Ahead Today
G3: US federal budget balance
Asia: China trade, India CPI
Market Highlights
The broad US dollar index (DXY) extended its gains by 0.4% last Friday following a stronger than expected US jobs data. US nonfarm payrolls increased by 256,000 in December, up from 212,000 in November and well above Bloomberg consensus of 165,000. The unemployment rate eased to 4.1% from 4.2% in November. Labour participation force remained steady at 62.5%. Average hourly earnings rose 0.3%mom (+3.9%yoy), in line with market expectation but slightly slower than the 0.4%mom (+4.0%yoy) pace in November.
Overall, the US labour market has continued to show resilience. This corroborates with the Fed officials’ view that the downside risk to US labour market has eased, while inflation risks are leaning to the upside due to potential inflationary policy from the incoming Trump administration. The US Michigan 1-year inflation expectation rose to 3.3%yoy in January, from 2.8%yoy in December and Bloomberg consensus of 2.8%yoy.
Markets have pushed back full pricing of the next 25bps US rate cut to September 2025, from mid-2025 before the nonfarm payroll data release. US 10-year yield also rose 7bps to 4.76% last Friday, moving above the peak seen in April 2024 and putting pressure on other local currency emerging market bonds.
Regional FX
Asian ex-Japan currencies will continue to face pressures from a resilient US economy and looming tariff risks, with the KRW (-0.8%) notably leading losses in the region. USDCNY is also just a whisker away from the upper bound of its trading band. The PBOC has been supporting the CNY through setting the daily fixing rate below the 7.2000 level. It will also issue CNY60 billion (US$8.2bn) of 6-month bills in Hong Kong on 15 January, boosting funding costs. And the central bank will suspend government bond purchase to temper CNY depreciation pressures.
The key data highlight today is China’s trade data. Some front-loading of exports before potential US tariff hikes on Chinese goods will likely help support Chinese exports. Bloomberg consensus is for China’s goods exports to grow by 7.4%yoy in December, from 6.7%yoy in November, while goods imports will fall by 1.4%yoy, extending the 3.9%yoy decline in November. This will likely result in a larger trade surplus of about US$100bn compared to US$74.7bn from a year ago. However, the likely positive growth in Chinese exports may not last in 2025 due to potential higher US tariffs on Chinese goods.
