Market Daily

Fixed Income Market Updates

EUROPEAN BANK COCO (AT1)

European AT1 space closed marginally higher. AT1 bonds with short calls remained mostly unchanged with buyers sticking to their initial price and yield targets. Recent new issues such as Caixabank and AIB Group were most actively traded. We remain sanguine in AT1 bonds of banks with solid fundamentals which have demonstrated a history of calling back the bonds on first call dates even the ones with long call dates.  

ASIA INVESTMENT GRADE (IG)

BBB-rated State Owned Enterprises in China IG space traded well despite Trump hinting a potential 10% tariff on China. China Overseas Finance were sought after by hedge funds and tightened by around 5bps across its curve. In South East Asia space, Great Eastern Life Assurance's recent new perpetual issuance is still struggling below par. Malaysia IG names were around 1-3bps tighter especially in Petronas. We had downgraded our credit opinion on Thaioil to negative and expect its leverage to remain elevated with additional capital expenditure required to complete its Clean Fuel Project.   

ASIA HIGH YIELD (HY)

New World Development was actively traded; the curve was down 2-4points overall with heavy selling from asset managers. The bonds have fallen 15-25points across the curve accumulatively this week. We see no near-term catalyst for New World Development's bonds to turnaround. Vanke traded in a similar fashion to New World Development, with the curve down 1-3points. Outside of Greater China, Adani complex traded largely sideways with not much conviction in the market.  

Forex Market Updates

USD

The US Dollar weakened against most other major currencies as markets continued to await concrete announcements about US President Trump’s tariff plans. The Dollar Index hit a more than two-year high early last week largely in anticipation of tariffs, but the greenback has shown signs of an overcrowded trade reversing on the lack of firm plans announced since the new Trump administration took office. Elsewhere, it was reported that Trump is pushing a plan to explicitly use revenue from higher tariffs on imported goods to help pay for the extension of tax cuts, an unprecedented shift likely to face opposition from many of his fellow Republicans in Congress.

The Dollar Index could see a further near term retracement towards immediate support around 107.60.

EUR

The Euro consolidated recent gains on Wednesday, trading within the ballpark of two-week highs despite threats from US President Trump, who said that that European Union is “going to be in for tariffs” as that is the only way “you’re going to get fairness”. On the central bank front, a slew of ECB policymakers voiced their backing for further policy easing moving forward, indicating that a rate cut at next week’s meeting is all but a done deal and that further cuts are more than likely to follow even if the Fed remains cautious. Nevertheless, ECB President Lagarde appeared to argue against going too quickly, saying that the central bank was not at risk of undershooting its 2% inflation target and that it also needed to watch the impact of the weak Euro.

The common currency’s tentative recovery is likely to face stern resistance around 1.0460 moving forward.

AUD

The Australian Dollar climbed to two-weeks highs before retreating slightly yesterday as Trump warned that he is still considering imposing 10% tariffs on all Chinese imports, possibly as early as 1st February, citing China’s role in exporting fentanyl to Mexico and Canada as a reason for potential tariffs. Elsewhere, analysts say that amidst lingering worries over China’s growth prospects, markets have turned slightly bearish on the outlook for prices of key commodities produced Down Under such as iron ore, which is likely to see a continuation of weak AUD sentiment.

Aussie bulls could attempt a break above the 0.6300 resistance level should there be no escalation in Trump’s tariff threats.

XAU

Gold prices advanced to highs not seen since last October on the back of a softer USD and lack of clarity around US President Trump’s tariff plans, which markets fear could trigger trade wars and elevate market volatility. Analysts say the precious metal is “a natural place where people will gravitate to” due to uncertainty, although there is a risk that gold’s bull run could face strong headwinds if Trump’s tariffs, when enacted, force the Fed to sustain elevated interest rates for an extended period to rein in price pressures.

The precious metal is likely to be well supported above 2700 in the near term.