THAILAND: VIEW: JP Morgan Expects Another 75bp Of Easing In 2025
Feb-27 03:22
The Bank of Thailand unexpectedly cut rates 25bp to 2.0% at its February meeting. While the October easing was meant to keep rates “consistent with economic potential”, this month’s was due to a deterioration in the economic outlook. JP Morgan believes that concern around growth will drive three more 25bp cuts this year with one in each quarter bringing rates to 1.25% by year end.
- JP Morgan observes that “the BoT did, however, pare back expectations of further easing by stating that the lowered policy rate is “robust to risks going forward”.
- It notes that BoT is monitoring “manufacturing production outlook, impact of major economies’ trade policies on economic outlook, and loans growth/credit quality and their implications for economic activities, all of which are GDP outlook-centric and broadly trending negatively.”
- “The biggest difference between last October and this month’s rate cut decision is that the former was a one-off, recalibration of the neutral rate in response to structural issues while the latter is a pre-emptive move to address the negative growth outlook driven by prospective US tariff actions. In the October MPC statement, the lower policy rate was deemed “consistent with economic potential”. In this month’s statement, the lower policy rate is consistent with the “current assessment of the economic outlook.”
- “The MPC statement made it abundantly clear that the BoT is increasingly concerned by the hawkish turn in US trade policy.”
- “Despite leaving the 2025 GDP estimate of 2.9% unchanged (JPM: 2.2%), the BoT mentioned that the economy is projected to expand “slower than anticipated”.”
- “Headline inflation in 2025 (BoT: 1.1% vs. JPM: 1.0%) is projected to stabilize around the lower bound of the 1-3% target range with downside risks, driven by an expected downtrend in oil prices and structural factors such as intense price competition from imported goods.”
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AUSSIE BONDS: Stronger But Off Bests After Bus. Conf. & Cond. Improve
Jan-28 03:18
ACGBs (YM +6.0 & XM +5.0) are stronger but off session bests after business conditions improved in December, driven by the retail sector and increased consumer spending.
- The NAB survey showed that conditions climbed 3 points to +6, reversing declines from the prior month and almost returning to its long-run average. The gains were led by a “notable uplift” in retail which re-entered positive territory for the first time since November 2023. Business confidence edged up 1 point to -2.
- Cash US tsys are ~2bps cheaper in today’s Asia-Pac session after yesterday’s strong rally.
- Cash ACGBs are 5-6bps richer with the AU-US 10-year yield differential at -12bps.
- Swap rates are 4-5bps lower.
- The bills strip has bull-flattened, with pricing +3 to +7.
- Tomorrow’s Q4 CPI data could be pivotal in determining whether the RBA initiates a long-anticipated monetary easing cycle. It may also influence the timing of an election, which must be held by May 17. Economists predict the trimmed-mean CPI will have declined to 3.3%, marking its lowest level in three years.
- RBA-dated OIS pricing is 1-5bps softer across meetings today. A 25bp rate cut is more than fully priced for April (123%), with the probability of a February cut at 78% (based on an effective cash rate of 4.34%).
CNH: USD/CNH At Session Highs, But Still Sub 20 & 50-day EMA Resistance
Jan-28 02:53
USD/CNH tracks at 7.2800 in latest dealings, very close to session highs (7.2803). This still leaves us just under the 50-day EMA (near 7.2835/40), while highs over the past week have been close to 7.3000 (which the 20-day EMA resistance point is close to).
- CNH has dipped around 0.35% so far today, in line with broader USD index gains, although outperforming most of the G10, with yen, EUR and AUD and NZD all off by 0.50% or more.
- There is no onshore anchor point for USD/CNH, given onshore markets have started the LNY break period (returning next Wednesday).
- Broader USD gains have been fueled by fresh Trump tariff headlines, although fresh direct threats against China don't appear evident so far. Earlier remarks from Trump stated he wanted a much higher universal tariff rate than 2.5% (which according to the FT is what incoming Treasury Secretary Bessent is pushing for as an initial step on tariffs, before rising gradually).
- USD/CNH implied vols re slightly firmer, but the 1 month at 5.40%, is still comfortably sub pre-inauguration levels (above 6%). The 1 month risk reversal is also sitting off pre-inauguration highs, last slightly back from flat, at -0.21.
GOLD: Gold’s Fortunes in the Hands of USD.
Jan-28 02:25
- Despite the safe-haven status it enjoys, gold suffered yesterday as the USD gained as markets came to grips with the latest tariff threats, and a tech route saw a flight to the dollar.
- With President Trump threatening tariffs on steel, aluminum and copper imports, the USD gained – which typically limits the upside for gold prices.
- The tech route wiped $1trillion from the NASDAQ on fears that the US may not have the AI superiority it thinks, giving support to the USD.
- Gold fell 1% and trading today has oscillated around where bullion closed yesterday.
- Opening at US$2,740.81 gold barely moved today to trade down to $2,739.84.
