PPI data will be released later today, ahead of CPI data tomorrow.
• Cash JGBs are 3-6bps cheaper across benchmarks. The benchmark 5-year yield is 4.1bps higher at 0.870% after today’s mixed auction demand metrics.
• Swap rates are flat to 4bps higher, with a steepening bias. Swap spreads are mixed.
• Tomorrow, the local calendar will see M2 & M3 Money Stock and Machine Tool Orders data alongside BoJ Rinban Operations covering 1-10-year and 25-year+ JGBs. 

Asian markets traded mixed on Tuesday as global economic concerns and US policy developments influenced sentiment. Japan's Nikkei fell 1.5%, marking a fourth day of losses, with chip-related stocks like Advantest and Lasertec sliding after new US export restrictions on semiconductors. Chinese and Hong Kong equities led regional gains, buoyed by optimism over gradual US tariff rollouts and potential policy support for China's economy. The Australian market advanced, supported by energy stocks as oil prices hovered near a five-month high, South Korean shares initially dipped however the KOSPI now trades 0.40% higher while Taiwan’s Taiex rose 0.9%, driven by gains in semiconductor stocks, including a 1% jump from TSMC.

• US Economic Data has been a main contributor of softer equity prices following stronger-than-expected US jobs data increased expectations that the Federal Reserve will delay rate cuts, weighing on growth stocks across the region, with the market now closly watching tonight PPI numbers.
• There is growing optimism Over Gradual US Tariff Rollouts after reports that the incoming US administration considering a measured increase in tariffs this provided a boost to Chinese and Hong Kong equities, easing inflation and growth concerns.
• Oil Prices and Energy Stocks have benefitted from oil prices hovering near a five-month high following tougher US sanctions on Russian oil producers.
• India’s Nifty 50 is nearing oversold territory, with its 14-day RSI approaching 30, a level that has previously signaled potential reversals but can persist below it for extended periods. The broader selloff, driven by rising oil prices and a weak rupee, has also pushed the Nifty Smallcap 250 index to its most oversold level since June 2022, marking its worst day since August.
• US Equity futures are edging higher throughout the session, with Dow eminis +0.15%, S&P 500 eminis +0.30% and NASDAQ 100 eminis +0.46%

It was a heavy session for the local market, with the move driven by the positive signals from the Q4 NZIER Business Opinion Survey. It had a significant influence on the OIS market, which tempered expectations for RBNZ easing. 

• To sum up, the QSBO survey showed that a net 16% of businesses expect the economy to improve, vs 1% expecting it to get worse in Q3. This was the first positive outlook since Q2 2021. After seasonal adjustment, a net 9% of businesses expect the economy to improve, vs a revised 4% expecting deterioration in Q3.
• RBNZ dated OIS pricing closed 3-18bps firmer across meetings, with late 2025 leading.
• 45bps of easing is priced for February, with a cumulative 108bps by November 2025. The expected official rate for November has firmed 30bps since Friday’s close.

Figure 1: RBNZ Dated OIS Today vs. Yesterday (%)

Source: MNI – Market News / Bloomberg