Chinese Executive PMI numbers: The flash appraisal of the HSBC manufacturing PMI MoM improved reasonably from its lowest level of 48.9 in April to 49.1 in May. The domestic demand was improved while production and export demand deteriorated further. We suppose a similar picture of marginal improvement from the official report. This would be in line with our view that economic momentum should have begun to stabilize amid a clear acceleration of policy easing since early April.Korean Exports volumes slumps: Weaker exports in May which is likely to drag Q2 GDP growth and would support our base scenario of a BoK rate cut in this month. We look forward to a noteworthy contraction in export volumes in May based on the interim numbers up to 20 May. Our forecast is that exports will fall from USD46.2bn in April to USD40.5bn in May which is a substantial decline even considering the fewer working days in May due to Labour Day, Children’s Day and Buddha’s Birthday.Decline in Korean imports: Imports are also expected to shrink from USD37.7bn in April to USD34.9bn but this may just reflect the difference in working days between April and May and would not point to a ‘real’ change in imports. As a result of above contraction the Korean trade surplus is likely to decline.Korean inflation: Headline inflation is likely to have rebounded from 0.4% to 0.5% YoY and from 0.1% to 0.3%, MoM in May.Core CPI inflation in Taiwan: The headline CPI inflation probably remained negative at -0.8% YoY in May, unchanged from April.Cross hedging on Asian pairs (Short Futures + Long ATM Puts)We could anticipate the basket of Asian currency crosses such as CNY, KRW, TWD are likely to depreciate slightly on account of widening current account deficit which is benefitting from reducing import volumes.Since we look ahead the currency pair (USD/KRW, USD/TWD & USD/CNY) to slip further towards their lowest levels, the fresh short build up opportunities in futures contracts can be seen and simultaneously the same should be hedged by going long on mid month At-The-Money puts of EUR/USD pair. The tepid fluctuation of EUR/USD pair as stated previously looks weaker, hence Asian overseas trader can look upon arbitrage opportunities through this pair.
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