Global Market Quick Take: Asia – January 10, 2025

Key points: 

• Macro: Both US and UK yields are rising 
• Equities: Tencent rose 1.6% after share buybacks despite US blacklisting
• FX: USD rose against most currencies, except JPY, before NFP tonight 
• Commodities: Gold, Oil and Copper rising across the board 
• Fixed income: A large February 10-year options trade targets 5% yields  

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Disclaimer: Past performance does not indicate future performance. 

 Macro:  

• The 30-year fixed mortgage rate increased to 6.93% as of January 9th, the highest since July, due to inflation concerns and a hawkish Federal Reserve. High home prices and limited entry-level supply are impacting affordability, especially for first-time buyers. 
• In December 2024, US employers announced 38,792 job cuts, the lowest in five months. For the year, 761,358 cuts were reported, the highest since 2020. Technology and auto sectors saw significant cuts, with further uncertainty expected under the new administration. 
• Japan's household spending decreased by 0.4% year-on-year, less than expected. It marked the fourth consecutive monthly decline but was the smallest. Spending fell in areas like food and furniture but increased for housing, medical care, and education. Monthly spending rose by 0.4%, beating expectations. 
• Germany's exports rose by 2.1% to EUR 127.3 billion, exceeding expectations and marking the first increase in three months. Sales grew to the US, Russia, and the UK but fell to China and the EU. Year-to-date exports dropped 1.4% to EUR 1.4 trillion. 
• UK gilt yields surged, with 10-year at 4.8% and 30-year at 5.47%, due to concerns over Trump’s policies, a hawkish Fed, and UK debt. The Chancellor's budget raised fiscal concerns, and inflation fears persist, leading to expectations of fewer BoE rate cuts. 

Equities:  

• US - Markets are closed.
• Hong Kong – HSI fell 0.2% to 19,241, driven by losses in financials and property, amid China's low inflation and ongoing producer deflation. Li Auto dropped 4.4%, Sinotruk 2.9%, and Meituan 1.8%, while Tencent rose 1.6% after share buybacks despite US blacklisting.

FX: 

• USD strengthened against major currencies, except the yen, ahead of Friday's NFP report.  Harker and Collins highlighted persistent inflation, advocating a cautious Fed easing approach. 
• JPY strength was bolstered by strong labor cash earnings, supporting potential BoJ rate hikes, pushing USDJPY to 157.59 before retracing. BoJ prefers USDJPY between 145-155, with levels above this range pressuring faster rate hikes due to inflation risks. 
• GBPUSD fell but rebounded with Gilt market opening, recovering to 1.23 from 1.2240 lows. BoE's Breeden was unfazed by Gilt moves, calling them orderly, and suggested gradually reducing policy restrictiveness. 
• AUDUSD fell below the 0.62 level after November's retail sales data came in below expectations, and the previous month's figures were revised downward. 
• CNH initial gains on CPI/PPI reports, with CPI stable and PPI less deflationary, were offset by USD strength. The PBoC plans a CNY 60 billion bill auction in Hong Kong to boost yuan demand and deter shorting. 

Commodities:  

• WTI crude oil futures rose to $74 due to declining US stockpiles, cold weather boosting heating demand, and reduced Russian exports, despite weak demand in China and a stronger US dollar. Gold prices stayed above $2,660, supported by Fed policy outlooks and weaker US employment data, with gold ETFs seeing inflows for the first time in years. Copper futures climbed above $4.26, driven by optimism over China's potential economic stimulus despite deflationary concerns. 

Fixed income: 

• Treasuries ended a shortened session with minimal changes and a steeper yield curve. With markets closed for President Carter's funeral and no new data, activity centered on Fed speakers. Options saw demand for bearish positions targeting 10-year yields at 5% by month's end.  Front-end yields were richer by 2 basis points, while longer-term yields stayed unchanged.  
• UK yields ended narrowly mixed with a steeper curve after reversing an initial rise. 

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