Ahead Today
G3: US ISM manufacturing; Eurozone manufacturing PMI and CPI
Asia: China Caixin manufacturing PMI, Indonesia CPI, Singapore PMI
Market Highlights
US core PCE inflation rose 0.3%mom in January, up from 0.2%mom in December and in line with market expectations. From a year ago, core PCE inflation eased to 2.6%yoy from 2.9%yoy in December. Meanwhile, US personal income rose 0.9%mom in January, higher than 0.4%mom in December and beating Bloomberg consensus of 0.4%mom. However, US personal spending adjusted for inflation fell 0.5%mom, from +0.5%mom increase in December and worse than market expectation for a 0.1%mom decline. Notably, this marks the first month-on-month decline since February 2024 and follows from a drop in consumer confidence in February. Indeed, the Conference Board consumer confidence index fell to 98.3 in February from 105.3 in January.
Markets appear to have become more concerned about a potential slowdown in the US economy. The fed funds futures market has priced in 68bps of US rate cuts in the rest of this year, or nearly 3 cuts. US 2-year treasury yield has also dropped below 4.00%, not seen since November 2024. However, US 10-year yield has fallen more than the 2-year yield since US President Trump’s inauguration on 20 January. And if DOGE is successful in significantly cutting the US budget deficits, US long-term yields could fall further. However, the US dollar has recently been supported by President Trump’s renewed tariff threat, with the 25% tariff on Canada and Mexico set to come into effect on 4 March.
Regional FX
Asian ex-Japan currencies have weakened against the US dollar, as market sentiment has weakened on the back of President Trump’s renewed tariff threats. He has signalled for 25% tariff hikes on Canada and Mexico, as well as an additional 10% on China. Notably, KRW (-0.9%), IDR (-0.8%) and THB (-0.8%) led losses against the US dollar in last Friday’s session.
In terms of USDIDR outlook, we’ve revised up our USDIDR forecast to 16,625 by Q2, from 16,450 previously. While we have been expecting rupiah weakness amid heightened global uncertainties. the pace of rupiah depreciation has still surprised us, despite ongoing resolve by authorities to support the currency. USD/IDR is at risk of testing the covid pandemic level high of 16,625 (see Indonesia: Rupiah headwinds see no signs of easing). Indeed, fiscal policy uncertainty in Indonesia, in addition to US tariff risks returning to the fore following a period of calm, have led to net foreign equity outflows.
In India, real GDP growth picked up to 6.2%yoy in Q3 FY 2025 (Oct-Dec 2024), from 5.6%yoy in Jul-Sept 2024. The growth pickup was due to accelerating consumer spending. And for full FY2025, second advance estimates show growth higher at 6.5% vs. 6.4% in the first advance estimates released in January.
