Asian markets opened the week on a positive note, buoyed by stronger-than-expected economic data from China and optimism surrounding Beijing’s latest efforts to boost domestic consumption. Investors welcomed China’s “special action plan” aimed at stimulating household spending, which aligns with Premier Li Qiang’s government report last week that named consumption growth as a top priority. The latest measures also follow commitments from financial regulators to ease consumer credit quotas and loan terms, signaling a broad push to inject liquidity into the economy and support consumer demand.
While the plan does not appear to introduce any groundbreaking new policies, its classification as an “action plan” suggests that concrete steps at the local level will soon follow. Given past challenges in reviving domestic demand, this structured approach offers hope that implementation will be more effective than previous, less-defined efforts. Investors appear to be cautiously optimistic that China’s stimulus measures will help stabilize growth, particularly amid continued weakness in real estate and private investment.
Meanwhile, US futures are trending lower, reflecting growing fears of an impending economic slowdown. Treasury Secretary Scott Bessent’s remarks over the weekend did little to reassure investors, as he acknowledged that there are “no guarantees” the US will avoid a recession. While Bessent emphasized the need to transition away from excessive government spending, his comments about market corrections being “healthy” and his dismissal of recent stock market losses failed to inspire confidence. His focus on tax policy, deregulation, and energy security was seen as a long-term strategy rather than an immediate remedy for economic concerns.
On the currency front, New Zealand Dollar is currently the strongest performer this month, despite today’s weaker services data. Swiss Franc follows behind, while Australian Dollar takes the third spot. On the weaker side, Canadian Dollar sits at the bottom, trailed by Dollar and British Pound. Meanwhile, Euro and Yen are positioned in the middle.
Technically, while Hong Kong’s HSI gains today, the broader picture suggests upside momentum is fading, as seen in D MACD. Current rally from 18671.49 may extend higher, but strong resistance is expected around the 25K psychological level, which coincides with 100% projection of 16964.28 to 23241.74 from 18671.49 at 24948.95. Break of 23198.13 support will argue that the a near term correction has already started back to 55 D EMA (now at 21988), or 22k in short.
In Asia, at the time of writing, Nikkei is up 1.21%. Hong Kong HSI is up 1.37%. China Shanghai SSE is up 0.28%. Singapore Strait Times is up 0.84%. Japan 10-year JGB yield is down -0.011 at 1.517.
NZ BNZ services falls to 49.1, slips back into contraction
New Zealand’s BusinessNZ Performance of Services Index fell back into contraction territory in February, dropping from 50.4 to 49.1. The index remains well below its long-term average of 53.0.
Key components of the survey also showed deterioration, with Activity/Sales slipping from 53.8 to 49.2, New Orders/Business falling from 50.0 to 49.4, and Stocks/Inventories declining from 50.0 to 48.0. While Employment showed a slight improvement, rising from 47.4 to 48.9, it remains in contraction.
Despite the sector’s renewed contraction, negative sentiment among businesses showed a modest improvement, with 57.8% of comments in February expressing pessimism, down from 61.9% in January. Most firms cited the challenging economic climate as their primary concern.
BNZ’s Senior Economist Doug Steel said that “while one might have hoped that the PSI would move higher again, we know that economic turning points can be messy. The brief foray above 50 in January remains the only month in the last year the PSI hasn’t been in contraction”.
China’s data shows resilient start in 2025, government unveils plan to boost consumption
China’s economy got off to a stronger-than-expected start in the first two months of the year. Industrial production grew 5.9% yoy, beating market expectations of 5.3% yoy. Retail sales also exceeded forecasts, rising 4.0% yoy compared to an expected 3.8% yoy, reflecting improving consumer demand.
Meanwhile, fixed asset investment increased by 4.1% yoy, surpassing projections of 3.2% yoy, but ongoing weaknesses in the real estate sector persisted, with property investment falling -9.8% yoy. Additionally, private investment remained flat, signaling that confidence among smaller businesses and private enterprises was subdued.
China’s National Bureau of Statistics noted that existing and new policies aimed at stimulating growth have begun to take effect, leading to steady expansion in the industrial and services sectors, improved investment, and stable employment conditions. Officials highlighted “new quality productive forces” as key drivers of momentum.
To further bolster domestic demand, China’s State Council unveiled a “special action plan” over the weekend, aiming to increase household incomes, introduce childcare subsidies, and reduce financial burdens to encourage consumption.
While the plan was widely circulated across local governments, it lacked concrete details on financial support for implementation, leaving uncertainties about its immediate impact.
ECB’s de Guindos: Trade and geopolitical risks make uncertainty worse than pandemic time
ECB Vice President Luis de Guindos expressed confidence that inflation is on track to reach the 2% target “the end of this year or the beginning of next.” He added that “all indicators for services and underlying inflation are moving in the right direction.”
However, he warned that uncertainty in the global economy is “even higher than it was during the pandemic”, with mounting geopolitical risks and shifting trade policies. A key concern is the more protectionist stance of the new US. administration, which de Guindos sees as a major departure from multilateral cooperation. “This is a very important change, and a big source of uncertainty,” he warned.
Despite improving conditions—real wages rising, inflation easing, and financing conditions loosening—consumption in the Eurozone remains weak. De Guindos attributed this sluggish demand to consumer sentiment, noting that households are hesitant to spend due to fears about the medium-term economic outlook. “The possibility of a trade war or wider geopolitical conflict has an impact on consumer confidence,” he noted.
On the fiscal front, de Guindos acknowledged the massive defense spending plans by European governments as “certainly a decision in the right direction”. Nevertheless, he cautioned that it’s too early to determine the full economic impact. While increased defense investment is likely to support growth, he believes it will have only a limited effect on inflation.
Four central banks take center stage amid global data deluge
Central bank policy decisions will dominate market attention this week, as Fed, BoJ, BoE and SNB each convene to set monetary policy. The announcements come against a backdrop of critical data releases, including inflation figures from Canada and Japan, employment reports from the UK and Australia, retail sales updates from the US and Canada, as well as GDP from New Zealand.
Fed is widely expected to hold rates steady at 4.25-4.50%, with virtually no chance of a surprise move. While markets anticipate no immediate change, there remains keen interest in the new economic projections. Back in December, the median forecast called for just two rate cuts by year-end, bringing the rate down to 3.75–4.00%. Any downward revision to this path would solidify expectations for a June cut, making it in line with Fed fund futures pricing. Additionally, by the end of 2027, Fed sees rates back at 3.00–3.25%, marginally above the longer-run neutral estimate at 3.00%. Markets will also watch whether Fed’s new projections suggest faster pace of reaching neutral, which would in turn indicate a dovish turn on the economic outlook.
BoJ is also expected to hold rates steady at 0.50%, with 61 of 62 economists in a recent Reuters poll forecasting no change this week. poll. However, expectations are growing for a rate hike later this year, with 18 of 61 economists predicting a move to 0.75% in Q2, while 40 of 57 see it happening in Q3. The timing will largely depend on wage negotiations, which has so far been strong. Many of Japan’s largest corporations already met union demands for significant pay raises. This raises the possibility of an earlier-than-expected hike, and markets will be looking for any guidance from BoJ Governor Kazuo Ueda regarding the bank’s next steps.
BoE will also hold rates steady at 4.50%, maintaining its measured approach of one 25bps cut per quarter. Inflation expectations remain sticky, with the latest BoE survey showing that five-year inflation expectations rose to 3.6% in February, up from 3.4% in November—the highest level since 2019. This could keep the majority of the MPC hesitant to ease policy further prematurely. The key question at this meeting will be whether more members join Catherine Mann and Swati Dhingra in voting for a more aggressive loosening of monetary policy.
In contrast, SNB is forecast to cut its key policy rate by another 25bps, bringing it down to 0.25%. Swiss inflation dropped to just 0.3% in February, the lowest since April 2021, which strengthens the argument for another rate cut. With inflation now sitting at the lower end of the 0-2% target range, policymakers are likely to lower rates further to prevent a deflationary environment. Market expectations suggest that there is already a 20% probability that SNB will cut rates again in June, bringing interest rates down to 0%.
Here are some highlights for the week:
- Monday: New Zealand BNZ services; China industrial production, retail sales, fixed asset investment; Canada housing starts; US retail sales, Empire State manufacturing, business inventories, NAHB housing index.
- Tuesday: Japan tertiary industry index; Germany ZEW economic sentiment; Eurozone trade balance; Canada CPI; US housing starts and building permits, industrial production.
- Wednesday: New Zealand current account; Japan BoJ rate decision, trade balance, machine orders; Eurozone CPI final; Fed rate decision.
- Thursday: New Zealand GDP; Australia employment; SNB rate decision, Swiss trade balance; Germany PPI; BoE rate decision, UK employment; Canada IPPI and RMPI; US jobless claims, Philly Fed survey, current account, existing home sales.
- Friday: New Zealand trade balance; Japan CPI; UK Gfk consumer confidence; Eurozone current account; Canada retail sales, new housing price index.
AUD/USD Daily Report
Daily Pivots: (S1) 0.6292; (P) 0.6312; (R1) 0.6345; More...
Intraday bias in AUD/USD remains neutral first as range trading continues. On the downside, break of 0.6186 will target 0.6087 support first. Firm break there will resume whole decline from 0.6941. On the upside, sustained break of 0.6407 will resume the rebound from 0.6087 to 100% projection of 0.6087 to 0.6407 from 0.6186 at 0.6506, even still as a corrective move.
In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6482) holds.
