FX quiet as CN maintains strong fix, RBNZ holds rates

Asia market update: FX quiet as CN maintains strong fix, RBNZ holds rates; Fitch cuts CN Outlook; Hang Seng outperforms; Focus on US CPI + FOMC Minutes tonight.

General trend

- China’s Yuan continues to trade near the bottom limit of its 2% trading band, with the PBOC on a 7-day streak of keeping open market operations’ liquidity neutral and a strong Yuan fix consistently in the 7.09 handle since Mar 22nd.

- Kiwi dollar outperforms, threatening its 2-week high after the RBNZ kept rates on hold, saying that it is still necessary to further reduce capacity pressures and inflation but that economic growth in New Zealand remains weak. No updates to current projections were given.

- Japanese bonds rose, bucking the overnight global trend of falling yields following the BOJ reportedly considering raising their inflation outlook. JP 10-yrs +1bps to 0.795%, highest since Mar 15th.

- Japan PPI release was largely inline with expectations.

- Australia to reform merger deals to speed up the process and give the regulator stronger powers to scrutinize transactions. (The proposed change may also be a reaction to what has become increasingly seen as an oversupply of Chinese companies buying up Australian companies and assets).

- Hang Seng outperformed in Asia with HK Tech Index +3.0% (Alibaba +5% , Tencent +2.7% Baidu +2%) as China’s CAC said that several firms have successfully filed for AI-driven LLM services registration. Hang Seng Bank also +5%.

- Fitch joined Moody’s (in Dec 2023) in cutting China’s Outlook to Negative (from Stable), but affirmed its A+ IDR rating. Only S&P still maintains a Stable Outlook on China (but has said China is on watch for a downgrade).

- US equity FUTs +0.1% during Asian trading.

Looking ahead (Asian time zone)

- Wed Apr 10th (Wed night US CPI + FOMC Minutes).

- Thu Apr 11th CN Mar CPI, (Thu night ECB rate decision, US PPI).

- Fri Apr 12th CN Balance of Trade, SG Q1 GDP + MAS Statement, KR Interest Rate Decision (Fri eve UK GDP, Fri night US Michigan Consumer Sentiment).

Holidays in Asia this week

- Wed Apr 10th Indonesia, Malaysia, Philippines, Singapore.

- Thu Apr 11th India, Indonesia, Malaysia.

- Fri Apr 12th Indonesia.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens +0.2% at 7,837.

- Australia to reform merger rules to encourage competition - press citing Australia Treasurer Chalmers.

- Australia sells A$800M v A$800M indicated in 2.50% May 2030 bonds; Avg Yield: 3.8354% v 2.9136% prior; bid-to-cover: 3.02x v 3.02x prior.

- Reserve Bank of New Zealand (RBNZ) leaves official cash rate (OCR) unchanged at 5.50%; as expected).

China/Hong Kong

- Hang Seng opens +0.6% at 16,926.

- Shanghai Composite opens -0.1% at 3,045.

- Fitch cuts China Outlook to Negative from Stable; Affirms China's IDR (Issuer Default Rating) at 'A+'.

- China Finance Ministry: In response to Fitch ratings cut, says China's debt defusing work is progressing in an orderly manner - Chinese press.

- Cyberspace Administration of China: Several firms [China Mobile, Alibaba, Huawei, Tencent] have completed filing of large model AI services registration.

- Confirms deal with Microsoft to bring Blizzard Games back to China, incl World of Warcraft; No terms disclosed.

- China President Xi said to be planning to meet with Russia Foreign Min Lavrov soon - financial press [overnight update].

- China final Mar retail passenger vehicle sales M/M: +52.8%; Y/Y: +7% y/y v -21% y/y prior – PCA [overnight update].

- (EU) EU is formally launching a probe into Chinese wind turbines – press [overnight update].

- China PBOC sets Yuan reference rate: 7.0959 v 7.0956 prior.

- China PBOC Open Market Operation (OMO): Sells CNY2B in 7-day reverse repos; Net CNY0B v Net CNY0B prior.

Japan

- Nikkei 225 opens -0.5% at 39,582.

- Japan Mar PPI (Domestic CGPI) M/M: 0.2% v 0.3%e; Y/Y: 0.8% v 0.8%e.

- Japan Mar Bank Lending Y/Y: 3.2% v 3.0% prior.

- Japan BOJ Gov Ueda: Reiterates that trend inflation yet to reach 2%, so need to maintain accommodative monetary conditions - prepared speech.

- Bank of Japan (BOJ) reportedly considering raising inflation view due to strong pay deals – press [overnight update].

- Japan PM Kishida: We are hopeful that 2024 will be the year for Japanese economy to completely break free from deflationary sentiment [overnight update while visiting US).

South Korea

- Kospi closed due to parliamentary elections.

- (KR) US Official confirms South Korea, New Zealand and Canada are under consideration for AUKUS Pillar 2 membership - press.

Other Asia

- Thailand Mar Consumer Confidence: 63.0 v 63.8 prior (first drop in 8 months).

- Follow Up: Thailand PM: To roll out handout scheme in Q4, 2024.

- Groups in Taiwan said to consider overseas headquarters to ‘hedge against’ China attack; Taiwan experts consider China attack as not likely – FT.

- Philippines Pres Marcos: Trilateral Summit with US, Japan to help maintain security and freedom of navigation in the South China Sea - US press.

- Philippines, US and Japan are reportedly considering holding regular summit meetings - Japanese press.

North America

- Apple iPhone output in India rises to $14B as Co shifts supply chains from China - US financial press.

- Boeing (BA) Offers to provide documents, testimony and technical briefings, and is in discussions with the Senate sub-committee regarding next steps - statement.

- (US) March NFIB Small Business Optimism Index: 88.5 v 89.4e (lowest since Dec 2012).

- (US) Weekly Redbook LFL Sales w/e Apr 6th: 5.4% y/y, Mar MTD 4.2% y/y.

- EIA: Cuts 2024 and 2025 world oil demand growth outlook - April short term energy outlook.

- (US) Treasury's $58B 3-year note auction results: Draws 4.548% V 4.256% prior, bid-to-cover ratio: 2.50 V 2.60 prior and 2.69 over the last 8 auctions.

- (US) Fed’s Bostic (hawk, voter): Always possible Fed's growth forecast could rise; CPI coming in at consensus would be a welcome development.

Europe

- (EU) EU Top Diplomat Borrell: War is certainly looming around us; Europe must prepare for potential war, as a full-scale conflict on the continent beyond Ukraine is no longer a fantasy - FT [**Note: the first time Borrell has laid out the Russian threat so explicitly].

- (SE) Sweden Central Bank (Riksbank) Dep Gov Floden: It is clear than monetary policy is restrictive.

- (IT) Italy Fin Min Giorgetti: Will release extra budget numbers by Sept 20th - budget conf.

- (IR) Iran IRGC Navy Commander: Iran has the ability to close the Strait of Hormuz.

- (CH) SNB's Schlegel: Central Bank only uses forex interventions when necessary; Forex interventions complement interest rate policy.

Levels as of 01:20 ET

- Nikkei 225, -0.2%, ASX 200 +0.3%; Hang Seng +2.0%; Shanghai Composite -0.4%; Kospi closed.

- Equity S&P500 Futures: +0.1%; Nasdaq100 +0.1%; Dax +0.1%; FTSE100 +0.4%.

- EUR 1.0850-1.0860 ; JPY 150.68-151.82 ; AUD 0.6617-0.6632 ; NZD 0.6051-0.6078.

- Gold +0.5% at $2,374/oz; Crude Oil +0.1% at $85.28/brl; Copper +0.2% at $4.3095/lb.