BoJ Meetings

Asia Morning Bites

The data calendar in Asia today is focused on inflation in Singapore while Taiwan reports industrial production figures. FOMC, ECB and BoJ meetings later this week will add some excitement.

 

Global Macro and Markets

    Global markets:  US equity markets moved sideways for much of Friday, finishing almost unchanged from the previous day. Equity futures are pointing to a similarly inconclusive start today, which is perhaps not surprising during the FOMC week. Chinese stocks were also somewhat directionless, with the CSI 300 also failing to make any ground, though the Hang Seng index did gain 0.78%. There wasn’t much going on in US Treasury markets either. The yield on the 2Y US Treasury was virtually unchanged at 4.837%, while the 10Y yield dropped by only 1.5bp to 3.835%. There was a bit more action in FX space, where EURUSD dropped sharply to 1.1130, erasing some of the gains of the previous week. Other G-10 currencies also lost ground, though Cable was pre

Fed Divisions and Inflation Concerns Shape Rate Hike Expectations

Navigating FX Markets: Late Cycle Dollar Strength Meets Carry Trade Amid Central Bank Battles and Volatility Decline

ING Economics ING Economics 09.06.2023 08:28
FX Daily: Late cycle dollar strength meets the carry trade We see two key themes driving FX markets near term. The first is central banks continuing to battle inflation, yield curves staying inverted, and the dollar continuing to hold gains. The second is cross-market volatility continuing to sink - generating greater interest in the carry trade. Expect these trends to hold into Fed, ECB and BoJ meetings next week.   USD: Late cycle dollar strength continues Yesterday's surprise rate hike by the Bank of Canada (BoC) triggered quite a clean reaction in FX markets. Of course, the Canadian dollar rallied on the view that the BoC had unfinished business when it came to tightening. But the broader reaction was for short-dated yields to rise around the world, for yield curves to invert further, and for the dollar to strengthen. USD/JPY rose about 0.8% after the BoC hiked. The view here was that if both Australia and Canada felt the need for further hikes, in all probability the Fed would too.   This endurance of this late cycle dollar strength is therefore the key story for this summer. For the near term, it looks like the dollar can hold the majority of its recent gains into next Wednesday's FOMC meeting - though the release of the US May CPI next Tuesday will be a big market driver too. Our bigger picture call remains that the dollar will embark on a cyclical bear trend in 2H23 - probably starting in 3Q - though the risk is that this gets delayed.   This brings us to our second key observation which is that declining levels of cross-market volatility continue to favour the FX carry trade. Somewhat amazingly the VIX index - implied volatility for the S&P 500 equity index - has fallen below not just the 22 February pre-invasion levels but also below the March 2020 pre-pandemic levels.   As is the case with low rates and FX volatility, presumably investors believe that policy rates will not be moving too much this year - perhaps a little higher and then a little lower. Lower volatility levels are favouring the carry trade which in the EM world favours the Mexican peso and the Hungarian forint and in the G10 space - as Francesco Pesole points out - favours the Canadian dollar. An investor selling USD/MXN six months forward at the start of the year would have made close to 16% by now.   Expect these core trends to continue for the near term. The data calendar is light today and we suspect a slight pick-up in initial claims will not be enough to move the needle on the dollar. Expect DXY to linger around 104.
Escalating Russia-Ukraine Tensions Amplify Oil Supply Risks: The Commodities Feed

FX Daily: Dollar Bears Urged to Be Patient as Dollar Reconnects with Rate Differentials

ING Economics ING Economics 24.07.2023 09:26
FX Daily: Dollar bears being asked for patience Quiet summer markets are seeing dollar pairs consolidate in new, slightly lower ranges. It will be another quiet session today ahead of a big week for G3 central bank meetings. Dollar bears may find some reassurance from emerging markets, where the PBoC is trying to limit USD/CNY gains and the South African rand is holding up despite the lack of a rate hike.   USD: Dollar reconnects with short-term rate differentials As my colleague Francesco Pesole has been writing this week, the dollar has made a modest comeback as both US yields adjust higher and short-term rate spreads stay in the dollar's favour. In fact, one could argue that the dollar should even be a little higher given that two-year US yields have retraced about 50% of their drop in the first half of July and the DXY has only retraced one-third of its losses. Price action over the past week probably shows that a switch to the disinflation trade will not be easy and will require a constant drip feed of supporting evidence – be it softer price or weaker activity data. Yesterday's drop in US initial claims clearly did not help here. Casting around the world in quiet FX markets we see the People's Bank of China (PBoC) continuing to fight a weaker renminbi by printing lower USD/CNY fixings than model-based estimates suggest. Despite credible calls for a lower renminbi to support growth and battle deflation, it seems Chinese policymakers prefer to keep renminbi losses contained and prevent a 'sell China' mentality building. The PBoC's battle against a stronger USD/CNY is a slight dollar negative in quiet summer markets – especially should it extend to outright dollar sales. Today's session should be a quiet one as the market prepares for US Federal Reserve, European Central Bank and Bank of Japan (BoJ) meetings next week. Regarding the BoJ, expectations of any Yield Curve Control policy tweak seem very low (perhaps too low) given that the 30-year Japanese government bond (JGB) yield is drifting lower and the forward market prices 10-year JGB yields at 50bp in three months and at only 55bp in six months. These 10-year yields should be priced a lot higher were the market expecting a policy change. USD/JPY may well drift to the 141.15/142.00 area before next Friday's BoJ meeting.
Escalating Russia-Ukraine Tensions Amplify Oil Supply Risks: The Commodities Feed

FX Daily: Dollar Bears Urged to Be Patient as Dollar Reconnects with Rate Differentials - 24.07.2023

ING Economics ING Economics 24.07.2023 09:26
FX Daily: Dollar bears being asked for patience Quiet summer markets are seeing dollar pairs consolidate in new, slightly lower ranges. It will be another quiet session today ahead of a big week for G3 central bank meetings. Dollar bears may find some reassurance from emerging markets, where the PBoC is trying to limit USD/CNY gains and the South African rand is holding up despite the lack of a rate hike.   USD: Dollar reconnects with short-term rate differentials As my colleague Francesco Pesole has been writing this week, the dollar has made a modest comeback as both US yields adjust higher and short-term rate spreads stay in the dollar's favour. In fact, one could argue that the dollar should even be a little higher given that two-year US yields have retraced about 50% of their drop in the first half of July and the DXY has only retraced one-third of its losses. Price action over the past week probably shows that a switch to the disinflation trade will not be easy and will require a constant drip feed of supporting evidence – be it softer price or weaker activity data. Yesterday's drop in US initial claims clearly did not help here. Casting around the world in quiet FX markets we see the People's Bank of China (PBoC) continuing to fight a weaker renminbi by printing lower USD/CNY fixings than model-based estimates suggest. Despite credible calls for a lower renminbi to support growth and battle deflation, it seems Chinese policymakers prefer to keep renminbi losses contained and prevent a 'sell China' mentality building. The PBoC's battle against a stronger USD/CNY is a slight dollar negative in quiet summer markets – especially should it extend to outright dollar sales. Today's session should be a quiet one as the market prepares for US Federal Reserve, European Central Bank and Bank of Japan (BoJ) meetings next week. Regarding the BoJ, expectations of any Yield Curve Control policy tweak seem very low (perhaps too low) given that the 30-year Japanese government bond (JGB) yield is drifting lower and the forward market prices 10-year JGB yields at 50bp in three months and at only 55bp in six months. These 10-year yields should be priced a lot higher were the market expecting a policy change. USD/JPY may well drift to the 141.15/142.00 area before next Friday's BoJ meeting.
Asia Morning Bites: Inflation Data in Focus, FOMC, ECB, and BoJ Meetings Ahead

Asia Morning Bites: Inflation Data in Focus, FOMC, ECB, and BoJ Meetings Ahead

ING Economics ING Economics 24.07.2023 10:15
Asia Morning Bites The data calendar in Asia today is focused on inflation in Singapore while Taiwan reports industrial production figures. FOMC, ECB and BoJ meetings later this week will add some excitement.   Global Macro and Markets Global markets:  US equity markets moved sideways for much of Friday, finishing almost unchanged from the previous day. Equity futures are pointing to a similarly inconclusive start today, which is perhaps not surprising during the FOMC week. Chinese stocks were also somewhat directionless, with the CSI 300 also failing to make any ground, though the Hang Seng index did gain 0.78%. There wasn’t much going on in US Treasury markets either. The yield on the 2Y US Treasury was virtually unchanged at 4.837%, while the 10Y yield dropped by only 1.5bp to 3.835%. There was a bit more action in FX space, where EURUSD dropped sharply to 1.1130, erasing some of the gains of the previous week. Other G-10 currencies also lost ground, though Cable was pretty steady maybe helped by better inflation data at the end of last week. Asian FX struggled against the USD on Friday. The worst-performing currencies were the THB and KRW.  The INR has been extremely stable at just under USDINR 82.0, which given the weakness across other FX pairs, suggests that it is being actively managed at around this level.   G-7 macro:  Friday was a quiet day for G-7 Macro data, but today, we will be inundated with plenty of PMI numbers from across the G-7 for both the service and manufacturing sectors.   Taiwan:  June industrial production probably turned more negative again after a slight bounce in May. The year-on-year growth rate is forecast to drop back to -16.49% by the consensus, though we think the drop may be even more pronounced, and expect a fall of about 18% YoY. This is mainly a statistical correction, as it does appear that production is bottoming out at around current levels.   Singapore: June inflation is set for release today.  Both headline and core inflation are expected to dip with favourable base effects helping force both numbers lower.  Headline inflation is expected to slip to 4.4%YoY (from 5.1%) while core inflation could dip to 2.4% (from 2.8%).  Moderating inflation could give the MAS some breathing room and we expect slowing inflation and slightly better-than-expected 2Q GDP to be factored into the MAS decision later in 4Q.    What to look out for: Key moves from major central banks New Zealand trade balance (24 July) Japan Jibun PMI and department store sales (24 July) Singapore CPI inflation (24 July) Malaysia CPI inflation (24 July) Taiwan industrial production (24 July) Thailand trade balance (24 July) South Korea 2Q GDP (25 July) Bank Indonesia policy meeting (25 July) Hong Kong trade (25 July) US Conference board consumer confidence (25 July)Australia CPI (26 July) Singapore industrial production (26 July) US new home sales (26 July) US FOMC decision (27 July) China industrial profits (27 July) ECB policy decision (27 July) US personal consumption, durable goods orders initial jobless claims (27 July) South Korea industrial production (28 July) Japan Tokyo CPI and BoJ policy (28 July) Australia PPI (28 July) US personal spending, core PCE, University of Michigan sentiment (28 July)

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