Ahead Today
G3: US ISM Services
Asia: HSBC India PMI
Market Highlights
The US Dollar was stronger by around 0.4% and CNH outperformed rising 0.24% against USD over the past day. Part of this was likely driven by better-than-expected labour market data from the US overnight, with job openings for April rising to 7.4million from 7.2million previously. The details did show a slight rise in layoff rates and a decline in quit rates, but from a big picture perspective the numbers were still indicative of a decent and normalising labour market.
Beyond the data, question marks around whether President Trump and President Xi will pick up the phone and have a conversation were also an important driver of markets. The White House Press Secretary said the two leaders will likely talk this week, with also unconfirmed headlines yesterday that the call could happen this Friday. While these developments likely partly explained the move in USD/CNH below 7.18 levels despite weak Caixin Manufacturing PMIs out yesterday, whether there can be a durable détente is also a key question. Our sense is that the negotiations will continue to be difficult, but perhaps some of the near-term sticking points such as the perception of lack of flow of rare earth exports can be resolved. For what it’s worth, the US Chamber of Commerce President in Shanghai was quoted as saying he is already seeing some approvals for rare earth exports come through.
Regional FX
Asian FX performance was mixed with the stronger Dollar overnight, with CNH, THB, and MYR outperforming, while SGD and TWD underperformed.
In South Korea’s Presidential elections yesterday, Lee Jae-myung of the Democractic Party of Korea won the elections, with 49.4% of the vote, while Kim Moon-soo from the People Power Party secured 41.2% of the vote. While the actual numbers were a narrower margin than indicated by an earlier exit poll, the implications are still that both the President and the National Assembly in South Korea are now under the same party, making it easier to pass through legislation and reforms, and as such also removing some political uncertainty which has been weighing on the country since the recent and short-lived imposition of Martial Law.
From a macro perspective, Lee Jae-myung’s win should also imply a larger fiscal stimulus and focused on the lower income households, together with other key policies such as corporate market reforms, a more balanced foreign policy relationship between China and US, investments in AI and tech, together with a focus on renewable energy such as solar and wind (see KRW – will it catch up to TWD’s recent gain). During the campaign trial President Lee had proposed an extra budget worth 1.2% of GDP to prop up the economy with focus on cost of living issues and small business relief, and with both the presidency and parliament under the same party this should make it easier for a supplemental budget to get through.
While a win by Lee and DP should be good for the South Korean won given the expectation for additional fiscal stimulus coupled with lower policy uncertainty, not all things are equal in practice. We still think the dominant factor for KRW will be the negative impact of tariffs and also the underlying structural weakness of South Korea’s economy including its soft property market and weak domestic demand. As such, we are neutral on KRW and forecast USD/KRW at 1400 by 1Q2026 (see KRW – will it catch up to TWD’s recent gain).
