Ahead Today
G3: US JOLTS Job Opening
Asia: Reserve Bank of Australia policy meeting, Taiwan exports
Market Highlights
China’s Politburo meeting emphasised prioritising domestic demand, helping to boost sentiment on Chinese assets, while global fixed income were volatile with increasingly diverging monetary and fiscal policies, including out of Australia and Japan. In particular, China’s Politburo meeting outlined eight key principles, and in terms of top priority talked about the need to “prioritise domestic demand and build a strong domestic market”, while also driving innovation and accelerating the cultivation of new growth drivers, and deepening reforms to enhance the momentum and vitality of high quality development. Meanwhile, macroeconomic policy talked about “strengthening counter-cyclical and cross-cyclical adjustments”.
All in, these signals could indicate supportive or at the very least similar fiscal policy support for 2026 compared with this year, and may also suggest that further interest rate and reserve requirement cuts may be cautious moving forward. The upcoming Central Economic Work Conference will as such very likely be held later this week, and will provide more clues on the policy direction. Chinese assets overall took the signals quite well, with some risk-on sentiment in onshore equities, while USD/CNY continued its slow grind lower.
Another key theme that we see in markets including here in Asia is increasing divergence in fiscal and monetary policies, and the spillover as such to FX. For this year, this has so far been about Japan with sharp rises in JGB yields, and this could continue to be volatile moving forward given uncertainty about domestic fiscal policy direction. The Bank of Japan will meet next week but we could also increasingly get hints about whether a December rate hike is cemented coupled with moving forward possibilities of further BOJ rate increases.
On that front, the Reserve Bank of Australia meets later today, and while RBA is poised to keep the RBA cash interest rate unchanged at 3.6%, markets are watching out for any shift towards a more hawkish tone that might signal the possibility of hikes in 2026. Any changes in the press statement on the balance of risks on the economy and inflation even if rate hikes are not explicitly considered, together with RBA Governor Michele Bullock’s press conference will be important to watch.
Lastly, the Indian Rupee saw some further pressure, but this was manifested much more in FX forwards both onshore and offshore, rather than spot FX which bounced around the 90.0 to 90.20 levels. Part of this may reflect a repricing out of RBI rate cuts over the next 12 months, but the move higher in forward implied yields have been much sharper than what rate differentials between India and the US would suggest alone. The sharp spikes in forward points and increase in onshore offshore spreads also come despite RBI liquidity measures including through a INR1 trillion OMO and a US$5bn FX buy/sell swap in its latest RBI policy meeting. On our end, we continue to see the bias towards USD/INR higher, and think that RBI is likely at the end of the rate cut cycle given that India’s external stability and balance of payments remains quite unbalanced with soft capital inflows and a wider current account deficit. That said we are hesitant to be too bearish at current levels given how much USD/INR has already spiked and any news around US-India trade deal could start to move the needle in terms of flow dynamics (see RBI Dec 2025 – No free lunch and India – Balance of payments remains unbalanced)
