Emerging Asian bonds are becoming pricier, reducing their appeal compared to global counterparts if Donald Trump implements less severe tariffs than anticipated. Yield spreads for South Korea, the Philippines, India, China, Malaysia, and Indonesia are trading below their 12-month average, indicating higher valuations than other emerging markets like Colombia and Mexico.
Asia markets opened mixed following a stall in Wall Street's rally, with attention on the Bank of Korea's upcoming rate decision. U.S. inflation data aligns with the Federal Reserve's goals, suggesting stability in employment and prices, while the S&P 500's strong moving averages indicate solid market internals despite a slight downturn. Analysts are also exploring opportunities in international markets, citing U.S. stocks as relatively expensive.
A senior member of the Democratic Party for the People, Motohisa Furukawa, stated that the Bank of Japan is unlikely to make abrupt policy changes that would disrupt budget discussions. He emphasized that while the economy faces deflation risks, the central bank should avoid hastily raising interest rates during this critical period.
Mexico's economic outlook for 2025 has worsened amid concerns over potential 25% tariffs from US president-elect Donald Trump. Economists are revising growth forecasts downward, anticipating a fourth consecutive year of reduced growth and diminished foreign investment. Such tariffs could jeopardize nearly 11% of Mexico's GDP, according to Bloomberg Economics.
Australia's plans to overhaul the Reserve Bank, including a proposal to split its board, have been revived as the Labor government engages in last-minute talks with the Greens Party. This development follows the collapse of earlier negotiations, which had centered on the Greens' demand for immediate interest rate reductions, a move that would compromise the bank's independence.
Lombard Odier's Asia investment chief, John Woods, expresses caution regarding China's recent stimulus measures, which initially sparked excitement in the $10 trillion stock market. While some investors are eager to capitalize on the rally, others remain skeptical, fearing a repeat of past market false starts.
Nouriel Roubini is preparing for rising yields on long-dated US bonds, driven by Donald Trump's policies, including looser monetary policy and higher tariffs, which threaten price stability. He is positioning for a curve steepener, a strategy that benefits from widening gaps between long- and short-dated yields, often referred to as the "Trump trade."
French Prime Minister Michel Barnier faces a potential government collapse as the Socialist Party plans to vote against his minority administration, citing a lack of concrete proposals. With the far-right National Rally also signaling opposition, Barnier's coalition struggles to secure necessary support amid a contentious budget aimed at reducing a projected 6.1% deficit. An Ipsos poll indicates strong public backing for a vote of no confidence, complicating Barnier's efforts to maintain stability.
President-elect Donald Trump's proposed tariffs on imports from China, Mexico, and Canada could disrupt inflation and investment, potentially reversing progress made by the Federal Reserve. Economists predict an 8% increase in import prices, pushing headline PCE above 3%, while also widening the trade deficit as companies may front-load imports in anticipation of the tariffs.
Moldova has appealed for financial assistance from Western nations due to concerns that Gazprom PJSC may halt natural gas supplies to the breakaway Transnistria region. This pro-Russian territory relies on gas from Gazprom, which is transported through Ukraine, making it vulnerable as the transit agreement between Moscow and Kyiv nears expiration. A disruption in gas supply would significantly impact Moldova, as Transnistria generates electricity for the entire country.
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