Daily Brief Macro: Asian Equities: Foreign Flows Come Roaring Back in September; India and more

• Fed’s “risk management cut” and a dovish outlook of 2 more cuts in 2025 are driving foreign flows back to Asia. US$11.5bn inflows in September till date underscores the sentiment.
• Korea (US$4.94bn) and Taiwan (US$7.5bn) grabbed the Asian flows entirely, driven by the rejuvenated AI capex theme. India (-US$904m) continues to be sold, though the selling pace has diminished.
• FIIs bought Indonesia (US$672m) in August and sold almost identical amount in Thailand. Philippines, despite being cheap and having a few sectors with upward earnings inflection, continues to be sold.

• Despite initial concerns about tariffs and policy uncertainty hurting global economy, many major metals have seen significant price gains this year
• Tariffs have been implemented, but manufacturers have absorbed costs in margins rather than passing them on to consumers
• Despite signs of economic strain in recent data, commodity prices remain strong due to US dollar weakness making commodities more affordable for importing countries

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• While Southeast Asian economies have often been grouped under one label, differences in trade, technology, and institutions warrant a more differentiated lens. 
• A group of high performers consisting of Vietnam, Malaysia, and Singapore offers expansive trading relationships, global value chain participation, and political resilience. 
• In contrast, Thailand and Indonesia’s prospects are stymied by reliance on legacy industries or commodities, less open trading arrangements, and chronic institutional fragility.

• Despite a mixed Fed meeting, EM markets continue to rally in FX and rates
• EM local markets still in a good place with upside potential in growth and improving flow picture
• Sovereign credit markets have had a strong performance year to date, with investors feeling optimistic but also acknowledging the need to be humble in assessing macro risks and valuations.

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• The Federal Reserve is expected to ease interest rates by 50 basis points this year, aligning with a forecast of 100 basis points of easing by next January.
• The Fed prioritizing its labor market mandate over its inflation target may lead to better growth and higher inflation outcomes next year.
• The yield curve has been volatile but is currently fairly valued, with potential for steepening due to asymmetrically dovish reaction function and Fed independence considerations.

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• Crude oil futures opened the week slightly firmer as traders continued to monitor disruptions to Russian flows amid ongoing attacks against infrastructure and sanctions threats.
• Front-month Nov25 ICE Brent futures were trading at $67.22/b (0735 BST) versus Friday’s settle of $66.68/b, while Nov25 NYMEX WTI was at  $62.90/b against a previous close of $62.40/b.
• The prospect of tighter measures against Moscow was seen increasing with European leaders pushing for a wider rollout, including secondary tariffs.

• China agreed to move forward with trade talks after reaching an agreement to sell control of TikTok to U.S. companies.  The threat to shut it down was a “paper tiger”.
• China has neutralized a major leverage point by instructing its companies to not buy Nvidia chips.  Instead China will rely on homegrown technology for companies like Huawei and Alibaba.
• For the first time since the 1990’s China has not purchased any U.S. soybeans since the start of the export season. Soybean spot prices for Midwest farmers are below cost.

• The US’s broadening protectionist arsenal against India creates substantial headwinds for the country’s economic outlook. 
• The H-1B visa fee hike has limited impact. But it does raise concerns of future curbs on US offshoring, and follows the steep tariffs on India’s goods imposed last month.
• A tactical truce with the Trump administration would allow India to prioritise its reform agenda with fewer external distractions.

• Gold’s current low-volatility phase, following its ascent to all-time highs, presents a strategic vol trading opportunity. This environment is characterized by steady gains and reduced expected downside.
• Recent market trends, including investor and institutional support levels, suggest that strategies designed to profit from time decay could be beneficial, noting the stability of physical flows, contained intraday volatility.
• While a short-term trading regime focused on range consolidation is indicated, potential risks from geopolitical shifts or unexpected central bank communications could quickly reprice gold’s volatility.