Ahead Today
G3: US Personal Income, us Personal Spending, US U of Michigan Sentiment
Asia: RBI Policy Meeting, Philippines CPI, Taiwan CPI, Singapore Retail Sales
Market Highlights
The US continued to show a no-hire no-fire economy, Chinese authorities set the daily CNY fix at a weaker than estimated rate to help slow the pace of CNY strength, while industrial metal prices continued to rise potentially boding well for Asia’s exports in 1H2026. In particular, initial jobless claims fell by more than expected in a holiday-shortened week to 191k from 218k, while continuing claims also moderated to 1939k from 1943k. Meanwhile, a separate report from Challenger showed job-cut announcements fell in November following October’s surge. The numbers were likely distorted by holiday related effects, but overall, should not prove an impediment to the Fed delivering a rate cut next week, in what could be a divided meeting and hawkish cut from the FOMC. Meanwhile, the PBOC set its daily reference rate at 7.0733 for USD/CNY down from 7.0754. This was 164 pips from the average estimate in a Bloomberg survey, and the widest gap to the weak side relative to estimates since February 2022. Overall, we think that PBOC is not pushing back against the direction of CNY strength but more of managing the pace of CNY appreciation, with Bloomberg reporting some evidence that state-owned banks have been buying dollars from time to time to slow the yuan’s rally according to news.
Across our region, the key focus today will be on RBI’s monetary policy meeting, and this follows on from the sharp weakening in the Indian Rupee, although spot USD/INR has since retraced its recent move to close below the 90 levels. We think that RBI is likely to take a pause on interest rate cuts at this meeting, even as inflation is low right now, and with reported real GDP still very strong at this point in time. With India’s current account deficit widening due to higher imports coming at a time when capital inflows have been very weak including on net FDI and portfolio flows, maintain some level of carry and interest rate differentials will become more important from an FX perspective to prevent INR depreciation pressures from becoming too one-sided. We think that RBI could also announce some measures to attract capital flows such as for Non-Resident Indians, and any comments by the RBI Governor on INR and from a FX perspective will be closely watched by the market. RBI is also likely to raise its GDP forecasts and also lower its inflation estimates for FY2025/26.
From our perspective and looking into 2026, we quite like the fact that metal prices continue to rise, even if driven perhaps by supply related issues at a micro perspective. Among many indicators, we find that metal prices are one of the best leading indicators of industrial and manufacturing activity across Asia, and with the recent pickup in copper and aluminum prices this should imply Asia’s export activity is supported at least into 1H2026 if the historical relationship holds.
