PETER’S BUSINESS & FINANCE BRIEFING – Thursday 16 January 2025, 06:00 Hong Kong
● South Korea’s impeached president arrested ● US core consumer inflation rate slows ● US aims to tighten flow of TSMC & Samsung chips to China
Thursday’s Opening Call
Hang Seng (Hong Kong) Projected Open: 19,456 +170 points +0.9%
Nikkei 225 (Japan) Projected Open: 38,710 +265 points +0.7%
Quick Summary - 4 Things To Know Before Asian Markets Open
South Korea’s impeached President Yoon Suk Yeol was arrested Thursday morning following a predawn raid by authorities on his fortified hilltop compound. Yoon, whose failed bid at martial law plunged the country into turmoil last month, was detained after a six-hour stand-off between law enforcement and his security detail. He became South Korea's first sitting president to be arrested after investigators scaled barricades and cut through barbed wire to take him into custody. Yoon is being investigated on charges of insurrection over the martial law order on 3 December.
Core consumer inflation slowed in the US in December, reigniting hopes that the Fed could continue cutting interest rates. The annual consumer price inflation rate in the US rose for a third consecutive month to 2.9% in December from 2.7% in November, in line with market expectations. Annual core inflation, which excludes volatile components such as food and energy, edged down to 3.2% from 3.3%, below forecasts of 3.3%. The monthly core inflation rate fell to 0.2%, following a 0.3% rise in each of the previous four months, and below expectations of 0.3%.
Bank of Japan Governor Kazuo Ueda said the central bank would raise rates if the country’s economy and prices continued to improve. Ueda said the Trump administration’s economic policy and wage negotiations in Japan will be key in deciding the rate-hike timing. “There was a lot of positive talk on the wage outlook,” Ueda was quoted as saying. Ueda’s comments come after BOJ Deputy Governor Ryozo Himino said that the central bank would discuss raising interest rates at the next meeting, which will take place from January 23 to January 24.
The US plans to unveil more regulations aimed at keeping advanced chips made by Taiwan Semiconductor Manufacturing Co. and other producers from flowing to China, part of a flurry of measures introduced by the Biden administration during its final days in office. The latest measures would seek to encourage chip producers like TSMC, Samsung Electronics and Intel to more carefully scrutinize customers and increase due diligence, according to a Bloomberg News report. The changes follow an incident where TSMC-made chips were secretly diverted to the blacklisted Chinese company Huawei.
Israel & Hamas Reach Gaza Ceasefire & Hostage Release Deal
Israel and Hamas have reached a ceasefire deal to end 15 months of war, to begin on Sunday 19 January. US President Joe Biden confirmed the deal, which involves a full and complete ceasefire, the withdrawal of Israeli forces from Gaza and the release of all the hostages held by Hamas. Biden says the first phase will allow Palestinians to return home to their neighbourhoods and let more humanitarian assistance into the Gaza Strip. Hamas attacked southern Israel on 7 October 2023, killing about 1,200 people and taking 251 back to Gaza as hostages. The attack triggered a massive Israeli offensive on Gaza, during which more than 46,000 Palestinians have been killed, according to the Hamas-run health ministry.
President Biden said the road to the agreement "has not been easy” and described it as one of the toughest negotiations he has experienced. Biden added that he and President-elect Donald Trump's team spoke as "one team" in their efforts to get the deal over the line.
South Korea’s Impeached President Arrested
South Korea’s impeached President Yoon Suk Yeol was arrested Thursday morning following a predawn raid by authorities on his fortified hilltop compound. Yoon, whose failed bid at martial law plunged the country into turmoil last month, was detained after a six-hour stand-off between law enforcement and his security detail. He became South Korea's first sitting president to be arrested after investigators scaled barricades and cut through barbed wire to take him into custody. Yoon is being investigated on charges of insurrection over the martial law order on 3 December. He has also been impeached by parliament and suspended from office but will not be removed from his position until the Constitutional Court rules on his impeachment.
Yoon's dramatic arrest on Wednesday, however, brings to an end a weeks-long standoff between investigators and his presidential security team. Investigators from the Corruption Investigation Office for High-ranking Officials (CIO) failed to arrest him on 3 January after being locked in a six-hour standoff with his security detail. In a three-minute video released just before his arrest, the 64-year-old leader said he would cooperate with the investigators, while repeating previous claims that the warrant was not legally valid. "The rule of law has completely collapsed in this country. I decided to appear before the CIO, even though it is an illegal investigation, in order to prevent any unsavoury bloodshed," he said. On Wednesday afternoon, investigators said Yoon had remained silent throughout questioning. “Yoon’s arrest is the first step towards restoring our constitutional order,” said Park Chan-dae, floor leader of the leftwing opposition Democratic Party of Korea. “It underlines that justice is still alive.”
South Korea's Jobless Rate Jumps To 3-Year High
South Korea's seasonally adjusted unemployment rate rose to 3.7% in December, the highest level since December 2021, as economic uncertainty and political turmoil weighed heavily on sentiment. December was the month of the short-lived attempt at martial law in South Korea. This latest figure represents a sharp increase from 2.7% in the previous two months. The number of employed persons declined by 52,000 in December compared to the previous year, reversing a gain of 123,000 in November. This marked the first decline in employment since February 2021.
South Korea Export Prices Rise The Most In 5 Months
South Korea's export prices jumped 10.7% year-on-year in December, following a 7% increase the previous month, marking the twelfth consecutive month of growth. Outbound shipments for manufacturing products rose more sharply by 10.7%, compared to a 7% increase in November. On a monthly basis, export prices rose 2.4% in December, building on a 1.6% gain from the month before.
South Korea's import prices rose 7% year-on-year in December, marking the fastest pace in five months and the highest increase since July, following a 2.8% rise in November. This marked the second consecutive month of rising import prices, driven by a weakening local currency. The South Korean won depreciated 5.2% against the dollar in December, its sharpest drop in 22 months, reaching its weakest level since March 2009 amid domestic political turmoil. On a monthly basis, import prices rose 2.4%, building on a 0.9% increase the previous month, reflecting widespread upward pressure on input costs.
Japan's Manufacturers See Improved Mood In January
Japan's manufacturers showed signs of optimism in January, with the Reuters Tankan sentiment index rising to +2 from -1 in December. This improvement was largely driven by stronger conditions in materials industries, although manufacturers' outlook remains cautious due to uncertainty surrounding policies from incoming President Trump. The most notable recovery in sentiment was observed in upstream sectors such as steel, oil refining, and chemicals, fuelled by a pickup in global demand. However, sentiment in machinery sectors, including automotive and electronics, declined in January. Looking ahead, manufacturers' confidence is expected to remain steady, with the three-month-ahead outlook holding at +2 for April. Even among sectors that showed improvement, concerns lingered, with many respondents pointing to weak domestic demand in Japan.
BoJ Governor Says Will Raise Rates If Economy & Prices Improve
Bank of Japan Governor Kazuo Ueda said the central bank would raise rates if the country’s economy and prices continued to improve. According to a Reuters report, Ueda said the Trump administration’s economic policy and wage negotiations in Japan will be key in deciding the rate-hike timing. “There was a lot of positive talk on the wage outlook,” Ueda was quoted as saying. Ueda’s comments come after BOJ Deputy Governor Ryozo Himino said that the central bank would discuss raising interest rates at the next meeting, which will take place from January 23 to January 24.
Bank Indonesia Delivers Surprise Rate Cut
Indonesia’s central bank has unexpectedly cut interest rates, despite a weakening rupiah, citing slowing growth momentum in south-east Asia’s largest economy. The Bank of Indonesia (BI) cut its benchmark interest rate by 25 bps to 5.75% yesterday, defying economists’ expectations for a pause. It was just the third reduction in four years. The BI said the decision is aligned with the central bank's commitment to maintaining inflation within the target range of 1.5% to 3.5% for 2025 and 2026. Indonesia's annual inflation rate edged up to 1.57% in December from 1.55% in November, remaining comfortably within the target range. The bank previously lowered rates in September, but had since kept them steady, citing the need to support the rupiah, which has fallen 8% against the dollar since September. Meanwhile, economic growth for 2024 is projected to come in slightly below the midpoint of the 4.7–5.5% target range, with 2025 growth also expected to fall short of earlier forecasts. According to most recent government data, the economy expanded 4.95% in the third quarter of 2024, the slowest growth rate in a year. The overnight deposit facility and lending facility rates were also lowered by a quarter point to 5% and 6.5%, respectively.
BI governor Perry Warjiyo said the rate cut was consistent with a low inflation forecast for this year and “the need for efforts to encourage economic growth”. He also slightly lowered Indonesia’s 2025 growth forecast, citing weaker exports, consumption and private investment. “By cutting the interest rate, it shows a change in our stance which is towards pro-stability and growth,” he said in a briefing.
Indonesia Export Growth At 6-Month Low
Exports from Indonesia increased 4.8% from a year earlier, far below economists’ forecasts of a 7.4% rise and slowing sharply from a marginally revised 9.10% gain in the previous month. It marked the ninth straight month of growth in exports but the weakest pace since June, due to softer growth in non-oil & gas exports (4.8% vs 9.5% in November). Sales of mineral fuels, which are the largest contributors to non-oil exports, plunged 7.6%. Meanwhile, oil and gas exports advanced by 4.1% due to a surge in crude oil (104.7%) and natural gas (11.2%). Sales rose to the US (19.2%), China (0.4%), ASEAN countries (22.3%), and the EU (4.4%). For the full year of 2024, exports increased by 2.3% to US$264.70 billion.
Imports to Indonesia grew by 11.1% y/y in December, easily beating consensus forecasts of 4.8%, picking up from a muted performance in the previous month. Strong domestic demand at year-end drove the latest figures, leading to a full-year increase of 5.3% in inbound shipments. Indonesia's trade surplus narrowed to US$2.24 billion in December from US$3.29 billion in the same month a year earlier, falling short of economists’ estimates for a gain of US$3.79 billion and marking the smallest amount since February. For the full year, the trade balance registered a surplus of US$31.04 billion, down from US$36.89 billion in 2023.
German Economy Contracts In 2024
The German economy contracted by 0.2% in 2024, in the country’s second consecutive yearly slowdown, data from statistics office Destatis showed Wednesday. The drop was in line with the expectations of economists polled by Reuters. The European Commission had forecast a 0.1% dip in German GDP in 2024. Germany’s economy had already contracted by 0.3% in 2023.
Confirmation that Germany is suffering one of the most protracted economic crises in decades comes six weeks ahead of a crucial snap election. Friedrich Merz, head of the centre-right Christian Democratic Union who is likely to be Germany’s next chancellor, is campaigning on a reform agenda, promising to cut red tape and taxes and dial back welfare benefits for people who are not working.
UK Inflation Unexpectedly Eases
UK inflation unexpectedly dipped in December for the first time in three months as hotel prices fell and tobacco costs eased. Prices rose 2.5% in the year to December, down from 2.6% the month before, the Office for National Statistics (ONS) said. The figure was also below economists’ expectations of 2.6%. Services inflation slowed sharply to 2022-lows of 4.4%. Compared to November, the CPI rose 0.3%, above 0.1% in the previous period but below forecasts of 0.4%
Core inflation also eased, falling to 3.2% from 3.5%, marking the lowest reading since September and missing analysts’ estimates of 3.4%. The monthly rate rose to 0.3%, below forecasts of 0.5%.
Factory gate prices for goods produced by UK manufacturers rose 0.1% year-on-year in December, ending a three-month decline and surpassing forecasts for a flat reading. On a monthly basis, UK producer prices rose 0.1%, as expected, easing from a revised 0.4% gain in November.
This data is likely to influence the Bank of England’s (BoE) decision at its February 6 meeting, The BoE held interest rates at 4.75% last month, after policymakers said the UK economy had performed worse than expected, with no growth at all between October and December. Inflation remains above the Bank's 2% target and there are concerns inflation could rise further, with firms warning they will raise prices to cover tax rises coming into force in April. In addition, president-elect Donald Trump is pledging a 20% tariff on all imports into the US.
US Core Consumer Inflation Rate Slows
The annual consumer price inflation (CPI) rate in the US rose for a third consecutive month to 2.9% in December from 2.7% in November, in line with market expectations. This year-end rise was partly driven by low base effects from last year, particularly for energy. On a monthly basis, the CPI increased by 0.4%, the most since March, and above forecasts of 0.3%. Meanwhile, annual core inflation, which excludes volatile components such as food and energy, edged down to 3.2% from 3.3%, below forecasts of 3.3%. The monthly core inflation rate edged down to 0.2%, following a 0.3% rise in each of the previous four months, and below expectations of 0.3%.
US Aims To Tighten Flow of TSMC & Samsung Chips To China
The US plans to unveil more regulations aimed at keeping advanced chips made by Taiwan Semiconductor Manufacturing Co. and other producers from flowing to China, part of a flurry of measures introduced by the Biden administration during its final days in office. The latest measures would seek to encourage chip producers like TSMC, Samsung Electronics and Intel to more carefully scrutinize customers and increase due diligence, according to a Bloomberg News report. The changes follow an incident where TSMC-made chips were secretly diverted to the blacklisted Chinese company Huawei.
The rules would build on global semiconductor restrictions that the Biden administration published on Monday. Those curbs limit the sale of AI chips by the likes of Nvidia and other advanced makers to data centres in most countries. Washington is keen to eliminate backdoors through which Chinese customers such as Huawei are still acquiring advanced chips. The new regulations would target the world’s largest manufacturers of semiconductors, aiming to cut off supply at the source.
US Markets Watchdog Sues Musk Over Twitter Stake Disclosure
The US markets watchdog has filed a lawsuit against Elon Musk alleging he failed to disclose that he had amassed a stake in Twitter ahead of a takeover bid in 2022, allowing him to buy shares at "artificially low prices." The Securities and Exchange Commission (SEC) lawsuit alleges that the multi-billionaire Tesla boss saved US$150m on share purchases as a result. According to SEC rules, investors whose holdings surpass 5% have 10 days to report that they have crossed that threshold. Musk did so 21 days after the purchase, the filing says. "Musk's violation resulted in substantial economic harm to investors," the SEC complaint said. In a social media post, Musk called the SEC a "totally broken organisation." He also accused the regulator of wasting its time when "there are so many actual crimes that go unpunished."
Saudi Aramco To Expand Investments In Lithium
Saudi Aramco plans to expand its investments in lithium production in the race to build a supply chain for the metal vital for batteries to power electric cars. China controls about two-thirds of the market in lithium processing, but an increasing number of western and Middle Eastern companies are investing in developing their own supply chains. Saudi Aramco is expected to announce today that it will boost investments in lithium development, according to the Financial Times citing three people close to the company, as part of broader moves to become a mining hub and diversify from oil.
The kingdom aimed to develop facilities to process the metal commercially in three to five years with plans for refining and exports, industry and mineral resources minister Bandar Alkhorayef told the Financial Times. “Saudi Arabia is very well positioned in processing because of the mixture that we have, starting from energy competitiveness, great infrastructure in terms of industrial cities and ports,” he said.
Although a brutal downturn in lithium prices because of excess supply has made it hard for western groups to compete with China, Saudi Arabia hopes to use its financial muscle and chemical expertise to break into a market that has potential for big returns. Global demand for lithium is expected to surge seven-fold by 2040 owing to demand from electric vehicles, according to projections in the International Energy Agency’s Net Zero scenario.
Asian Markets Lower
MSCI’s emerging markets index, which tracks nearly US$7.6tn in stocks across China, India, Brazil, South Africa and other markets, is down more than 10% since hitting a two-and-a-half-year high on October 2. Developed market stocks are roughly flat over that period. Chinese stocks, which make up the largest share of the index, have dropped 15% since October 2 on concerns about the health of the country’s economy. India and South Korea, two other emerging market heavyweights, have also sustained steep losses in recent months. Investors have pulled about US$3bn from global emerging market equity funds so far this year, on top of US$31bn in outflows last year, according to JPMorgan data. Longer periods of higher US rates and a strong dollar usually entice US investors to stay home rather than take more risk investing abroad. Investors are now betting countries will try to weaken their own currencies and make their exports more competitive in response to US tariffs, a move that would depress emerging market dollar earnings.
In the Asia-Pacific region, Wednesday, stocks were mainly lower. Japan’s Nikkei 225 was down 0.1%, ending at 38,445 and extending losses to a fifth straight day. Business sentiment among large manufacturers rebounded in January according to the Reuters Tankan survey. South Korea’s Kospi also fell marginally after South Korean investigators arrested impeached President Yoon Suk Yeol. Australia’s S&P/ASX 200 slipped 0.2%. In India, the BSE Sensex rose 0.3% to 76,724.
The yield on Japan’s benchmark 10-year government bond rose to 1.25%, its highest since April 2011. Similarly, Japan’s 40-year government bond yield rose to 2.76%, its highest on record since 2007. The move comes amid a global selloff in government bonds.
Hong Kong Stocks Outperform For Second Day
Mainland China’s CSI300 fell 0.6% to 3,796 after recording its best day since November on Tuesday. For 2025 so far, China’s benchmark index has lost 3.5%. On Wednesday, the PBoC injected a net 958.4 billion yuan through seven-day reverse repurchase agreements, the second highest on record. This operation aimed to offset the expiration of medium-term lending facilities, meet heightened cash demands during the peak tax season, address liquidity pressures ahead of the Lunar New Year, and ensure sufficient liquidity in the banking system.
Hong Kong stocks outperformed the rest of the Asia-Pacific region for a second day. The Hang Seng closed 66 points, or 0.3% higher at 19,286. However, gains were capped by concerns over trade tensions between Beijing and Washington, with the US reportedly planning new regulations to limit the flow of advanced chips produced by Taiwan Semiconductor Manufacturing Co. and other manufacturers to China. Investors are also awaiting Q4 GDP numbers and December economic activity data due on Friday. The city’s benchmark index is down 3.9% year-to-date.
European Markets Higher After US & UK Inflation Reports
European markets jumped higher on Wednesday as investors reacted to cooler-than-expected inflation readings out of the US and UK. The pan-European Stoxx 600 surged 1.3%, snapping a three-day losing streak and clocking its best performance since August 2024. All sectors were in the green, led by retail stocks, which rose 2.7%. London’s FTSE 100 was 1.2% higher, after official data showed UK inflation fell to a lower-than-expected 2.5% in December.
UK government borrowing costs eased on Wednesday following the inflation print. The yields on UK 2-year gilts fell 15 bps to 4.45%. 10-year gilt yields fell 16 bps to 4.73%. Gilt yields surged to multi-decade highs recently.
UK housebuilders, sensitive to interest rate expectations, were among the top performers. Vistry Group gained 15.7%, leading gains in the Stoxx, after issuing a trading update reaffirming profit guidance it lowered in December.
German biotechnology giant Bayer on Tuesday was ordered to pay U$100 million to four plaintiffs who said they were harmed by exposure to toxic chemicals at a school in Monroe, Washington. While the jury ordered Bayer to pay damages to four people on Tuesday, it rejected claims brought by 11 others after alleged polychlorinated biphenyls (PCB) exposure at the school. Shares of Bayer rose 5.8%.
US Stocks Surge After CPI Report & Bank Earnings
On Wall Street, Wednesday, US stocks surged following the latest inflation report and strong bank earnings. “The market is breathing a sigh of relief as back-to-back inflation gauges, PPI yesterday and CPI this morning, came in slightly below expectations,” said John Kerschner, head of US securitized products and portfolio manager at Janus Henderson Investors. “Perhaps most importantly, today’s CPI number takes additional rate hikes off the table, which some market participants were beginning to prematurely price in.”
The S&P 500 climbed 1.8% to 5,950. The Dow surged 703 points, or 1.7%, to close at 43,222. The Nasdaq Composite rallied 2.5% to 19,511. It was the best day for all three major averages since November 6.
Shares in several of the biggest US financial institutions rose after they posted robust earnings. The four giant lenders that reported full-year results Wednesday notched their second-most profitable year ever in 2024. Goldman's profit more than doubled, while JPMorgan Chase and Wells Fargo both beat estimates. Goldman Sachs’ profits jumped 105% during the fourth quarter to US$4.1bn, as its equities business boomed, and investment banking rebounded. JPMorgan’s profits rose 50% in the final quarter of 2024 after a boom in trading around the US election. JPMorgan Chase became the first bank in US history to top US$50 billion in annual profit. BlackRock’s revenue beat forecasts, despite assets under management coming in below expectations. Citi swung to a profit and per-share earnings beat consensus expectations. Three of its five main segments — wealth, US personal banking and services — posted record revenue for the year. Bank of New York also exceeded forecasts with 11% revenue growth. BlackRock shares jumped 5.2%. Citigroup was up 6.5% while Wells Fargo rose 6.7% after it announced solid investment banking performance. BNY rose 8.0% and Goldman Sachs was up 6.0%. JPMorgan Chase edged up 2.0%.
Treasury Yields Tumble
Bonds rallied and yields fell after figures from the Bureau of Labor Statistics showed core inflation, which strips out volatile food and energy costs, unexpectedly fell to 3.2% from 3.3% a month before. The policy-sensitive two-year Treasury yield, which closely tracks interest rate expectations, dropped 10 bps to trade at 4.27%. The 10-year yield tumbled 13 bps to 4.66%. The 10-year yield had notched a 14-month high earlier in the week. Investors were betting that the Fed would deliver its first quarter-point rate cut this year in July, compared with September before the data was published.
Mark Cabana, head of US rates strategy at Bank of America, said that the inflation figures, notably the core figure, were likely to “modestly increase” the Fed’s “confidence that inflation will continue to fall”. But he added that policymakers were probably “still overall frustrated with the slowdown in the pace of progress on the inflation front”. “The real question mark around inflation this year isn’t around what the economy can do to inflation or what the trend is before the Trump administration takes over,” said David Kelly, chief global strategist at JPMorgan Asset Management. “It’s what will new policies on tariffs, immigration and fiscal policies mean for inflation?”
US Dollar Falls After CPI Report
The US dollar index fell 0.2% 109.08 on Wednesday, extending the pullback from the two-year high of 110 at the start of the week as the lack of sharp upside surprises to US inflation data rekindled bets that the Fed will lower interest rates this year.
The British pound initially weakened but quickly pared its losses, settling 0.3% higher at $1.2238 and hovering near its November 2023 lows as traders reacted to the latest CPI report. The euro was down 0.1% at $1.0293
In Asia, the offshore yuan edged 0.1% lower to Rmb 7.3482 per dollar, snapping a two-session winning streak, as the People's Bank of China ramped up short-term liquidity injections amid a cash squeeze. The Japanese yen strengthened for a fourth straight day, trading 1.0% higher at ¥156.41 against the greenback after Governor Kazuo Ueda reiterated the Bank of Japan will discuss a rate hike next week. The South Korean won weakened to around 1,460 per dollar, reversing gains from the previous session, as investors assessed ongoing political turmoil. On Wednesday, impeached President Yoon Suk Yeol was arrested by the Corruption Investigation Office for High-Ranking Officials, marking the first arrest of a sitting South Korean leader. The Indonesian rupiah, which has already been weakening against a stronger US dollar, fell to a six-month low after the central bank unexpectedly cut interest rates by 25 bps. The rupiah is currently trading below a landmark level of Rs16,000 to the dollar, and the central bank has intervened repeatedly in recent weeks to support the currency.
Gold Rises To Over 1-Month High
Gold rose 0.7% to $2,696 per ounce on Wednesday, extending gains from the prior session to its highest in over one month as cooling underlying inflation in the US favoured bets of less restrictive monetary policy by the Fed this year.
Oil Hits July Highs
Oil prices touched levels not seen since July. Brent crude futures surged 3.0% to $82.48, a level last reached on July 19.
Bitcoin Surges
Bitcoin was a beneficiary of the risk on sentiment. The cryptocurrency rose above $100,000 at one stage before ending the day 3.2% higher at $99,500.
Peter Lewis’ Money Talk Podcast
On Thursday’s “Peter Lewis’ Money Talk” podcast, I’ll be joined by Andrew Sullivan, founder of Asian Market Sense and Nick Marro, Principal Economist for Asia at the Economist Intelligence Unit. With a view from Singapore is Geoff Howie, Market Strategist at the Singapore Exchange.
The podcast is also available on Apple Podcasts, YouTube Studio and Spotify.
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