JPY: USD/JPY Testing Late Dec Lows, Equity Risk Off Helping

Reaction to the Caixin services PMI beat hasn't been positive across China assets. Yuan gains were mostly around the CNY fixing outcome, while onshore equities are up from session lows, sitting modestly in positive territory. Local bond yields are up a touch, but the 10yr remains sub 1.60%. 

• The Caixin services PMI showed similar trends to the official PMIs. The services side comfortably beating expectations, up to 52.2, versus 51.4 forecast and 51.5 prior. The composite index still fell to 51.4 from 52.3, due to softness in manufacturing (50.5 from 51.5, which printed last Thursday).
• The China Citi surprise index remains in positive territory, but off late Dec highs. Market growth expectations are steady for 2025, at 4.5% as per BBG consensus forecasts.
• Thursday's inflation prints will be important, given the PBoC stated recently further policy adjustments are coming at an appropriate time (RRR and interest rate cuts). This should generally keep onshore bonds supported, although local media stated we could see more volatility this year (see this link).
• For USD/CNH, the CNY fixing bias remains skewed against depreciation pressures. Whilst the pair has broken higher, the focus remains on controlling the pace of depreciation pressures. Bill issuance in Hong Kong is also expected to be stronger in January. Recent highs near 7.3700 may hold, but the market is still likely to buy dips in the pair, a firm theme since the US election in early Nov.  The 20-day EMA support zone is near 7.3100.
• For local equities, the CSI 300 is testing levels last seen in Sep last year. The index has spent little time sub 3800 since this period last year. 

At the Tokyo lunch break, JGB futures are holding weaker but off early session lows, -16 compared to the settlement levels, as trading resumed after the extended New Year’s break.

• Speaking at a New Year conference held by the Japanese Bankers Association, Governor Kazuo Ueda said the BoJ will raise its policy rate if economic conditions continue to improve this year, reiterating his existing stance. Timing of rate adjustment will depend on the economy, inflation and financial conditions, Ueda said. Momentum for wage hikes is a key point when considering rate hikes.
• Jibun Bank and S&P Global PMIs for December printed: Services Index rises to 50.9 from 50.5 in November; Composite Index rises to 50.5 from 50.1 in November.
• Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session after Friday’s heavy close.
• Cash JGBs are 2-3bps cheaper across benchmarks beyond the 1-year (+4.3bps). The benchmark 10-year yield is 3.2bps higher at 1.133%, just shy of the cycle high of 1.134% set on 30 December 2024.
• Swap rates are 1-3bps higher. Swap spreads are mixed.

Aussie is stronger today helped by better risk appetite and softer CNH trends. AUDUSD is up 0.2% to 0.6226, off the intraday high of 0.6240. It fell to 0.6208 early in today’s trading. The USD index is off its low to be little changed.

• With the better risk tone, AUDNZD is up only 0.1% to 1.1082. However, AUDJPY is 0.4% higher at 98.17, close to the intraday high of 98.30. AUDEUR is up 0.2% to 0.6040 and AUDGBP +0.1% to 0.5008 after falling briefly below 0.5000 early in the session.
• The final December S&P Global composite PMI was revised up 0.3pp to 50.2, the third straight month at this level and signalling only slight growth in activity which is being driven by the services sector. The services PMI was revised up 0.4pp to 50.8 to be 0.3pp higher than November.
• Equities are mixed with the ASX up 0.1% and Hang Seng/CSI flat but Nikkei down 1.1% as it catches up after being closed several days. The S&P e-mini is 0.1% lower. Oil prices continue to climb with WTI +0.3% to $74.18/bbl. Copper is up 0.2% and iron ore has given up gains to be back around $99/t.
• Later the Fed’s Cook speaks. US & European December services/composite PMIs and preliminary December German CPI data are released.