25 March 2024

Global Market Wrap-up

Lots of surprises

KEY MESSAGE Global Markets Team (GMT)

We had a relatively peaceful FOMC meeting in March. The new economic projections Franco Hsu
foresee sustained above-trend growth and a record-low unemployment rate, leading to a no- Head of GMT
landing scenario. Despite concerns over inflation upticks, Powell maintains a cautiously francohsucuhkirs@gmail.com
neutral stance, offering relief to the market with the prospect of three cuts this year. The Fed
aims to transition to a less restrictive stance, potentially easing in June, but remains data- Gary Zhang
dependent amidst a tight vote margin. Head of GMT
garyzhangcuhkirs2022@gmail.com
The week in Europe is mixed with certainties and surprises. The SNB surprises markets
with a 25bps rate cut to 1.5%, aiming to control inflation and prevent franc appreciation. Samson Yau
Norges Bank maintains its 4.50% rate but hints at a potential autumn cut due to strong GMT Senior Analyst
inflation. The BoE holds rates at 5.25%, signaling a shift from hawkish to neutral, with samsonyaucuirs@gmail.com
expectations of three cuts starting in August.
Arieonna Dong
China's economy saw robust growth recently, with industrial output, investment, and
GMT Senior Analyst
retail sales data exceeding expectations. Despite challenges in real estate, fiscal policy
arieonnadongcuirs@gmail.com
efforts continued, focusing on infrastructure and efficiency. Government fund revenue
growth was tempered by sluggish land income, and expenditures also declined. Stanley Yuen
BoJ implemented expected NIRP changes, while focusing on maintaining JGB market GMT Senior Analyst
stability and gradually reducing purchases to address soaring public debt. Besides, stanleyyencuirs@gmail.com
dovish FOMC sentiment and concerns over JPY weakness persist, prompting market
Elaine Shi
speculation on potential FX intervention by the Japanese government.
GMT Analyst
Chart of the week: Asian FX are heading to their cycle troughs…again elaineshicuhkirs2022@gmail.com
90
2023 average = 100
USDCNH USDJPY Simone Liu
94 USD-Asia LY USD-Asia HY GMT Analyst
simoneliucuirs@gmail.com
98
Nathan Zhang
102 GMT Analyst
nathanzhangcuirs@gmail.com
106

110
Jul-22 Nov-22 Ma r-23 Jul-23 Nov-23 Ma r-24

Source: Refinitiv, CUIRS. Noted that Asia LY contains TWD, KRW, THB, MYR & SGD, while HY includes IDR, INR, PHP & VND.

Disclosures & Disclaimer Issuer of report:

This report is generated by the analyst at CUIRS Investment Research. CUIRS is a non-profit CUIRS Investment Research
student organizations aims to enhance the student’s investment research ability. This report is not an
investment recommendations and CUIRS is not responsible for any clients. View CUIRS Research Report at: 1
https://www.cuhkirs2022.com/
 25 March 2024

Contents

Market Overview 3

North America
United States: No-landing dot plot + Dovish Powell 4

Europe
Eurozone: idiosyncrasies among central banks 6

United Kingdom: BoE Holds the policy rates at 16y high of 5.25% 7

Oceania & Commodities

Australia: Tighter labour supply keep RBA on held 8

New Zealand: Continues to contract 10

Commodity: Gold fluctuate, ferrous heat up, and agricultural rise 10% YTD 11

North Asia
China: Muddling through 12

Japan: An end to an NIRP era 14

Korea: Shipments in March indicate a strengthening export outlook 16

Taiwan: Tame inflation expectation with off-cycle 12.5bps hike 18

ASEAN
India: Goldilocks mode switch on 19

Indonesia: Policy rate remain unchanged 20

Disclaimer 21

2
 25 March 2024

Market Overview

Foreign Exchange Spot 1w Change 1m change 3m change 6m change YTD change

G10
DXY 104.43 0.96% 0.45% 2.69% -1.09% 3.06%
EURUSD 1.0808 -0.74% -0.14% -1.87% 1.46% -2.09%
GBPUSD 1.2601 -1.06% -0.47% -0.79% 2.94% -1.02%
AUDUSD 0.6515 -0.69% -0.64% -4.18% 1.15% -4.36%
NZDUSD 0.5992 -1.53% -3.28% -4.83% 0.54% -5.17%
USDJPY 151.41 -1.57% -0.58% -5.94% -2.01% -6.85%
USDCAD 1.3604 -0.46% -0.90% -2.46% -0.89% -2.65%
USDCHF 0.8975 -1.53% -1.93% -4.67% 1.01% -6.25%
USDNOK 10.7559 -1.27% -2.32% -5.12% 0.02% -5.42%
USDSEK 10.5644 -1.92% -2.23% -5.32% 5.24% -4.65%
EM Asia
USDCNH 7.2761 -0.97% -1.02% -1.67% 0.31% -2.07%
USDHKD 7.8216 0.01% 0.01% -0.13% -0.01% -0.13%
USDTWD 31.965 -1.14% -1.41% -2.41% 0.52% -3.93%
USDKRW 1338.45 -0.64% -0.72% -2.66% -0.13% -3.76%
USDTHB 36.372 -1.64% -1.48% -4.76% -1.00% -6.14%
USDPHP 4.7365 -0.62% 0.82% -2.28% -0.99% -3.01%
USDMYR 1.3486 -0.82% -0.42% -1.84% 1.23% -2.10%
USDSGD 15780 -1.17% -1.20% -1.88% -2.57% -2.43%
USDIDR 83.425 -0.64% -0.69% -0.33% -0.58% -0.26%
USDINR 56.286 -1.35% -1.00% -1.57% 0.90% -1.60%
USDVND 24770 -0.19% -0.83% -2.10% -1.76% -2.02%

Global Equities Current Level 1w Change 1m change 3m change 6m change YTD change

Americas
Dow Jones 39475.90 1.97% 0.88% 5.59% 16.08% 4.74%
S&P 500 5234.18 2.29% 2.86% 10.09% 20.67% 9.74%
SOX 4908.26 3.16% 6.35% 18.76% 44.81% 17.55%
S&P/TSX Comp 21984.08 0.62% 2.67% 5.28% 11.03% 4.89%
IBOVESPA 127027.10 0.23% -1.85% -4.31% 9.58% -5.33%
EMEA
Euro Stoxx 50 5031.15 0.91% 3.25% 11.27% 20.73% 11.27%
FTSE 100 7930.92 2.63% 2.92% 3.03% 4.03% 2.56%
CAC 40 8151.92 -0.15% 2.33% 7.70% 14.43% 8.07%
DAX 18205.94 1.50% 4.52% 8.98% 18.18% 8.68%
Asia Pacific
NIKKEI 40888.43 5.36% 4.58% 22.96% 25.12% 22.19%
SSECI 3048.03 -0.22% 1.44% 4.43% -2.17% 2.46%
HSI 16499.47 -1.32% -1.35% 0.97% -6.94% -3.21%
HSCEI 5757.67 -1.08% -0.13% 4.89% -6.08% -0.19%
ASX 200 7770.55 1.31% 1.66% 3.59% 9.81% 2.37%
KOSPI 2748.56 3.06% 3.03% 5.73% 10.13% 3.51%
TAIEX 20228.43 2.77% 7.09% 14.90% 22.95% 12.81%
SPCNX NIFTY 22096.75 0.33% -0.52% 3.50% 12.31% 1.68%
JAKARTA COMP 7350.15 0.30% 0.75% 1.56% 5.03% 1.06%
FTSE/ BM KLCI 1542.39 -0.67% -0.43% 6.05% 6.85% 6.03%
STI 3217.97 1.42% 1.04% 2.47% 0.08% -0.69%

Source: Bloomberg, CUIRS Investment Research. As of 23 Mar 2024 3

 North America
25 March 2024

United States: No-landing dot plot + Dovish Powell

Over the week, treasuries richened 5-15 bps while S&P 500 +2.3% breaking 5,200 as another record high as a
relief rally post March FOMC. The 2024 dot marginally held at 3 cuts, while Powell downplayed the recent
inflation surprises in the press conference with the Fed now being concerned about overtightening risk, reassuring
investors that the rate cut trajectory is still on track.

Fig. 1: relief rally on FOMC Fig. 2: another record high on S&P 500
4.8 4.4 5280

4.75 5260
4.35
5240
4.7
4.3 5220
4.65
5200
4.25
4.6 5180

4.2 5160
4.55
US2Y US10Y 5140
4.15
4.5
5120

4.45 4.1 5100

03/18 03/19 03/20 03/21 03/22 03/18 03/19 03/20 03/21 03/22

Economic projections – hotter and longer: The new projections pointed to a no-landing scenario, with above-
trend growth expected in the next few years (2.1%, 2.0%, 2.0%) and unemployment rate staying at the record-low
4%. Core PCE this year was revised upwards to 2.6%. With hotter expectations, the Fed maintains its 2024 median
dot at 3 cuts (but the vote shifted from 11-8 in December to 10-9), but expects one less cut in 2025. Longer-run rate
is also revised above 2.5% for the first time since 2019 – an interesting development but probably still has room to
go given its divergence with market expectation. Right after the release (2pm EST), the curve twist steepened with
5y -4 bps vs 30y +5 bps, which felt reasonable in this “cut first, hold longer” narrative.

Fig. 4: longer-run rate revised upward, but still

Fig. 3: March FOMC Economic Projections
divergent from market
5.0

4.5
Fed longer-run rate projection
4.0
US OIS 5Y5Y 3.65

3.5

3.0
2.56
2.5

2.0

1.5

1.0

0.5

0.0
14 15 16 17 18 19 20 21 22 23

Press conference – bumpy disinflation does not change Powell’s mind: Powell did see the Jan/Feb inflation
uptick highlighting “a bumpy road” and the Fed are still seeking greater confidence, but he downplayed the
importance of the data due to seasonal factors and believes the Fed will achieve the confidence in rate cuts some
time this year. While his data dependency and cautiously neutral tone is largely the same as before while the post-
meeting statement was nearly identical to January’s, reiterating the commitment to likely 3 cuts this year does offer
some relief to the market, which saw some buy-the-news. Powell also mentioned tapering QT that should be “fairly
soon” to reduce the possibility of money markets experiencing stress.

4
 North America
25 March 2024

Fig. 5 : US5Y30Y – almost flat since hikes (20bps now) Fig. 6: Fed Balance Sheet (% of GDP) – still way to go

40
150

35

30
100
28.8
25
2011-19 avg: 21.5%
50 20

15

0 10

-50 0
Ma r-19 Ma r-20 Ma r-21 Ma r-22 Ma r-23 1994 1999 2004 2009 2014 2019

We see the Fed being increasingly concerned about overtightening, which explains Powell’s focus on a bigger
picture (i.e., lower bar for rate cuts) and an almost certain June cut. We think the key takeaway is the Fed trying to
move from restrictive to less restrictive, but settling in the “less restrictive” range (say low-4%) for longer given no
structural signs seen in 2023-24 that higher rates have led to broad slowdown. Market response also feels
reasonable – eventually the market is not as concerned about inflation figures themselves as Fed’s interpretation of
the figures. Investors are fine with the Fed displaying a not-care attitude towards the CPI surprises (similar to the
“transitory” narrative in 2021 in which the market continues to rally), and Powell also reiterated a stronger labor
market would not in itself be a reason to hold off from rate cuts, which explains the broad-based rally on
Wednesday (Dow +1.03%, Nasdaq +1.15%, Russell +1.92%) as the strong growth, lower rate narrative is most
bullish equities. Still, the tight 10-9 vote highlighted that any further surprises can still easily change the Fed’s
mind and now till June the Fed is more data dependent than ever.

While we expect the tailwind for the long end will be much weaker due to inflation reacceleration risk from
premature easing (the Fed could end up having to hold even longer) and continued revision of r* in play, the
frontend saw little downside now with the Fed put essentially in place. Powell signaled a QT decision “fairly soon”
without discussion of holding composition (Waller said he favoured a shift towards more short-term treasuries),
which is also long-end bearish. We drop our bearish bias but maintain steepener call (5s30s).

FX: DXY further rebounded to 104.4 (+0.9% over the week) despite Powell’s dovishness due to non-US factors.
SNB delivered a surprise 25bps cut to 1.50% (first among G10) on lower inflation forecast (in 1%-1.5% range).
UK inflation surprised on the downside (3.4%Y vs 3.5%e), with BOE turning around sharply (Bailey: “on the
way” to winning against inflation). BOJ meeting saw little surprise vs headlines in the earlier week (scrap
NIRP/YCC/overshooting commitment/ETF purchases; JGB purchases broadly the same as before). USDJPY saw
buy-the-news without further hawkish surprise that is enough to prevent investors from reentering carry trades
(although Ueda was less dovish than the market reaction appeared). USDJPY held marginally below 152 (the
intervention high in October). Broad weakness keeps US exceptionalism intact.

Equities: Equities saw broad-based rally (S&P 500 +2.3%, Nasdaq +3.0%, Russell +1.6%). For mega-cap,
Apple/Google headline on Monday extended AI rally (Apple in talks to let Google Gemini power iPhone AI
features), though Apple itself pulled back as it is under regulatory scrutiny again (accused of blocking rivals from
accessing hardware and software features). Nvidia (+7.4% over the week, no down week YTD) after it wrapped up
its GTC conference and UBS upgraded its price target from $800 to $1,100 on Friday.

5
 Europe
25 March 2024

Eurozone: idiosyncrasies among central banks

Switzerland: SNB surprises the market with an earlier rates cut. Surprising most economists, the Swiss
National Bank cut the policy rate by 25bps to 1.5% on Thursday 21st March 2024, being the first mover among the
world’s 10 most-traded currencies. We found two reasons behind the surprising move. Firstly, inflation has been
controlled under the target rate and the SNB now predicts inflation will average 1.4% this year, 1.2% in 2025, and
1.1% in 2026. The victory in disinflation provided confidence for the SNB to move before the Fed and ECB which
were suffering from sticky inflation. Secondly, policymakers try to prevent the franc from being overly
appreciated, which hurts the exports of Switzerland.
Even though the franc slipped around 4% versus the euro this year, it’s still 7% stronger in June 2022, just before
the SNB began rates hikes to support the currency to shield Switzerland from imported inflation. Meanwhile, the
SNB’s once-in-a-quarter rate-decision schedule put pressure on the policymakers to act before other major central
banks that have more time to lower rates with eight meetings per year. Therefore, given how overvalued the franc
is, we can see that it is a reasonable move for the SNB.
Norway: Norges Bank keeps interest rate unchanged, eyes autumn cut. Norway's central bank kept its policy
interest rate unchanged at a 16-year high of 4.50% on Thursday 21st March 2024, as expected. We still see a strong
inflation print in Norway, Governor Ida Wolden Bache said that the rate path we're presenting today indicates... an
autumn rate cut, most likely in September during a press conference. She also added that a second rate reduction
could follow by the end of March 2025.

Fig. 1: SNB cuts policy rate to 1.5% Fig. 2: USD/CHF

2.0 1.2
% %
USD/CHF
1.5
1.1
1.0

SNB policy rate

0.5 1.0

0.0
0.9
-0.5

-1.0 0.8
19 20 21 22 23 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Fig. 3: Switzerland inflation under control Fig. 4: Norway inflation rate

3.5 8
% %
7
3.0
6
Norway inflation rate
5
2.5

2.0
3

2
1.5 Switzerland CPI YoY
1

1.0 0
2022-01 2022-07 2023-01 2023-07 2024-01 13 14 15 16 17 18 19 20 21 22 23 24

6
 Europe
25 March 2024

United Kingdom: BoE Holds the policy rates at 16y high of 5.25%
The Bank of England Monetary Policy Committee members voted 8-1 to keep rates unchanged at their meeting on
Thursday 21st March 2024, with the two most ardent hawks dropping their support for hikes. The vote represented
the first time since September 2021 that no MPC member had supported a rate hike, indicating the
acknowledgment of restrictive monetary policy by the BoE and an easing monetary policy later this year. The
market responded to the decision as the pound slipped and bonds rallied, while pricing in three rate cuts starting
from August this year. While Governor Bailey said that not yet at the point where it can cut rates, markets priced in
around 80 basis points of cuts in 2024 compared to 75 basis points before the decision. We think that the first cut in
August is convincing, but we do not rule out the chance that the BoE start in June as the economy is slowing down
more severely, and the inflation and wage pressure are falling more quickly than expected.

UK Manufacturing PMI improved sharply from 47.5 in February to 49.9 in March, above the expectation of 47.8,
almost breaking a streak of 20 consecutive contractions. We think that the rally is because of the increasing
business confidence in the recovering economy and falling inflation with anticipation of rate cuts, prompting
factories to increase output levels and triggering optimism in the manufacturing sector despite elevated borrowing
costs. Therefore, we think that we can see a recovery in UK GDP next quarter.

UK inflation fell to 3.4% in February from 4.0% in January, marking the lowest level for two and a half years,
driven by cheaper food, restaurants and cafes. We see encouraging data on the easing inflation while service
inflation can still be sticky and need more data for the BoE to consider rate cuts in the summer.

Fig. 1: The Pound fell after the BoE decision Fig. 2: Gilts gained after the BoE decision

0.9 1.33 6 5
EUR/GBP %
%
1.3 5.5
0.89 GBP/USD 4.6

1.27 5
0.88 4.2
1.24 4.5
0.87 3.8
1.21 4

0.86 2-year bond yield 3.4

1.18 3.5
10-year bond yield

0.85 1.15 3 3
Jan-23 Ma r-23 Ma y-23 Jul-23 Sep-23 Nov-23 Jan-24 Ma r-24 Jan-23 Ma r-23 Ma y-23 Jul-23 Sep-23 Nov-23 Jan-24 Ma r-24

Fig. 3: UK PMI improved in March Fig. 4: UK CPIH fall in February

60 12.0

58
10.0 % YoY
56
8.0
54

52 6.0 UK CPI

50
4.0
48
2.0
46

44 Service PMI 0.0

42 Ma nufacturing PMI
-2.0
40 Ma r Ma r Ma r Ma r Ma r Ma r Ma r Ma r Ma r Ma r
Jan-23 Ma r-23 Ma y-23 Jul-23 Sep-23 Nov-23 Jan-24 Ma r-24 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

7
 Oceania
25 March 2024

Australia: Tighter labor supply keep RBA on held

The Reserve Bank of Australia (RBA) left its cash rate unchanged at 4.35% at its March meeting, in line
with market expectations. The RBA also continued to note that inflation is still too high. Although demand has
weakened, which should help to bring about disinflation, the key, in our view, was a focus on some risks related to
the supply-side of the economy, particularly weak productivity and strong unit labour cost growth.
Fig. 1: Growth is sluggish due to soft consumption... Fig. 2: …but this is needed for disinflation

20% 11%

CPI YoY (monthly)

9%
15% GDP q/q GDP y/y CPI YoY (quarterly)

7% RBA target range

10%

5%

5%
3%

0%
1%

-5% -1%
90 94 98 02 06 10 14 18 22 15 16 17 18 19 20 21 22 23 24

In its short post-meeting Statement, the RBA noted “[the current] level of wages growth remains consistent with
the inflation target only on the assumption that productivity growth increases to around its long-run average”. The
challenge here is that, while wages growth lifting to around its current rate would not typically be worryingly high,
it has coincided with dismal productivity outcomes in Australia.

On productivity, GDP per hour worked (measured labour productivity) was down by 5.5% from its Q1 2022 peak
in Q4 2023. While GDP per hour worked has risen in the past two quarters, at -0.4% y/y in Q4 2023, it is still
below its long-run average (c1.7% y/y average between 1990 and 2015). As a result, and as the RBA noted today,
“growth in unit labour costs remains very high”. Nominal unit labour costs lifted by 6.6% y-o-y in Q4 2023, which
is far too high to be consistent with the RBA's 2-3% inflation target.
Fig. 3: Weak productivity has seen a sharp rise in
Fig. 4: Business cost pressure remain elevated
labour cost growth
15% 5%
Business Labour Cost & Prices
y/y

10%
3%

5%

1%

0%

-1%
-5%
Q/Q Y/Y Labour Cost Price

-10% -3%
90 94 98 02 06 10 14 18 22 14 15 16 17 18 19 20 21 22 23 24

The RBA’s monetary policy tightening to-date has seen demand in the economy weaken, which is helping the
disinflation process. But, the process still appears gradual, partly reflecting the supply-side risks noted above, and
with inflation still too high, still warrants a cautious approach.

The RBA’s assessment is that aggregate demand still exceeds aggregate supply in the economy, and that the risks
to getting inflation down are “finely balanced”. Though, in the press conference, Governor Bullock noted “we need
greater confidence that inflation will return to target”. When asked if the RBA’s tightening bias has been removed
today, the Governor stated that the Board “can't rule out either [rate hikes or cuts]”.

8
 Oceania
25 March 2024

Employment surprised the market to the upside, with 116k jobs (BBG consensus: 40k), and the
unemployment rate fell sharply in the month, back down to 3.7%. Looking through the bumps, employment has
averaged growth of 23k jobs a month over the past three months. The unemployment rate has now lifted from its
low of 3.4% in October 2022 to its current level at 3.7%. The jobs market has been loosening, but only very
gradually. This has been our base case, and today’s figures help to support this view.
Fig. 6: …which supported a sharp fall in
Fig. 5: Employment rose in Feb...
unemployment rate to 3.7%
500 8%

400
7%
300

200
6%
100

0 5%

-100
4%
-200 Employment monthly chg
Unemployment rates
6mma
-300 3%
18 19 20 21 22 23 24 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Given the supply-side challenges facing Australia, the last leg of the disinflation process – getting inflation back to
the RBA’s target mid-point of 2.5% – may prove to be challenging. There are essentially two ways to ensure
inflation returns to target. One, is for demand to remain weaker for longer. The other, is for the supply-side to
improve. As such, the best thing for fiscal policymakers to focus on would be supply side reform that lifts
productivity. But, at this stage, it is unclear what fundamentals would drive a pick-up in productivity from here. To
conclude, Given the challenging disinflation process, we don't see room for RBA to cut in 2024.

FX: Less bearish. The hawkish changes on RBA MPC have been overshadowed by the dovish changes, judging
from the fall in front-end yields and AUDUSD. The key change lies within the forward guidance. The RBA noted
that “the Board is not ruling anything in or out” compared to “a further increase in interest rates cannot be ruled
out” in February. The tone of the press conference still reflects the desire for maximized flexibility. Governor
Bullock did not push back against rate cut expectations. In addition, household consumption growth was described
as “particularly weak”, compared to “weak” in February.

Going forward, we have turned less bearish AUDUSD as hawkish Fed repricing should gradually become a less
potent headwind. Markets have become a lot less complacent about smooth disinflation and hedges for a hawkish
Fed are well-owned. In addition, hawkish repricing has been driven by stronger-than-expected growth, explaining
the resilience in global equities. These help to explain why the USD has underperformed recent moves in US rates.

Fig. 8: AUD ToT have collapsed as iron continues to

Fig. 7: Fed’s “no-landing” risks are well-owned
price out optimism
12 5.5%
70 160
Pricing of times
of 25bps cut 65
10 150
5.3% AUD Terms of Trade
60
8 Iro n Ore 1st Future, rhs 140
5.1% 55
130
6 50
4.9% 120
4 45
110
40
4.7%
2 Dec24 SOFR pricing, rhs
35 100
CME SOFR 3m
0 4.5% 30 90
Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24

However, we think two sticky headwinds will constrain the recovery. For one, Australia-US front-end yield
differentials will move in favour of the USD remains unchanged. And secondly, there has been a steep decline in
Australia’s terms of trade linked to lacklustre demand growth prospects for Australia’s key commodity exports.
Indeed, China’s steel market remains oversupplied. And there is little hope for a robust recovery in property new
starts, given the deep contraction in property sales, elevated property inventory, and subdued credit growth. 9
 Oceania
25 March 2024

New Zealand: Continues to contract

New Zealand’s economic contraction continued in Q4 2023. This marked the fourth out of the past five quarters
where GDP has contracted outright. In Q4 2023, GDP fell by 0.1% q/q and 0.3% y/y, a weaker print than the
RBNZ had expected. While headline shows the economy is certainly weak, it is not all bad news when looking at
the GDP components. The main drag in the quarter came from inventories (on the expenditure side), and wholesale
and retail trade (on the production side). However, some components, such as household consumption expenditure,
were stronger-than-expected in the quarter, with services industries and net exports also supporting GDP.

Subdued demand has occurred largely in response to the RBNZ’s hefty monetary policy tightening. The RBNZ’s
525bp of tightening delivered is continuing to transmit through the economy, constraining per-capita activity,
which has fallen outright for five consecutive quarters, down by 3.1% y-o-y in Q4 2023. An offsetting factor,
supporting aggregate GDP, has been strong migration-led population growth.

More-timely indicators of economic activity suggest some improvement in economic activity since the beginning
of the year. Readings from consumer sentiment, PMI and PSI data have improved, albeit to a still quite-subdued
level. Today’s GDP print suggests that the disinflation process is still being helped along by weak demand.
Nonetheless, it also highlights some of the risks.
Fig. 2: Positive contribution from service partially
Fig. 1: GDP fell slightly in 2023 Q4
offset weakness from goods
8%
240
2010 1Q = 100
220

200 Goods Service

4%
180

160

140
0%
120

100
Q/Q Y/Y

-4% 80
00 02 04 06 08 10 12 14 16 18 20 22 10 11 12 13 14 15 16 17 18 19 20 21 22 23

One, is the constrained supply-side of the economy. Similar to Australia, it appears that New Zealand’s
productivity has been dismal. In Q4 2023, employment lifted by 0.4% q/q and 2.4% y/y, and hours worked rose by
0.8% q/q and 1.5% y/y. Another is the momentum in services activity. New Zealand’s disinflation to-date has
been led by goods and tradables inflation, with domestic inflation proving relatively more persistent, driven by
services. In contrast to headline GDP, services activity has lifted by 1.4% in the past three quarters, partly
explaining why bringing down domestic and services inflation may still be a challenge for the RBNZ. We see the
RBNZ to cut cash rate in Q4 2024, following inflation falling back into its 1-3% target band. The fall in inflation,
strong population growth, and prospect of interest rate cuts are likely to support a recovery this year.

Fig. 3: China dairy demand remain subdued Fig. 4: Market see more probability for RBNZ to cut

250% 60
y/y NZ Dairy export to China, 3mma bp AUD Dec24 implied hike/cuts
200%
30 NZD Dec24 implied hike/cuts
China Dairy Import, 3mma

150%
0

100%
-30
50%

-60
0%

-90
-50%

-100% -120
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Ma r-24
10
 Oceania
25 March 2024

Commodity: Gold fluctuate, ferrous heat up, and agricultural rise 10% YTD
The prices of ferrous futures contracts are heating up, but the stability of the upward trend remains uncertain,
pending demand recovery. With the decline in iron ore and coke prices, steel mills have started to generate profits,
leading to increased production and a rise in molten iron output. The daily average output of molten iron is 2.2139
million tons, with an increase of 0.57 million tons compared to the previous period. Steel mills in North China,
Southwest China, and Central China have shown a higher rate of resumption, indicating a potential further increase
in molten iron production. However, considering the pressure from steel inventory and the moderate resilience of
demand, it is expected that the increase in molten iron will be limited. Social inventory remains high, and demand
and resumption rates are still slow. Moreover, prices are much lower than the same period last year. Therefore, in
the absence of significant changes in the underlying fundamentals, the market is still waiting for the steel industry
to navigate through the transitional phase of structural transformation.

The upward momentum of gold prices has seen a slight slowdown, but market optimism continues to support the
potential for future gains. After reaching a new high of $2,225.3 per ounce in COMEX gold futures on Thursday,
March 21, the closing prices revealed a downward trend, fluctuating between a 0.3% and 0.8% decline. However,
this does not affect market expectations for the gold trend. IG Market Strategist Yeap Jun Rong pointed out that
upcoming rate cuts typically support gold prices, and once implemented, they could provide a bottom for gold.

International cocoa prices continue to surge. Data shows that on March 22nd, US ICE cocoa futures reached a
historic high of $8,960 per ton during trading. By the end of the day, the year-to-date increase had surpassed 100%,
reaching 111.44%. According to a report by First Financial, the regulatory body of Ivory Coast, the world's largest
cocoa producer, suspended forward sales for the 2024/25 cocoa season. The Ivorian government reported that from
October 1st to January 21st of this year, cocoa shipments from farmers to ports decreased by 37% compared to the
same period last year. It's worth mentioning that in addition to cocoa, other major agricultural commodities such as
lean pork, orange juice, palm oil, cattle, and cotton have all seen price increases of over 10% so far this year.

Fig. 1: Gold price momentum has slowed down but

Fig. 2: Ferrous futures have experienced an uptrend
still has upward potential.
1.5% 2.0%

1.0% 1.0%

0.5% 0.0%

0.0% -1.0%

-0.5% -2.0% Iro n Ore Change rate MA5

COMEX Gold Change rate MA5 Rebar Futures Change rate MA5
China Gold Change rate MA5 Hot-Rolled Coil Change rate MA5
-1.0% -3.0%
Jan-01 Jan-15 Jan-29 Feb-12 Feb-26 Ma r-11 Dec-29 Jan-12 Jan-26 Feb-09 Feb-23 Ma r-08 Ma r-22

Fig. 3: Cocoa leads the surge in agricultural futures,

Fig. 4: Ferrous futures remain lower than the last year.
with year-to-date gains exceeding 10%.
500 12000 1,050

1,000

400 950
9000
900
300
850
6000
800
200
750
CME Live Cattle Future close price (LS) 3000 700 2024 2023
100
NYBOT Frozen Concentrated Orange Juice Future close
price (LS) 650
NYBOT Cocoa Future close price (RS)
600
0 0
Jan Feb Ma r Apr Ma y Jun Jul Aug Sep Oct Nov Dec
11
Jan-02 Jan-16 Jan-30 Feb-13 Feb-27 Ma r-12
 North Asia
25 March 2024

China: Muddling through

Economic data for January and February exceeded market expectations: large-scale industrial added value
grew by 7% yoy; national fixed-asset investment grew by 4.2%; and total retail sales of consumer goods
increased by 5.5%. Under the policy tone of "sustained engagement" in overall volume and "focused effort" in
industrial sectors, industrial manufacturing will become an even more crucial handle for stabilizing the economy
this year. Looking at specific sectors:

1. Industrial: In January, the month-on-month growth rate of industrial production reached 1.16%, the fastest for
the same period historically, even though the manufacturing PMI production index was only 51.3%.

2. Manufacturing: High "new quality productivity" content. From January to February 2024, the growth rate of
manufacturing investment reached 9.4%, the highest in nearly 15 months, which seems to diverge from the
signals sent by the manufacturing PMI. The core factor driving the increased investment growth rate in
manufacturing is the development of "new quality productivity," with the main sectors of manufacturing
investment (electrical machinery, electronic equipment) performing significantly better.

3. Infrastructure: A slight cooldown in the "headwind situation." From January to February 2024, the growth
rate of broad infrastructure investment was 8.9% (compared to 10.7% in December 2023), showing a decline
from the previous value. The overall cooling of broad infrastructure investment was mainly due to a
significant decrease in the growth rate of investment in water conservancy, environmental, and public facility
investments.

4. Real Estate: The decline marginally narrowed but was not enough to stabilize. From January to February
2024, cumulative real estate investment decreased by 9.0% year-over-year, narrowing from the monthly year-
over-year decline at the end of last year. Development funds for real estate enterprises decreased by 24.1%
year-over-year in January and February, and insufficient funding may be one of the pressures on the recent
slowdown in construction work.

5. Consumption: The vibrant consumer activity observed during the spring season was not mirrored in the retail
sales data. The festive spending during the Spring Festival did not spur the overall retail sales data at the
beginning of the year to exceed expectations. The retail sales growth of 5.5% year-over-year for January-
February 2024 aligns with trend levels, while structurally, it continued the pattern of "travel driving growth,
discretionary spending remaining flat, and real estate dragging down," indicating that consumer sentiment
towards spending outside of holidays remains subdued. Notably, the automotive sector may continue to
"exchange lower prices for volume," while holiday price increases have boosted retail sales of food and fuel.

Fig. 1: FAI y/y and breakdown Fig. 2: China is now at bottom of cycle, we think.
40%
40%

30% FAI, YTD

30%
Industrial Inventory
20%
20% Retail Sales

10%
10%

0%
0%
Total FAI
-10% Ma nufacturing
-10%
Infrastructure
Real Estate
-20%
-20%
16 17 18 19 20 21 22 23 24
15 16 17 18 19 20 21 22 23 24

The cumulative y/y growth rate of general public budget revenue for January-February was -2.3%, with the
fiscal revenue and expenditure gap setting a new historical record, confirming the continued effort in fiscal policy.
Besides "subtracting" from income and "adding" to expenditures, the fiscal expenditure side also engaged in its
own "addition and subtraction"—increasing in infrastructure, education, and science and technology spending, and
decreasing in health and wellness spending. 12
 North Asia
25 March 2024

Specifically, despite the negative growth, personal income tax, export tax rebates, and real estate-related taxes were
disrupted by the Spring Festival. The year-over-year growth rate of export tax rebates cooled significantly from
141.7% in December 2023 to 23.9% in January-February 2024. Unlike the cooling of export tax rebates, real
estate-related taxes generally heated up.

• General Public Budget Expenditures: "Enhancing efficiency" is underway, as is the process of "addition and
subtraction." The year-over-year growth rate of general public budget expenditures for January-February was
6.7%, with the intensity of spending significantly higher than the same period last year, completing 15.3% of
the annual budget and setting a new historic high for the same period. A detailed look at the fiscal expenditure
data reveals a clearer intention to "enhance efficiency." Infrastructure spending on the fiscal side continued to
maintain high intensity, with a year-over-year growth rate of 17.9% for January-February.

• Government Fund Revenue: The turning point for land transfer income has yet to emerge. The year-over-year
growth rate of government fund revenue for January-February was 2.6%, with its "main component," land
transfer income, recording a growth rate of 0.0% (compared to 1.8% in December 2023).

• Government Fund Expenditures: The significant negative turn is largely influenced by the slow issuance of
special bonds. Contrary to the positive growth of government fund revenue, government fund expenditures saw
a significant decrease, dropping from a 24.2% growth rate in December 2023 to -10.2% in January-February.
Fig. 3: Revenue is subdued with gloomy sentiment Fig. 4: Fiscal policies become more proactive
40% 40%
General Budget Revenue, YTD y/y
Central Level 30%
30%

20%
20%
10%
10%
0%

0%
-10%

-10% -20% General Budget Expenditure, YTD y/y

Central Level
-20% -30%
15 16 17 18 19 20 21 22 23 24 12 14 16 18 20 22 24

The PBoC has been keeping the USDRMB stable by setting the USDCNY fixing at around 7.1 since the last
year end (Fig. 5). Nevertheless, the pressure on RMB has been built over the past few days, in our view, given that
1) Weak JPY after BoJ; 2) Strong US data; 3) Surprising SNB cut; 4) Rising concern of potential tariff increase; 5)
PBoC stated that there’s room for RRR cut.

The hurdle for the PBoC to allow the fixing to move higher into the summer will not too much. USDCNH spot
could test 7.3 again, but USDRMB is going to fluctuate within the 7.1-7.3 range before Fed cuts, in our view. A
bigger move to break 7.4 would need much larger catalyst for example, USDJPY breaking above 155, and/or more
concrete developments in US-China tariffs. Seasonality-wise, the effect of dividend outflows will kick in around
May, hence the flows in the next couple of months would be a bit challenging.
Fig. 5: RMB is currently under great pressure Fig. 6: Dividend seasonality could add more pressure
80
Bank net FX settlement on behalf of client
7.3

50
7.1

20
6.9

PBoC CNY fixing

Upper Band -10
6.7
Lower Band
USDCNY
USDCNH Goods Income
Services Dire ct Investment
6.5 -40 Portfolio Investment Other Investment
Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 19 20 21 22 23 24
13
 North Asia
25 March 2024

Japan: An end to an NIRP era

BoJ delivered the NIRP as the market had broadly expected. Out is the negative interest rate policy (NIRP).
The BoJ, too, changed the structure of short-end rates. The tiering system of bank reserves has been dropped, and
excess reserves are now renumerated at 0.1%, effective 21 March. The new, main policy rate is the uncollateralized
overnight call rate, which stays between 0.0% and 0.1%. The BoJ also fully dismantled the YCC mechanism for
10y JGBs. Still, the current pace of JGB purchases of around JPY6trn/month is to continue for the time being. On
non-JGB assets, purchases of ETFs and J-REITs were discontinued, while corporate bond purchases are to be
gradually reduced and eventually ended a year later. Finally, the inflation overshoot commitment regarding the
monetary base was removed, as the BoJ now sees the price stability target within reach.

Markets appear interested in how fast the BoJ might cut back its JGB purchases and run off its balance sheet, the
BoJ’s priority, in our view, is to maintain stability of the JGB market. We think this is understandable, given that
the country’s public debt has snowballed to more than 260% of GDP. We expect the BoJ to dial back its JGB
market presence and shrink its balance sheet to the extent that it can do so without destabilising long-term interest
rates. A footnote to the statement noted “the amount of JGB purchases is currently about JPY6trn per month" with
an apparent view to reassuring markets that "discontinuity" will be avoided. However, we expect the pace of
purchases to be adjusted over time as dictated by global financial market conditions.
Fig. 1: Spring wage negotiation support BoJ to deliver Fig. 2: Net JGB purchases under spotlight now
9% 24

BoJ JGB Gross Purchase (JPYtrn)

19
7% Demand Actual
Net Purchase (3mma)
5.85%
14
5.28%
5%
4.49%
9
3.58%

3%
4

1% -1
89 93 97 01 05 09 13 17 21 12 14 16 18 20 22

FX: Selling Yen with tail-risk of hawkish BoJ fading away. The JPY weakened with the announcement. Some
may say this is a classic ‘buy the rumor, sell the fact’ – which was also what happened the last time the BoJ raised
rates in 2006-07, which we think the comparison are not entirely justified. First, There was not much buying in the
first place. USD-JPY only fell by c2.5% between 1 March and 11 March and then started rebounding after US CPI
on 12 March. The hawkish repricing of the Fed is overshadowing the BoJ.

There are also important differences from the 2006-07 cycle this time around: 1) higher wage growth and more
sustainable inflation; 2) a more undervalued JPY – prompting MoF vigilance and leading to J-curve effects in the
BoP; 3) a likely shorter waiting time to the Fed’s rate cuts (back then the Fed only started cutting 14 months after
the first BoJ hike).
Fig. 3: USDJPY at multi-year high Fig. 4: Speculators rebuild short JPY positions
160 15 Thousands of

Asset Manager & Institution

150 10 Leveraged Funds
USDJPY Speculative
140 5 Long JPY

130 0

120 -5

110 -10
Short JPY

100 -15
Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 16 17 18 19 20 21 22 23
14
 North Asia
25 March 2024

From our perspective, the slightly dovish FOMC with better growth expectations better floor the greenback,
triggering the broad-base softness in Asian FX - considering the lack of yield advantages. The upward revision of
PBoC USDCNY fixing strengthens the trend, with THB & KRW leading the weakness. Though there's no clear
statement about CNY fixing revision, the market suspects it was related to the recent JPY weakness.
In addition, MoF minister Suzuki Shunichi recently refrained from commenting on the possibility of FX
intervention (when USDJPY reached 151). We think this could partially suggest that the Japanese government has
a higher tolerance for ultra-weak JPY compared to 2022-23. However, the MoF is still likely to step into the market
when JPY is undervalued - compared to other Asian FX, and the statement of “Yen weakening is not in line with
fundamentals” from Vice Finance Minister of international affairs Masato Kanda again reminds market the risk of
MoF FX intervention.
Our base case is for the JPY to recover gradually later this year, but we acknowledge the risk is tilted towards a
weaker JPY than our forecast (2024YE: 135). Local outflows – retail investors buying foreign equities through
NISA, domestic banks buying foreign bonds – have also been undermining the JPY, on top of carry trades by
global investors (speculative positioning, JPY bond issuance by foreign companies).

Fig. 5: US-JP yield spreads drive JPY Fig. 6: NISA outbound investment continues
50 20 Japanese retail outbound equity investment
Chg in US-JP 10y
govt spd (bp) USDbn

30
since 2014 (weekly) 10
Since 2023 (weekly)
10
y = 3.778x - 1.1738 0
R² = 0.2645
-10 y = 3.7x - 0.0876
R² = 0.3017
-10
-30
Chg in USD-JPY
DTC Investment Trust Others Equity
-50 -20
-10 -8 -6 -4 -2 0 2 4 6 8 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24

Rates: BoJ bond operation shifting back to a quantity target rather than a price target. For many years, the
BoJ has been buying JGBs through two different methods: competitive auction method and the fixed-rate method.
For the former, at scheduled auctions, the BoJ accepts bids starting with the highest yield, followed by the second-
highest until the amount set in advance is reached. For the latter, the central bank opts for a yield target and buys as
much government bonds at that level. Through both methods, the central bank’s ownership of JGBs has surged
from 7% in 2010 to 52% currently, which affects the efficient functioning of the domestic bond market.

At the latest policy meeting, it removed the reference yield for 10Y JGBs for its fixed-rate bond buying, and stated
that it will keep its bond buying quantity largely similar to before. In the latest quarterly schedule of outright
purchases of JGBs, which was also released with the policy rate announcement, the monthly frequency of bond
buying operations was left unchanged, but the upper-bound of the planned purchase amount was lowered across all
tenors, most notably at the longer-end of the curve.

We believe this is in line with the BoJ’s shift in policy preferences, with the central bank prioritising policy
sustainability and bond market functioning, as it has been gradually phasing out intervention in the bond market.
We expect further phasing out of bond market intervention, beginning with a further reduction in scheduled bond
purchases. Bond market intervention will likely be used to limit volatility on JGBs rather than dictate the absolute
level of yields.

15
 North Asia
25 March 2024

South Korea: Shipments in March indicate a strengthening export outlook

According to data released on March 21st, South Korea's outbound shipment in the first 20 days of March reached
$34.13 billion, +11.2% YoY (-7.9% YoY for the same period in February). The monthly exports have maintained
an upward trajectory for the 5th consecutive month through February. Imports decreased to $34.84 billion during
the 20-day period of March, -7.9% YoY (-19.2% YoY for the same period in February), resulting in a trade deficit
of $711 million.

Notably, the semiconductor shipment is leading South Korean economy’s export recovery, verified by the
semiconductor shipments increasing 46.5% from the first 20 days of March in 2023, after a 39% YoY rise in
February 2024. The automobiles shipment saw a slide of 7.7%, and oil products saw marginal declines, there was
growth in shipments for steel products, auto parts, mobile devices, and precision machinery.

In terms of geographical exposure, the U.S. drove a growth in South Korea's exports, increasing by 18.2%.
Shipments to Vietnam saw a rise of 16.6%, while exports to China grew by 7.5%. However, shipments to Japan
declined by 6.8%. In the short term, considering that the United States and China together constitute xx% of South
Korea's export share, the increase in export data may reflect the relatively robust economic performance of the
United States and the yet-to-be-seen potential demand risks stemming from economic uncertainties in China.
Additionally, the decline in prices of DRAM and Nand, coupled with a significant year-on-year increase in South
Korea's semiconductor exports for the first 20 days of March, contributed to this growth.

Fig. 1: Korea's exports poised to gain robust Fig. 2: China and U.S. Spearhead South Korean Exports
momentum

1Q 2022 16.8

2Q 2022 14.6
China
3Q 2022 10.7
19.5%
4Q 2022 5.8 Others

1Q 2023 -0.4 41.3%

U.S.
2Q 2023 -4.1
19.4%
3Q 2023 -6.4
YOY difference in export
4Q 2023 -4.7 leading index 9.1%
10.7%
1Q 2024 -1.5 Vietnam EU
-10 -5 0 5 10 15 20

Global chip sales resume growth, signaling a rebound in demand. We are currently located in the expansion
phase of the global technology cycle. With the catalyzing effect of AI emerging technologies, sparked by the surge
in LLM, overseas clients are gradually destocking, indicating a resurgence in semiconductor demand and reversing
the year-on-year decline sustained for 15 months. According to the Semiconductor Industry Association, global
semiconductor revenue recorded its first 5.3% year-on-year increase in November 2023, reaching $48 billion,
marking the onset of the current global semiconductor upcycle. South Korea's memory-chip exports began to pick
up in October 2023, registering a 1% increase compared to the previous year, following an 18% decline in
September, as per data released by the Trade Ministry. This uptick in memory chip exports represents the first
growth in 16 months, providing further evidence of the revival in demand for the nation's key products.

16
 North Asia
25 March 2024

Fig. 3: Global semiconductor sales resume growth, Fig. 4: South Korea's memory-chip exports rebound,
indicating a resurgence in demand signaling a positive outlook for the economy

35.0% 30%
Global semiconductor industry sales YoY South Korea's memory-chip exports changes YoY
25.0%

0%
15.0%

23

23
23

3
2

3
2

23

23
3
3

l-2
-2

r-2

-2
-2

-2

-2
-2
n-

n-
b-

g-

p-
ar
ct

ct
ov

ec

ay

Ju
Ap
Ja

Ju
Fe

Au

Se
O

O
M
N

M
5.0%
-30%

-5.0%

-60%
-15.0%

Total memory DRAM Nand

-25.0%
Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 -90% Memory MCP Memory MCO

The surge in optimism towards AI catalyzed a rally in the semiconductor sector, propelling a significant
uptick in the KOSPI. On March 21, the KOSPI index concluded at 2,754.86, exhibiting a substantial upsurge of
64.72 points (or +2.4%) compared to the preceding day's closure. Moreover, the MSCI Asia Pacific Index
escalated by as much as 2.2% on March 21, marking its largest increase since November 15, with Taiwan
Semiconductor (+3.8%), Toyota Motor (+3.4%), and Samsung Electronics (+2.7%) being the primary contributors
to this advancement.

In addition to the FOMC this week maintaining the possibility for three interest rate cut this year, the robust
performance of computer memory chip manufacturer Micron Technology buoyed the South Korean chip stocks.
Beside Samsung Electronics rising around 3%, SK Hynix surged throughout the day, surpassing 8%, reaching its
highest level in a week. For the second fiscal quarter of Micron Technology, ending February 29, Micron's revenue
surged by 58% to US $5.82 billion. Micron’s shares soared by 14% to $109.85 this Thursday, marking the most
significant single-day leap since December 22, 2011, and attaining a record peak. This surge propelled Micron's
year-to-date gain to 29%. The fervor surrounding artificial intelligence is also evident, as semiconductor
connectivity technology company Astera Labs skyrocketed by 72% on its first day of trading. The buoyant
sentiment towards artificial intelligence is anticipated to drive short-term gains for the South Korean
semiconductor sector, although the long-term outlook hinges on how inventory levels impact order volumes.

Fig. 5: Micron Technology‘s performance surpassing Fig. 6: MSCI APAC Index achieving the largest increase
expectations drives a surge in the Asian tech. sector since 15th Nov. 2023

MS CI International All country Asia Pacific Price Index (LHS)

Micron Technology, Inc. (MU)(RHS)
180
544 60

542 175 MSCI International All country

59
Asia Pacific Price Index
540 170
58

538
57 165

536

56 160
534

55 155
532

530 54 150
Ma r-14 Ma r-16 Ma r-18 Ma r-20 Jun-23 Aug-23 Oct-23 Dec-23 Feb-24

17
 North Asia
25 March 2024

Taiwan: Tame inflation expectation with off-cycle 12.5bps hike

Taiwan Central Bank (CBC) hiked by 12.5bps in March MPC, pushing the discount rate (policy rate) to 2.00%, the
highest since 2008. The move was a surprise, as Bloomberg survey shows that 27 economists all expect a held this
time. However, the TWD IRS market had priced in the 100% probability of 12.5bps hike, which may be triggered
by CBC governor Yang’s hawkish comment in the Legislative Yuan.

The main purpose for the off-cycle hike is managing inflation expectation, which is well-anchored by consecutive
19-month above 2% inflation (Fig. 1). Adding to the incoming huge hike on electricity fee – resulting in more
sticky inflation by raising the inflation 0.09% y/y directly & 0.18% y/y indirectly (assuming 10% electricity hike,
CBC estimation). Therefore, CBC raises its 2024 headline & core inflation y/y forecast to 2.16% (+27pp) and
2.03% (+20pp) respectively. Moving forward, the central bank still sees great uncertainty with geopolitical risks.

On the growth front, the monetary policy statement indicates CBC’s optimism as export momentum strengthens
and IoT products surging demand thanks to the AI frenzy. The robust inbound tourism and recovering demand for
AI, HPC, and auto electronics should provide support from here. Moreover, domestic investment and consumption
can keep their momentum with strong equipment demand for electronics and airplanes, the increasing local
confidence (indicated by NCU consumer confidence index) also suggests strong consumption in 2024 - somewhat
related to the strong performance of the TWSE index, in our view.
Fig. 1: Inflation has long-stayed above CBC’s threshold Fig. 2: Incoming electricity price hike likely to reinforce
4% 150 inflation expectation
2021 = 100
140

130
2%
120

110

0%
100

90 Electricity Price
CPI YoY Core CPI YoY CBC inflation Target
-2% 80
15 16 17 18 19 20 21 22 23 24 00 02 04 06 08 10 12 14 16 18 20 22 24

Hike won't help a lot on currency. Asian FX faces broad-base weakness with the lack of yield advantages, and
TWD is no exception. Although the local equity market receives strong foreign inflows, local outflows are more
robust with a strong risk appetite and the eagerness to seek higher returns. We continue to observe private sector
portfolio outflows mainly via overseas bond ETFs. Moreover, Lifers stay opportunistic on FX hedging, top players
point out that they would lower the hedging ratio and invest in Bond ETF with an eye on avoiding punitive hedging
costs. We maintain the range-bound view for USDTWD, but we now see a higher range (31-32.5) as dividend
seasonality in summer could further pressure the currency. Finally, as always, TWD should continue to be used as a
funder with low yield and low vol characteristics in 2024. We also expect TW rates to steepener as the market
starts to realize CBC has a different approach to the hiking cycle.
Fig. 3: TWD is not undervalued from TWI perspective Fig. 4: TWD NDIRS still on the steepener trend
130 1.8% 80
bp
1.7%
125 60
1.6%
120
40
1.5%
115
1.4% 20
110
1.3%
0
105
TWD NE ER 1.2%
3yma -20
100 5% 1.1%
-5% 1s5s, rhs Taibor3m
1y NDIRS 5y NDIRS
95 1.0% -40
15 16 17 18 19 20 21 22 23 24 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24
18
 ASEAN
25 March 2024

India: Goldilocks mode switch on

Real GDP grew 8.4% y/y in the quarter ending December, much higher than the market expectation of 6.6%.
Growth in the previous two quarters (Q2-Q3 24) has also been revised up to 8.1% (from 7.7% previously). All of
this indicates that India is growing at an incredible pace. Two points need to be focused, including:

One, GVA, which adds up production (across agriculture, industry and services) did not show the same exuberance
as GDP. In terms of percentage point contribution to growth, agriculture was much weaker than the previous
quarter . Understandable, given El Niño led weak rains. Manufacturing and construction were softer, though still
remain the strongest driver of growth. Trade services was stronger than before, finally catching up with other
services components. Overall, core GVA (GVA excluding agriculture, community, social and personal services)
was softer than in the previous quarter.

Two, Domestic demand was weaker than the previous quarter. Even though private consumption was better,
government spending slowed in the quarter (as also reflected in the just-released fiscal data). Investment
contributed most to growth, led to a large extent by public capex, even though it softened a shade compared to the
previous quarter (see chart 3). Net exports were stronger than before, led primarily by a fall in import growth.
Fig. 1: India GDP Growth & sector breakdown Fig. 2: PMI suggests sustainable robust momentum
30% 64

20% 62

8.49%
60
10%

58
0%
56
-10%
54
Private Consumption Gov. Consumption
-20% GFCF Net Exports
Discre pancies Others 52
Composite PMI Services Ma nufacturing
GDP
-30% 50
17 18 19 20 21 22 23 Jan-22 Jun-22 Nov-22 Apr-23 Sep-23 Feb-24

We believe the INR remains a solid currency in the Asia – a low volatility carry trade. The positive balance of
payments “seasonality” in 1Q may soon be over, but bond indexation related inflows will likely persist. The actual
GBI-EM inclusion date starts in end-June (and lasts for nine months), although there have already been cUSD10bn
of inflows since November 2023. The risk around FX policy is asymmetric – the Reserve Bank of India is likely to
sell FX reserves to cap USD-INR, while there is a chance that it may gradually slow its FX reserves accumulation
(perhaps after FX reserves rise by another cUSD20bn to return to its record high level) and allow USD-INR to fall
slightly. India will hold general elections in April-May. The past analysis (Fig. 4) suggest that INR is likely to
appreciate along with election result announced, but we think there should be limited implications for the FX
market this time, given Prime Minister Modi’s lead in the opinion polls and the expectation of policy continuity.
Among Asia HY, we prefer the INR over the PHP (elevated NEER and REER) and the IDR (terms of trade shock,
lingering policy continuity concerns, relatively low FX reserves adequacy ratio).
Fig. 3: RBI starts accumulating FX reserve again Fig. 4: INR trend could turn with election
5 85 120 1999 2004 2009
INR NEER
rebased to 100 on 2014 2019 2024
115 -180 days before
3 Sell FX 80

110
1 75

105

-1 70
Purchase FX 100

-3 65
95
RBI FX Intervention (USDbn), 6wma
USDINR (RHS) Working days around election result
-5 60 90
18 19 20 21 22 23 -180 -120 -60 0 60 120 180 19
 ASEAN
25 March 2024

Indonesia: Policy rate remain unchanged

Bank of Indonesia keeps interest rate steady, awaits rupiah's strength for potential cuts.

The Bank of Indonesia kept its key interest rate unchanged at 6% for the fifth consecutive time during its March
2024 meeting, in line with market expectations, aiming to ensure headline inflation remains within the target of
1.5%-3.5% this year while supporting economic growth and strengthening the rupiah's stability.

Bank Indonesia Governor Perry Warjiyo reiterated that BI sees room to cut interest rates in the second half of this
year, with inflation remaining within target through 2025. Indonesia's central bank has room to lower interest rates
this year to lift economic growth, but is waiting for the rupiah to strengthen against the dollar. Governor Perry
Warjiyo said that "If we rush while the global condition is in disequilibrium, the rupiah could weaken and inflation
goes out of control".

February trade surplus shrinks sharply with exports decline and imports surge

In February 2024, Indonesia experienced a significant decline in exports, shrinking by 9.45% compared to the
previous year and reaching a 10-month low of USD 19.31 billion. This decline surpassed market forecasts and
marked the ninth consecutive month of export contraction, with the steepest pace since October of the previous
year. Notably, exports to China and Japan plunged by 19.26% and 13.47% respectively, while exports to ASEAN
countries slumped by 20.84%.

On the other hand, imports to Indonesia surged by 15.84% in February 2024, reaching USD 18.44 billion. This
increase surpassed market expectations and represented the strongest growth in inbound shipments since October
2022. The surge in imports was attributed to robust domestic demand before the Ramadan fasting month and Eid
al-Fitr celebration. Non-oil and gas purchases increased by 14.42%, reaching USD 15.46 billion, while oil and gas
imports jumped by 23.82% to USD 2.98 billion, primarily driven by crude oil and oil products.

Fig. 1: ID Policy rate and inflation yoy growth Fig. 2: Trade surplus shrinks in Feb

7 7% 6000 20
Tra de balance
Inflation rate yoy growth Policy rate
6 6% Exports yoy (%)
5000 Imports yoy (%) 10
5 5%

4000 0
4 4%

3 3% 3000 -10

2 2%
2000 -20
1 1%
1000 -30
0 0%
Nov
Dec

Nov
Dec
Feb
Ma r

Feb
Ma r
Jun

Jan

Jun

Jan
Oct

Oct
Jul

Jul
Ma y

Ma y
Aug
Sep

Aug
Sep
Apr

Apr

0 -40
2022 2 02 3 2 02 4 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24

Fig. 3 : IDR Outperforming other ASEAN FX

110
2021 = 100

106

102

98

94

Indonesia Malaysia Philippines Thailand

90
Jan-22 Ma y-22 Sep-22 Jan-23 Ma y-23 Sep-23 Jan-24

20
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