Asian Currencies Could Be On The ‘Backfoot’ Despite Likely U.S. Rate Cuts This Year, JPMorgan Says

Forex

Economic

Summary:

The U.S. dollar is expected to remain resilient despite possible Fed rate cuts this year.

Asian currencies could be on the “backfoot” this year despite signals that the U.S. Federal Reserve could cut interest rates soon, according to Julia Wang, executive director and global market strategist at JPMorgan Private Bank.

Emerging market currencies often stand to gain when the Fed cuts interest rates and the U.S. dollar weakens.

But Wang said this might not be the case in 2024 as the U.S. dollar is expected to benefit from forecasts shifting to a soft landing for the U.S. economy rather than a recession.

“The dollar probably could remain somewhat resilient,” Wang told CNBC’s Squawk Box Asia on Wednesday.

It will be the U.S. presidential elections and uncertainty in the China economy may continue supporting the U.S. dollar at the end of this year, said Saktiandi Supaat, head of FX strategy at Maybank.

“The Asian currencies are not appreciating, it’s actually the dollar is positively correlated with the performance of [the] U.S. equity market because it’s a soft landing narrative, rather than a recession narrative around those rate cut bets,” Wang said.

However, Supaat, pointed out that Asian currencies did rally last year when there where expectations that the Fed was going to cut rates.

Admitting that this is a “slightly more contrarian view,” Wang said that Asian currencies could stay on the “backfoot” and domestic demand in the region could be weaker than typical easing cycles.

Several analysts have said that Asian currencies such as the Chinese yuan and Indian rupee could strengthen from U.S. interest rate cuts later this year, with the Korean won likely to be one of the major beneficiaries.

Simon Harvey, head of FX analysis at Monex, predicted that the won could gain anywhere between 5% and 10% if the U.S. easing cycle is deep, but as little as 3% if the cycle is shallow.

Although many economists expect the first Fed rate cut to happen in June, JPMorgan projected that it may be “pushed back” but there could still be three rate cuts in 2024.

Inflation in the U.S. increased yet again in February, with the consumer price index rising by 0.4% for the month and 3.2% from a year earlier.

“Inflation is somewhat sticky at a 2.5-3% range. It should give investors more reasons to be cautious in terms of asking for too much by way of rate cuts,” Wang said, adding that the bank’s investments are still toward sectors that will benefit from global as well as U.S. growth and the global manufacturing sector.

Source：CNBC

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Samantha Luan

Commodity

Crude oil futures traded higher on Wednesday morning as the monthly report by the Organization of the Petroleum Exporting Countries (OPEC) indicated an increase in demand for oil during 2024.

At 9.52 am on Wednesday, May Brent oil futures were at $82.41, up by 0.60 per cent, and April crude oil futures on West Texas Intermediate (WTI) were at $78.06, up by 0.64 per cent.

March crude oil futures were trading at ₹6,469 on Multi Commodity Exchange (MCX) during initial trading on Wednesday morning against the previous close of ₹6,447, up by 0.34 per cent, and April futures were trading at ₹6,459 against the previous close of ₹6,438, up by 0.33 per cent.

Forecast cut for Q1

OPEC Monthly Oil Market Report, released on Tuesday, said the global oil demand growth forecast for 2024 remains unchanged at 2.2 million barrels a day, year-on-year.

It said oil demand growth in OECD Asia Pacific is revised down slightly for the first quarter of 2024, due to expected lower performance in the manufacturing and petrochemical sectors of Japan and South Korea.

“However, this is offset by upward adjustments for India and other Asia, reflecting anticipated improvements during the same period. With this, the OECD is forecast to expand by around 0.2 million barrels a day, and non-OECD by 2 million barrels a day this year,” it said, adding that the global oil demand is forecast to grow by 1.8 million barrels a day, year-on-year, in 2025.

On world oil supply, the OPEC report said non-OPEC production in 2024 is expected to grow by 1.1 million barrels a day, slightly revised down from the previous month’s assessment. The revision takes into account the recently announced additional voluntary production adjustments by some countries in the Declaration of Cooperation (DoC) in the second quarter of 2024 and the rest of 2024.

Meanwhile, a report by industry body American Petroleum Institute showed that crude oil inventories in the US declined by 5.52 million barrels for the week ending March 8, against an increase of 0.42 million barrels a week earlier. Market was expecting crude oil inventories to rise by 0.4 million barrels for the week ending March 8.

Turmeric gleams

March natural gas futures were trading at ₹142.30 on MCX against the previous close of ₹141.70, up by 0.42 per cent.

On the National Commodities and Derivatives Exchange (NCDEX), April turmeric (farmer polished) contracts were trading at ₹18,800 against the previous close of ₹18,672, up by 0.69 per cent.

March cottonseed oilcake futures were trading at ₹2,688 on NCDEX against the previous close of ₹2,697, down by 0.33 per cent.

Source：businessline

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Ukadike Micheal

Economic

Forex

Despite some distance from its post-pandemic peaks, inflation still lacks a clear path towards the Federal Reserve's 2% annual target, as highlighted by the latest Consumer Price Index (CPI) report. Published on Tuesday, the report revealed mixed signals, with certain sectors showing progress while others experienced setbacks, contributing to an overall uncertain outlook for both inflation trends and the Fed's interest-rate trajectory in 2024.

The CPI for February indicated a 0.4% increase, slightly higher than January's 0.3% rise, and 3.2% higher than the previous year. The core CPI, which excludes volatile food and energy prices, also rose by 0.4%, matching January's pace, although the annual change fell slightly from 3.9% to 3.8%.

While inflation has declined from its peak of 9.1% in June 2022, it remains in the 3% range, making the final push towards the Fed's target elusive. This trend aligns with the Fed's cautious approach, characterized by a wait-and-see stance on interest-rate adjustments.

Analysts noted a nuanced interpretation of the CPI report, with improvements in some areas offset by persistent challenges in others. Core services prices moderated from previous surges, but overall, the report depicted a sideways movement rather than a significant acceleration or deceleration in inflation.

The Fed closely monitors the "supercore" subset of the CPI, which excludes housing costs from services prices. Although January's supercore inflation was alarmingly high at 0.9%, it moderated to 0.5% in February, albeit still elevated compared to historical averages.

Despite some moderation in specific components, other sectors continue to exhibit concerning inflationary pressures. Housing prices, while showing improvement, remained elevated in February, as did energy prices, particularly gasoline, which surged by 3.8%.

Market reaction to the CPI report was evident in interest-rate futures pricing, with reduced implied odds of rate cuts at upcoming Fed meetings. While June is seen as a likely starting point for rate reductions, uncertainties persist, reflecting the cautious and data-dependent approach of the Federal Open Market Committee (FOMC) members.

Looking ahead, the FOMC's policy statement on March 20 will offer insights into policymakers' views on inflation, the economy, and interest rates. Subsequent inflation data releases, such as the March figures in early April, will continue to shape market expectations and influence monetary policy decisions.

In summary, the latest CPI report underscores the challenges facing the Fed as it navigates uncertain inflation dynamics. While progress has been made, persistent inflationary pressures in certain sectors warrant continued vigilance and a prudent approach to monetary policy. The road ahead remains uncertain, highlighting the importance of data-driven decision-making and flexibility in responding to evolving economic conditions.

Source: Barrons

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Samantha Luan

Economic

Forex

The Japanese Yen (JPY) regains positive traction during the Asian session on Wednesday and moves away from the weekly low touched against its American counterpart the previous day. The outcome of Japan’s spring wage negotiations indicates that moar firms have agreed to the trade unions' wage rise demands. This comes on top of a report that the Bank of Japan (BoJ) is considering a March interest rate hike, which turns out to be a key factor that provides a goodish lift to the JPY. Apart from this, a modest US Dollar (USD) weakness exerts some downward pressure on the USD/JPY pair.

That said, the overnight dovish remarks by BoJ Governor Kazuo Ueda might have cooled bets for an immediate rate hike. Apart from this, a generally positive risk tone is holding back traders from placing aggressive bullish bets around the safe-haven JPY. Investors might also prefer to move to the sidelines ahead of next week's key central bank event risks – the highly-anticipated BoJ decision on Tuesday, followed by the outcome of the two-day FOMC policy meeting on Wednesday. This, in turn, warrants some caution before positioning for any further depreciating move for the USD/JPY pair.

Daily Digest Market Movers: Japanese Yen remains supported by positive news on wage hikes in Japan

Expectations that Japan's biggest companies will offer sizeable pay increases and clear the way for the Bank of Japan to end its negative interest rates as early as next week lend some support to the Japanese Yen.

In fact, Japan’s largest umbrella group for unions, Rengo, said that its affiliated members demanded an average wage increase of 5.85% this year, which, in turn, would mark the biggest increase in around 31 years.

Meanwhile, Toyota, GS Yuasa, Nissan Motor, Nippon Steel and Hitachi responded to the Union's wage hike demand in full, while Okuma Corp hiked wages by ¥15,960 vs. union demand of ¥18,215.

Japan’s Chief Cabinet Secretary Yoshimasa Hayashi said on Wednesday that he sees strong momentum for wage hikes and that it is important for wage hikes to spread to mid-sized, small companies.

According to people familiar with the matter, the assessment of BoJ officials is that the central bank is close to liftoff, regardless of whether the first interest rate hike since 2007 comes in March or April policy meeting.

BoJ Governor Kazuo Ueda said on Tuesday that the central bank will seek an exit from easy policy when achievement of 2% inflation is in sight, smashing hopes for an imminent shift in the policy stance next week.

Data released from the US showed that the headline Consumer Price Index (CPI) rose 0.4% in February, while the yearly rate came in at 3.2% as compared to January's final print and market expectations of 3.1%.

Annual Core CPI, which excludes volatile food and energy prices, increased 3.8% during the reported month, slightly below the January rise of 3.9% but was above consensus estimates for a reading of 3.7%.

The slightly warmer US consumer inflation figures boosted the US Treasury bond yields, which should act as a tailwind for the US Dollar and help limit any meaningful depreciating move for the USD/JPY pair.

Technical Analysis: USD/JPY bears have the upper hand, 100-day SMA and the 148.00 mark hold the key

From a technical perspective, spot prices struggled to find acceptance above the 100-day Simple Moving Average (SMA) and the 148.00 round-figure mark on Tuesday. The subsequent decline, along with the formation of a bearish double-top pattern in the vicinity of the 152.00 mark, or the YTD peak touched in February, suggests that the recent bearish trend might still be far from being over. Moreover, oscillators on the daily chart are holding deep in the negative territory and suggest that the path of least resistance for the USD/JPY pair is to the downside.

Any further downfall, however, is likely to find some support near the 147.00 mark ahead of the 146.80 region, representing the 38.2% Fibonacci retracement level of the December-February rally. Some follow-through selling will expose the very important 200-day SMA, currently pegged near the 146.25 region, which if broken decisively will be seen as a fresh trigger for bearish traders. The USD/JPY pair might then weaken further below the 146.00 round figure and accelerate the slide towards the 50% Fibo. level, around the 145.55-145.50 zone.

Source：FXStreet

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Ukadike Micheal

Economic

Stocks

Shares in Hong Kong continued their winning streak on Wednesday, marking the fourth consecutive day of gains. The Hang Seng index rose by 0.5 percent, buoyed by notable performances from key companies such as electric vehicle maker Li Auto, which saw a 4.2 percent increase, and Xinyi Solar, adding 3.8 percent, reflecting its robust start to the year with a staggering 58 percent increase since January 1.

Meanwhile, Japan's Topix experienced a slight decline of 0.3 percent. This dip comes amidst the conclusion of annual wage negotiations between major employers and unions in Japan, with companies like Toyota agreeing to the largest pay raises seen in 25 years. These wage increases are anticipated to help combat decades-long deflation and pave the way for the country's central bank to consider raising interest rates.

Analyzing the broader market trends, the benchmark indices for Asia's largest stock markets depict a mixed picture. While the Hang Seng index in Hong Kong saw a daily change of 0.6 percent, marking a year-to-date increase of 0.9 percent, the CSI 300 in China experienced a slight decrease of 0.6 percent, yet maintained a year-to-date growth of 4.2 percent. Conversely, Japan's Topix, despite its recent decline, still boasts a substantial year-to-date increase of 11.9 percent. The Kospi in South Korea and Nifty 50 in India also demonstrated varied performances, with the former recording a daily change of 0.4 percent and a year-to-date growth of 1.5 percent, while the latter experienced a decrease of 0.6 percent but maintained a year-to-date increase of 2.2 percent.

From a technical perspective, the market dynamics reflect a delicate balance between regional factors such as wage negotiations and broader economic indicators. The significant wage increases in Japan signal potential shifts in inflationary pressures and monetary policy decisions, which could ripple across global markets. Moreover, the divergent performances of key indices underscore the complexities of navigating regional economic landscapes amidst ongoing geopolitical tensions and macroeconomic uncertainties.

The recent movements in Asian stock markets underscore the nuanced interplay between local developments and broader market sentiments. While Hong Kong's sustained gains reflect investor optimism, Japan's wage negotiations add a layer of complexity to regional dynamics. As investors monitor these developments, a nuanced understanding of market fundamentals and geopolitical factors will be crucial in navigating the evolving landscape and identifying opportunities for growth and stability.

Source: Financial Times

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Ukadike Micheal

Forex

Economic

In January 2024, the estimated monthly real gross domestic product (GDP) exhibited a modest growth of 0.2%, a positive shift following a slight decline of 0.1% in December 2023. However, when considering the broader scope of the economy, the picture appears less optimistic, as real GDP is estimated to have contracted by 0.1% in the three months leading to January 2024, compared to the preceding three-month period ending in October 2023. January 2024 UK GDP Shows Modest Growth Amidst Sectoral Challenges_1

January 2024 UK GDP Shows Modest Growth Amidst Sectoral Challenges_1

Breaking down the components of GDP, the services sector emerged as the primary driver of the January growth, expanding by 0.2%. This growth, though encouraging on a monthly basis, did not translate into sustained improvement over the preceding three months, as services output remained stagnant during this period. Within the services sector, notable declines were observed in education, wholesale and retail trade, and finance and insurance activities, indicating areas of weakness that offset some of the positive momentum. January 2024 UK GDP Shows Modest Growth Amidst Sectoral Challenges_2

January 2024 UK GDP Shows Modest Growth Amidst Sectoral Challenges_2

On the other hand, production output experienced a decline of 0.2% in January 2024, mirroring its performance over the three-month period. The manufacturing sector managed to eke out a modest growth of 0.3% in the same timeframe, but this was overshadowed by declines in electricity, gas, steam, and air conditioning supply, as well as water supply and waste management activities.

Construction output offered a glimmer of hope, exhibiting a robust growth of 1.1% in January 2024 after a period of contraction. However, the overall trend for construction remained negative over the three months, with a decline of 0.9%, driven primarily by a decrease in new infrastructure projects.

Despite the month-on-month growth in January, it's crucial to note the broader context of economic performance. The tepid expansion in GDP, coupled with mixed signals across sectors, underscores the fragility of the recovery and the challenges that lie ahead. Moreover, the persistence of declines in key areas such as production and construction raises concerns about the sustainability of economic growth in the near term.

From a technical standpoint, the implications of these trends on the market are significant. Investors and analysts are likely to scrutinize the data for insights into sectoral performance and overall economic health. Industries reliant on consumer spending may face headwinds if services output remains subdued, while manufacturers and construction firms may struggle amidst ongoing uncertainties.

While the January uptick in GDP offers a glimmer of hope, the broader economic landscape remains clouded by uncertainties. Sustained growth will require concerted efforts to address structural challenges and support key sectors. As market participants navigate these challenges, a cautious approach coupled with strategic foresight will be essential to weathering the evolving economic environment.

Source: Office for National Statisitics (UK)

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Owen Li

Energy

Qatar's decision to increase its liquefied natural gas production capacity may help emerging Asian economies reduce their dependency on coal, resulting in short-term environmental gains, analysts say.

LNG is produced when natural gas is cooled, which shrinks the volume of the gas, making it easier and safer to store and transport over long distances.

The US, Qatar and Australia are the largest exporters of the commodity, considered a low-carbon alternative to crude oil and coal.

Last month, Qatar's Energy Minister Saad Al Kaabi announced plans to increase capacity by an additional 13 per cent on top of a previously announced expansion. The move aims to raise the nation's LNG output to 142 million tonnes per year by 2030, from its current 77 million tonnes.

"For Asia, Qatar's announcement is positive for LNG buyers … and helping guarantee a long-term future for LNG in emerging Asia," intelligence firm Rystad Energy said.

"From a price perspective, Qatari LNG is essentially future-proof with a large low-cost, low-emissions resource base that can prove profitable in any market situation, even under more aggressive energy transition scenarios," it added.

Price advantage

Qatar's LNG production costs range from $2 to $4 per million metric British thermal units, compared with $3 to $8 per mmbtu in US and $5-$10 per mmbtu in Australia, according to estimates by Rystad, Wood Mackenzie and the Oxford Institute for Energy Studies.

LNG prices in the Asian spot market dipped to their lowest in three years at $8.37 per mmbtu on March 1, down from $8.57 per mmbtu on February 20, according to Rystad Energy.

"There is still some optimisation activity under way in the Asian market with spot LNG prices still slightly above the $8 per mmbtu mark, maintaining at low levels not seen since 2021," Rystad Energy said.

"LNG players in the market will keep a keen eye on how LNG prices may evolve to optimise spot activity as winter draws to a close."

Asian spot LNG prices reached a record high of $56 per mmbtu in October 2021, largely due to concerns over winter supply shortages.

Emerging economies in Asia are aiming to increase the share of natural gas to reduce dependency on highly polluting coal amid an expected surge in power demand.

China, the world's biggest coal consumer, is projected to increase the use of natural gas in its primary energy mix to 12 per cent by 2030 from 8.7 per cent in 2020.

India, the second-largest coal consumer, aims to raise the share of natural gas in its total energy mix to 15 per cent by 2030, from about 6 per cent.

"[Qatar's] expansion plan is going to help the emerging economies, it's going to keep the prices balanced," Karthik Sathyamoorthy, chief executive of Atlantic, Gulf and Pacific LNG told The National.

The Singapore-based company, a subsidiary of US investment and development firm Nebula Energy, plans to develop LNG terminals in South and South-east Asia over the next few years.

The company purchased a 49 per cent stake in Vietnam's Cai Mep LNG terminal last week and aims to make a final investment decision on an import compound in Karaikal, a city on India's eastern coast, this year.

Mr. Satyamoorthy expects LNG markets to be oversupplied starting from 2026 or 2027, much sooner than market predictions of a surplus in 2030.

"That's going to keep the prices more attractive for buyers."

Countries like Vietnam and India, which heavily rely on coal, may increasingly turn to LNG for power generation as it becomes more affordable, Mr. Satyamoorthy said.

A pause on new LNG projects in the US made buyers question whether the market would become tight again. However, that concern was somewhat alleviated by the news of Qatar's additional expansion plans, he added.

Bridge fuel

Doha, which exports most of its LNG to Asia, has for years promoted natural gas as a "bridge fuel" towards net zero.

"This climate play is an overlooked and underappreciated aspect of Qatar climate diplomacy, as many emerging countries … are eager to 'divorce' from coal and establish strategic relations with Qatar," said Andrea Zanon, chief executive of WeEmpower Capital.

"Qatar will go the extra mile to help subsidise the natural gas cost, and thus reduce consumer price, by offering long-term contracts at special discounts," Mr. Zanon told The National.

However, some experts argue that it may hinder the shift towards renewable energy in the longer term by leading to a "lock-in" of infrastructure and investments related to fossil fuels.

China and India are planning to add about 268 million tonnes and 75 million tonnes in annual LNG import capacity over the next few years, according to Statista.

Although natural gas emits less carbon dioxide and fewer air pollutants compared to coal, methane leakage during extraction, processing, and transportation can offset these environmental benefits, Guy Prince, senior analyst at Carbon Tracker, told The National.

"This is bad news for the planet since methane is a far more potent greenhouse gas than carbon dioxide," Mr. Prince said.

Methane emissions are responsible for 30 per cent of greenhouse gas emissions, however, methane has more than 25 times the effect on climate change than carbon dioxide, according to the United Nations Environment Programme (UNEP).

The International Energy Agency has said that oil and gas companies, whose global income surged to almost $4 trillion in 2022, would need to allocate less than 3 per cent of their profits from that year to achieve a 75 per cent reduction in the industry's methane emissions.

Based on its previous aim of reaching 126 mtpa of LNG production by 2027, state-owned QatarEnergy planned to reduce its methane intensity to 0.2 per cent by 2025.

The company's goal is to achieve zero routine flaring by 2030 and have 90 per cent of its resources derived from gas by that year.

"It's hard to see how an oversupply of fossil fuels to the markets and resulting demand destruction will bring much benefit," Mr. Prince said.

Emerging economies seeking to capitalise on lower prices risk infrastructure and investment lock-in, delaying the transition to renewable energy sources like wind and solar, he said.

LNG pivot

Qatar is not the only country betting big on LNG as prices hover at record lows.

Saudi Aramco, the world's largest oil-exporting company, is in talks with companies in the US to build its LNG capacity, its chief executive said in a post-earnings call on Monday.

The company plans to increase its gas production by more than 60 per cent by 2030 compared with 2021 levels.

Most of the gas produced by Aramco will be used for power generation and industries within the kingdom, with some being utilised as feedstock for blue hydrogen, Mr. Amin Nasser said, adding that LNG capacity would be built mainly through outside markets.

Aramco is currently finalising customer offtake agreements to supply blue hydrogen to customers in Japan and South Korea, he added.

Last year, Aramco announced its first international investment in LNG, following the signing of agreements to acquire a minority stake in MidOcean Energy.

Adnoc, which has signed several long-term LNG agreements over the past few months, is building an LNG plant in Al Ruwais Industrial City in Abu Dhabi.