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Asia Economics & Strategy Daily Summary

Core Content Overview

This document provides a comprehensive analysis of economic and monetary policy developments across Emerging Markets (EM) in Asia, with a focus on India, Thailand, Pakistan, and Japan. It also includes market insights, trade ideas, and macroeconomic forecasts for the Asia-Pacific region, highlighting key indicators such as inflation, real GDP growth, and exchange rates.

Main Points

1. Thailand

• Interest Rate Strategy (IRS): There is an exhaustion in Thai IRS, and the recommendation is to pay 2y THB IRS at 1.295%, targeting a move to 1.60% with a stop below 1.15%.
• Roll and Carry: Estimated at +2.2bp over 1m.
• Risks: Prolonged tariff impacts, weaker domestic demand, and continued headline inflation surprises.
• Market Outlook: The document suggests a leaning against consensus strategy, emphasizing potential rate movements.

2. Pakistan

• Budget Deficit and Primary Surplus: Targets of 3.9% and 2.4% of GDP, respectively, are more ambitious than expected.
• Revenue Challenges: Limited new tax measures and uncertainty around provincial implementation of Agriculture Income Tax.
• Spending Outlook: Expected to be flat to FY25, with lower interest and subsidies offset by higher development, defense, and grants spending.
• IMF Program: The FY26 Budget demonstrates a commitment to the IMF program, which should support its FY26 financing plan assuming ~US$550mn in commercial external borrowing.

3. India

• CPI Outlook: May 2025 headline CPI is expected at ~3.0% YoY, with food and beverage inflation likely to fall by 0.2ppt to 1.9% YoY and core inflation to remain at 4.1% YoY.
• Stimulus Impact: The policy stimulus may lead to a larger jump in services than goods, with durable goods also expected to benefit due to targeted cohorts.
• Market Dynamics: Portfolio flows have started to flip in favor of India, and real yields have become more attractive.
• Trade Ideas: Suggesting a long 10y IGBs trade with FX unhedged, targeting a move to 6.0% and a stop at 6.6%.

4. Japan

• Monetary Policy: The BoJ is expected to keep interest rates unchanged at the June 16-17 MPM.
• Quantitative Tightening (QT): Reductions in JGB purchases are expected to continue at the current pace through CY26 Q1, then halved to ¥200bn/quarter in Q2.
• Governor Ueda's Outlook: Likely to maintain a watch-and-wait stance, emphasizing uncertainty around tariffs, but may hint at hawkish views on 2026 wage hikes and policy flexibility.

Upcoming Events

• India CPI: Expected to be 3.0% YoY in May 2025.
• US PPI: Upcoming data release.
• ECB Speakers: Schnabel and Guindos are set to speak.

Key Trade Ideas

Macroeconomic Forecasts

Real GDP Growth (2024-2026)

• India: 6.5% (2024), 6.3% (2025F), 6.8% (2026F)
• Japan: 2.0% (2024), 4.7% (2025F), 4.8% (2026F)
• China: 5.0% (2024), 4.7% (2025F), 4.8% (2026F)
• Thailand: 2.5% (2024), 2.5% (2025F), 2.0% (2026F)

Inflation (2024-2026)

• India: 3.8% (2024), 3.1% (2025F), 3.3% (2026F)
• Japan: 2.7% (2024), 2.3% (2025F), 2.9% (2026F)
• Thailand: 3.6% (2024), 3.1% (2025F), 3.3% (2026F)

Fiscal Balance (of GDP)

• India: -7.9% (2024), -7.2% (2025F), -6.9% (2026F)
• Pakistan: -6.9% (2024), -6.0% (2025F), -4.6% (2026F)
• China: -2.7% (2024), -2.4% (2025F), -2.5% (2026F)

Exchange Rates (per USD)

• India (INR): 83.7 (2024), 84.5 (2025F), 83.6 (2026F)
• Thailand (THB): 30.8 (2025F), 30.1 (2026F)
• Indonesia (IDR): 1,364 (2024), 1,394 (2025F), 1,300 (2026F)

Strategic Insights

• The EM Asia bond portfolio is adjusted with +0.1 CTD to China and +1% o/w to INR and IDR, reflecting expectations of lower yields and currency appreciation.
• India is expected to benefit from oil price drops and portfolio flows, supporting its current account and bond yields.
• The BoJ is likely to maintain rates unchanged, but QT pace is expected to slow in Q2, with reduced JGB purchases.
• Thailand and India are highlighted for rate strategy and currency moves, respectively.

Conclusion

The document outlines a range of economic and monetary policy insights for EM Asia, with a particular emphasis on India, Thailand, and Pakistan. It also provides strategic trade ideas and macroeconomic forecasts, highlighting the potential for rate cuts, currency appreciation, and portfolio reallocation based on current economic conditions and market expectations.