CNH: USD/CNY Fixing Edges Down

Asian equities are lower across the board, following Trump's Tariffs on Canada, Mexico & China. China is still out for LNY today, however Hong Kong returns.

• Japanese stocks dropped, with the Topix falling over 2% and Nikkei 225 down 2.2%, as exporters like automakers and tech firms sold off on global trade war fears. Taiwan equities are the worst performing in morning trading with the TAIEX down over 4% while South Korea's KOSPI is down 2.80% with Samsung down 2.80% & SK Hynix down 4.70%. Australia's ASX 200 is 1.85% lower, while New Zealand's NZX 50 is 1.50% lower.
• Asian e-commerce stocks may face pressure after Trump’s new trade levies include removing the "de minimis" tariff exemption for packages under $800. Watch Chinese e-commerce firms like Alibaba, JD.com, and Bilibili in Hong Kong, as well as PDD (Temu-owner) in the US. Australian apparel retailer Cettire fell as much as 12%, while Miniso Group in Hong Kong is also at risk. Citigroup analyst Alicia Yap notes that while PDD’s stock may have priced in some tariff risks, the removal of the exemption came sooner than expected. This could negatively impact Temu’s growth in 2025 and beyond, despite its efforts to expand local warehousing

RBA-dated OIS pricing is flat to 4bps softer across meetings today. This follows weekend news confirming that tariffs will be imposed by the US at 25% on Canada and Mexico, and 10% on China, starting this week.

• Additionally, over the weekend, Canada and Mexico announced retaliatory tariffs on the US, while China stated it would implement countermeasures and file a complaint with the World Trade Organization.
• Today’s domestic data drop (retail sales, building approvals and job ads) has had little impact.
• OIS pricing is 4-10bps softer across meetings than last week’s pre-Q4 CPI levels, with August leading.
• A 25bp rate cut is more than fully priced for April (143%), with the probability of a February cut at 92% (based on an effective cash rate of 4.34%). 

Figure 1: RBA-Dated OIS – Today Vs. Pre-CPI

Source: MNI – Market News / Bloomberg

Retail sales were stronger than expected at the end of 2024. Q4 volumes rose 1.0% q/q to be +1.1% y/y after 0.5% & 0.2%. Monthly sales values have been impacted by a change in the timing of seasonal spending. Thus December fell 0.1% m/m after rising 0.7% in November, but it is now up 4.6% y/y after 3.1%, the highest growth rate in almost two years. Expectations for a February rate cut have grown but the retail data are signalling a recovery in spending supported by tax cuts and lower inflation.

• Q4 real retail sales rose at their fastest quarterly rate since Q1 2022 boosted by discounting. Consumers continue to be prepared to spend but only at the right price with retail prices rising 0.4% q/q down from Q3’s 0.6%. Retail volumes per person rose 0.5% q/q, the first rise in two and a half years.
• Q4 sales values rose 1.4% q/q to be up 3.7% y/y after 2.6% in Q3. 

Australia retail sales y/y%

• The drop in December sales was driven by sharp falls in clothing (-1.8% m/m), other retailing (-1.4% m/m ) and restaurants (-0.5% m/m). Household goods saw their fourth consecutive strong month rising 1.6% and spending is now 7.1% higher than a year ago. Food retailing rose 0.1% m/m, which was impacted by supply disruptions, and department stores 0.4%.
• Online sales rose 4.2% m/m to be up 12.7% y/y.
• The ABS noted that “Cyber Monday fell in early December” which lifted spending in the month, especially for household items.
• The monthly series will be replaced by household consumption this year. The December update is out on Tuesday and forecast to rise 0.4% m/m and 3.4% y/y.