In today’s briefing:
- HEW: Poorly Positioned Doves
- The Innermost Layer of the Onion
- Asia Geopolitics: No Collective ASEAN Response To Changing Global Order
- [IO Fundamentals 2025/22] PMI Data Divergence and Declining IO Inventories
- [IO Technicals 2025/23] Bearish Momentum Persists
- India: 50bp Rate Cut, 100bp of CRR Cuts Pave the Way for Faster RGDP Growth
- Higher Rubber Values Come In Handy For Vietnam, Though Volume Down
HEW: Poorly Positioned Doves
- The ECB was even more hesitant to signal cuts than we expected, with the level after the unsurprising cut now deemed well-positioned. Cuts will require downside news.
- Disinflationary surprises across the Euro area in the May flash releases are already embedded in that assessment. Doves are poorly positioned for this reaction function.
- US inflation data may be the most crucial global release next week, although the signal may not be clear. Statistical issues affect the UK labour market and GDP data.
The Innermost Layer of the Onion
- It is important to dissect and monitor the underlying inflation backdrop across the G3 economies for a variety of reasons
- My estimate of the more or most persistent component of inflation may be a reasonable proxy of underlying inflation
- My current underlying inflation estimates for the Euro Area, Japan and US are hovering around 2.0% to modestly below 3.0%
Asia Geopolitics: No Collective ASEAN Response To Changing Global Order
- As ASEAN, Chinese, and Gulf leaders gathered in Kuala Lumpur, the lofty proclamations of Global South cooperation are undermined by divergent interests among its members.
- The US was not wholly absent, attending the defence-focused Shangri-La Dialogue. Washington signalled continued engagement in Asia, but misread the region’s priorities
- Beijing obtained several wins in closer trade and investment ties with the rest of Asia, but gave little commitment in addressing concerns over overcapacity and maritime issues.
[IO Fundamentals 2025/22] PMI Data Divergence and Declining IO Inventories
- China’s NBS manufacturing PMI edged up to 49.5 in May, while Caixin PMI dropped sharply to 48.3 signaling the first contraction in 8 months.
- China’s industrial profits stagnated in April 2025, highlighting persistent challenges from weak demand, trade war tensions, and deflationary pressures.
- Iron ore inventories continued to decline amid slowing shipments and softer blast furnace demand, signaling ongoing destocking.
[IO Technicals 2025/23] Bearish Momentum Persists
- Iron ore supply remains steady despite falling Australian exports and surging Brazilian shipments. However, weak Chinese property demand continues to cloud the market outlook.
- Analysts at Singapore Ferrous Week trimmed 2025 iron ore surplus forecasts to 20–30 million tons, citing resilient demand, rising steel exports, and Australian supply disruptions.
- Prices remain below key moving averages, signalling downside momentum, while the MACD staying under its signal line reinforces the ongoing bearish outlook.
India: 50bp Rate Cut, 100bp of CRR Cuts Pave the Way for Faster RGDP Growth
- RBI’s MPC cut its policy repo rate by 50bp (to 5.5%, implying cuts totalling 100bp in the past half year), and also a phased 100bp cut in CRR by Dec’25.
- Despite CPI inflation moderating below 3.2%YoY in Apr’25, the RBI has only slightly lowered its inflation forecast for FY26 to 3.7% (from 4%), and hence returned to a neutral stance.
- Given an above-normal monsoon, already strong Rabi crop, and low crude oil prices, we expect CPI inflation to average less than 3%YoY in Jun-Dec’25, allowing 75bp of further rate cuts.
Higher Rubber Values Come In Handy For Vietnam, Though Volume Down
- During January-April 2025, exports at 452,866 tons, down 11% YoY
- January-April 2025 exports value at US$872.78 mn, up 20.4% YoY
- Vietnam Rubber Group reports net profit of US$45.4 mn in Q1 2025
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