(Dec 27): Chinese government bonds are primed for their best year in a decade, with local fund managers and strategists predicting more gains for 2025.

They are set to reap a 9% total return in 2024, the highest since 2014, as measured by a Bloomberg Index which excludes currency moves. The nation’s 10-year yields have plummeted 84 basis points since January, dropping to 1.71% on Thursday.

Chinese bonds have beaten major global peers this year as prolonged economic weakness and a slowdown in consumer spending drive bets for more monetary easing. Tianfeng Securities, Zheshang Securities and Standard Chartered Bank forecast 10-year yields to drop to as low as 1.5%-1.6% by the end of 2025.

“There are a lot of uncertainties for the economy next year, with much pending on the development of trade conflicts and the dollar’s strength,” said Zhang Liling, a fixed-income investment director at Bosera Fund Management Co. that oversees 29.7 billion yuan (US$4.1 billion or RM18.22 billion) of assets.

The rally lost a bit of steam this week on worries over a surge in debt issuance. China’s policymakers plan to sell a record three trillion yuan of special treasury bonds in 2025, up from one trillion yuan this year, according to a Reuters report. Additionally, the finance ministry also reaffirmed its pledge to expand the fiscal deficit ratio and boost spending.

Still, history shows that the local bond market will likely absorb the increased supply, particularly if the People’s Bank of China maintains its accommodative stance and economic growth remains subdued.

“We are still positive about bonds next year” given the prospect for rate cuts, said Zhu Zhengxing, who manages 74.5 billion yuan at Fullgoal Fund Management Co. Initial fears of larger supply this quarter have hardly made a dent in market sentiment as demand kept increasing, he added.

The impact of increased debt supply may have a more pronounced impact on the yield curve’s shape rather than the overall direction of yields. Bosera Fund’s Zhang said he favours shorter- and medium-dated notes for next year, adding that the downside for long-term yields is limited due to heavier issuance.

Despite lower yields, Chinese bonds still offer value as a safe-haven asset, he said. “Very few assets offer certainty of not losing money in a deflationary environment.”

Source: Theedgemarkets

Renewed expectations of RBA cuts

Fewer cuts expected from the Fed

Trump, tariffs and China

As a weaker currency is inherently inflationary (via higher import costs), there will surely come a point where a weak Australian dollar becomes a political talking point and the RBA may become less dovish to support the currency. We may not be there yet, but the topic becomes more important the lower the currency falls.

What a load of politics

Australia’s Prime Minister’s term ends on 2025, but due to procedural factors around the Senate half term it is estimated the latest the next election can be is May 17th. In theory, it could come as early as March. But as both major parties want lower interest rates, I suspect they’ll hold it as late as possible in hope that the RBA may have already cut by then.

However, current Treasurer Jim Chalmers has been busy doing his bit to make sure that cuts arrive by installing allegedly dovish RBA board members. There is some debate as to whether they are more dovish than current board members, but if they have been hand-picked by the government, my bet is that they are. And as the two latest board members come from banking backgrounds, it breaks the mould of the RBA’s ‘steady as she goes’ approach. Therefore, the pressure to cut sooner may already be in play. But as mentioned above, a weak Australian dollar could be the next political hot potato if the downtrend persists for AUD/USD.

It is also not unreasonable to think that Trump will want a weaker US dollar if its current trend continues, later in the year.

Fundamental Analysis

Technical Analysis

Chart 1: EURUSD Monthly Chart

Chart 2: EURUSD Weekly Elliott Wave Analysis

Fundamental Analysis

Elliott Wave Analysis

Chart 1: Gold Futures Monthly Elliott Wave Analysis

Chart 2: Gold Futures Elliott Wave Analysis on H8 Timeframe

Chart 3: Gold Futures Weekly Elliott Wave Analysis

Chart 4: Gold Futures Daily and Weekly Chart

The Korean currency dipped further against the U.S. dollar to its lowest level in nearly 16 years Friday amid a deepening political crisis and growth woes.

The Korean won opened at 1,467.5 won per dollar, down 2.7 won from the previous session, and fell further to 1,471.8 won at 9:20 a.m.

It marked the first time that the won fell below the 1,470 won level in terms of intraday trading figures since March 16, 2009, when the reading was quoted at 1,488 won in the aftermath of the global financial crisis.

A political crisis has intensified in Korea as the National Assembly was set to vote on a motion to impeach acting President Han Duck-soo over his refusal to appoint Constitutional Court justices that will adjudicate President Yoon Suk Yeol's impeachment trial.

Earlier, the parliament voted to impeach Yoon for his shocking, albeit short-lived, imposition of martial law on Dec. 3.

Following the martial law fiasco, the currency has been well above the closely watched level of 1,400 won, and Bank of Korea Gov. Rhee Chang-yong has said the currency is forecast to stay around that level for the time being.

The won's weakness also came in line with the continued strengthening of the U.S. dollar, as concerns have deepened over the impact of U.S. President-elect Donald Trump's new tariff policy on Korean industries and the broader economy.

The U.S. Federal Reserve's indication of scaling back the number of rate cuts it anticipated in 2025 to two from the initial four has hammered the won and other Asian currencies.

Financial authorities have vowed to inject unlimited liquidity and implement all measures available to settle the market. (Yonhap)

Source: Koreatimes