20/05/2025

BIZ & FINANCE TUESDAY | MAY 20, 2025

/thesuntelegram FOLLOW / Malaysian Paper

ON TELEGRAM m RAM

16

China’s factory output resists US tariff impact

HK dollar falls to near one-year low on flush cash conditions

Japan bond market functionality worsens sharply TOKYO: Japan’s bond market functionality deteriorated sharply in the three months to May, a central bank survey showed yesterday, a sign of strain caused by uncertainty over US trade policy and volatile moves in super-long yields. The diffusion index measuring the Japanese government bond (JGB) market’s functioning plumetted to -44 in May, down from -13 in February, marking the lowest reading since May 2023, the survey conducted by the Bank of Japan (BOJ) on market participants showed. The index thus worsened for the first time in nine quarters and suffered the fastest pace of decline on record, underlining the significant impact of Donald Trump’s April 2 announcement of reciprocal tariffs, including on Japan. Many respondents cited heightening volatility from Trump’s tariff announcement as sapping liquidity mainly for super-long JGBs, a BOJ official told a briefing. Growing market attention to Japan’s worsening fiscal state is also pushing up super-long yields, as Prime Minister Shigeru Ishiba faces mounting political pressure to ramp up spending or cut taxes Yields on super-long JGBs have risen steadily since April. The 40-year yield hit a record high of 3.445% last week. – Reuters The overnight Hong Kong Interbank Offered Rate (HIBOR), a key barometer of liquidity conditions, has been hovering at three-year lows since the Hong Kong Monetary Authority action. It was fixed at 0.03577% yesterday. – Reuters HONG KONG: The Hong Kong dollar weakened to a near one-year low against the US dollar yesterday, reversing the strength seen two weeks ago, as falling borrowing costs in the financial hub on the back of flush cash conditions led to a return of carry trades. The loose liquidity conditions come after the city’s de-facto central bank forcefully stepped up intervention at the start of this month to defend the currency’s peg to move within 7.75 and 7.85 per dollar by purchasing greenbacks while injecting local currency. Such an operation effectively swelled the aggregate balance, a gauge of cash at banks, to a near three-year high of HK$173.64 billion (RM95.3 billion) last Friday, compared with HK$45.1 billion at end-April. The Hong Kong dollar fell to a low of 7.8220 per dollar, the weakest level since May 2024. It last traded at 7.8206 per dollar as of 0603 GMT (2.03pm in Malaysia). “It is driven by carry,” said Ju Wang, head of Greater China FX & rates strategy at BNP Paribas. A carry trade is a popular strategy of borrowing a low-yielding currency to fund a higher-yielding currency for profit, and the short-end rate differential between Hong Kong dollar and US dollar has widened to yield a near 4% profit from long USD/HKD spot, Wang said. The rapid dial back of the Hong Kong dollar reflects “the positive carry of USD/HKD due to the collapse of HIBOR, not the loss in confidence in the HKD peg”, Raymond Yeung, chief economist for Greater China at ANZ, said in a note.

o Retail sales disappoint while property sector struggles to recover BEIJING: China’s factory output slowed in April but showed surprising resilience, a sign that government support measures may have cushioned the impact of a trade war with the US that threatens to derail momentum in the world’s second-largest economy. Industrial output grew 6.1% from a year earlier, National Bureau of Statistics (NBS) data showed yesterday, slowing from 7.7% in March but beat a forecast 5.5% rise in a Reuters poll. “April’s resilience is in part a result of ‘frontloaded’ fiscal support,” said Tianchen Xu, senior economist at the Economist Intelligence Unit, referring to stronger government spending. The data followed firmer-than-expected exports earlier this month that economists said were supported by exporters rerouting shipments and countries buying more materials from China amid a re-ordering of global trade due to US President Donald Trump’s tariffs. However, yesterday’s data underscored the shock from US reciprocal tariffs, Xu said, adding “despite the rapid growth in industrial value-added, the export delivery value was nearly stagnant”. Beijing and Washington reached a surprise agreement last week to roll back most tariffs imposed on each other’s goods since early April. The 90-day pause has put the brakes on a trade war that has disrupted global supply chains and stoked recession fears. “China’s foreign trade has overcome difficulties and maintained steady growth, demonstrating strong resilience and international competitiveness,” statistics bureau spokesperson Fu Linghui told a press conference yesterday. He added that the trade de-escalation would benefit bilateral trade growth and global economic recovery. But economists have warned that the short-term truce and US President Donald Trump’s unpredictable approach will continue to cast a shadow over China’s export-driven economy, which still faces 30% tariffs on top of existing duties. By midday, China’s blue-chip CSI300 Index dropped 0.4% and the Shanghai Composite Index lost 0.1%. The yuan currency also slipped against the dollar.

Residential buildings under construction in the eastern China city of Fuyang yesterday. – AFPPIC

The property sector has yet to show signs of recovery, with home prices stagnating and investment in the sector shrinking. Retail sales, a measure of consumption, rose 5.1% in April, down from a 5.9% increase in March, and missed forecasts for a 5.5% expansion. Economists attributed the slowdown to the impact of US tariffs on consumer expectations and tepid demand at home. Commodity sectors also showed signs of weakness with the country’s daily crude oil processing rate down 4.9% in April from March, while crude steel output slid 7% month-on-month. Meanwhile, the government’s push to boost household spending via a trade-in scheme for consumer goods led to a 38.8% gain in home appliance sales. The NBS data also showed the unemployment rate fell to 5.1% from 5.2% in March. But anecdotal evidence showed that some factories heavily reliant on the US market have sent their workers home. With persistent deflationary pressures and worse-than-expected bank lending data, economists highlighted the need for more policy support to foster a sustainable recovery. “We caution that the near-term growth strength is at the cost of payback effects later and

believe more policy easing is necessary to stabilise growth, employment and market sentiment,” Goldman Sachs economists said in a note. China’s economy expanded 5.4% in the first quarter, exceeding expectations. Authorities remain confident of achieving Beijing’s growth target of around 5% this year, despite warnings from economists that US tariffs could derail this momentum. Alarmed by how tariffs have hurt economic activity, authorities earlier this month announced a package of stimulus measures, including interest rate cuts and a major liquidity injection. The monetary easing measures were announced before the China-US trade detente was reached after high-stakes talks in Geneva, marking a significant de-escalation from months of mounting tensions. The US-China “deal” agreed at the start of last week will provide some relief, said Julian Evans-Pritchard, head of China Economics at Capital Economics, “but even if the tariff rollback proves durable, wider headwinds mean that we still expect China’s economy to slow further over the coming quarters”. “We suspect that the trade war has made households more concerned about their job prospects and therefore more careful about their spending.” – Reuters On a quarterly basis, Southeast Asia’s second-largest economy grew a seasonally adjusted 0.7% in the March quarter, above the poll forecast of 0.6% growth and 0.4% growth in the prior quarter. Danucha said growth could slow in the current quarter as the private sector waited for clarity on the tariffs, but noted the government had prepared 200 billion baht (RM25.7 billion) for stimulus measures. Industrial sentiment fell to a six-month low in April due to concerns about the tariffs, the Federation of Thai Industries said yesterday. The NESDC also lowered its forecast for foreign tourist arrivals to 37 million this year, from 38 million seen earlier, with Chinese tourists, the biggest source market, projected at five million. Tourist arrivals hit a record of nearly 40 million in 2019. – Reuters

Thailand cuts growth and trade forecasts BANGKOK: Thailand’s economy grew more than expected in the first quarter of 2025, data showed yesterday, but the state planning agency slashed its full-year growth and trade forecasts as US tariffs threaten the country’s export engine. corporate debt burdens and the global trade war are expected to weigh on activity later in the year. “This is not too pessimistic and can be adjusted according to the changing situation,” NESDC head Danucha Pichayanan told a news conference.

Thailand faces a 36% tariff on shipments to the US, its biggest export market, if a reduction cannot be negotiated before a moratorium expires in July. The economy grew 3.1% in the January-March quarter from a year earlier, the National Economic and Social Development Council said, above market expectations of 2.9% growth and just below the 3.3% pace in the previous quarter, the National Economic and Social Development Council (NESDC) said. The agency cut its 2025 economic growth forecast to 1.3% to 2.3% from a range of 2.3% to 3.3% seen earlier, saying high consumer and

“The impact of the US tariffs on the Thai economy is expected to last about 2 years as the economy already has structural problems.” The NESDC cut its forecast for export growth this year to 1.8% from 3.5%. The main Thai stock index and the baht dropped slightly after the GDP data. “Negative quarter-on-quarter GDP may be seen in the second half of the year,” Siam Commercial Bank economist Poonyawat Sreesing said, adding he expected two more interest rate cuts this year as the US tariffs slow economic activity.