Asia FX Talk - Refunding Boost

Ahead Today

G3: US JOLTs jobs opening, US Consumer Confidence, Europe 4Q GDP, Eurozone Economic Confidence

Asia: Philippines Agriculture Output, South Korea Retail Sales

Market Highlights

US bonds rallied as the US Treasury reduced its borrowing estimate to $760bn in net borrowing for 1Q, down from a previous prediction of $816bn. With federal deficits rising in the US, the borrowing strategy of the Treasury has taken on far greater market significance. On this front, markets will also focus on the composition of borrowing between notes and short-term bills out on Wednesday. This Refunding announcement helped to offset weak Dallas Fed Manufacturing PMIs released yesterday, which also mirrored weakness in several other regional manufacturing surveys in the US.

Meanwhile, Evergrande received a liquidation order from a Hong Kong court, sending its shares down further. While Evergrande is unlikely to be a systemic issue, offshore bondholders are unlikely to receive much in the way of proceeds from asset sales. First, given that offshore bondholders are subordinate in the capital structure, and second, given that the legal jurisdiction of Hong Kong courts in China is still unclear. Separately, China’s top economic official He Li Feng called on cities to make timely moves on financing for the property sector.

Looking ahead, markets will focus on US JOLTS jobs opening data, coupled with data from Europe such as 4Q GDP and January economic confidence index.

Regional FX

Asian FX was generally slightly stronger, with KRW (+0.4%) and PHP (+0.5%) outperforming. Vietnam released monthly data such as trade, exports, industrial production and retail sales. Vietnam’s exports was stronger than expected at 42%yoy (vs consensus 31%yoy), boosted in part by Chinese New Year base effects, but was also an improvement in level terms. This led to a higher than expected trade surplus of US$2.9bn. Meanwhile, retail sales growth in Vietnam was steady at 8.1%yoy from 9.3%yoy the previous month. The export numbers from Vietnam mirrors some of the regional improvements in Asia exports that we are seeing, such as out of Korea and Taiwan. Overall, we still think that VND should underperform Asian FX, with capital outflows continuing to offset strong FX inflows such as in FDI and exports.