initial jobless claims

Asia Morning Bites 12 June 2023 Indian inflation later will show further declines. Markets are reasonably upbeat ahead of the likely Fed pause decision later this week.   Global macro and markets Global markets: US Stocks continued to push higher on Friday, seemingly finding comfort in the prospect of a pause from the Fed later this week, though markets are split over whether this will be the last hike this cycle, or whether there will be one more. The S&P 500 is now at levels it has not seen since last September. The NASDAQ is up 26.68% YTD – not bad for an economy that seems poised to slip into recession later this year….   Chinese stocks also made gains on Friday. Both the Hang Seng index and CSI 300 rose between 0.4-0.5%. US Treasury yields also pushed higher. Yields on the 2Y Treasury rose 8.1bp to 4.596%, while those on 10Y Treasury bonds rose just 2.1bp to 3.739%. EURUSD is pretty steady at 1.0749, though the AUD has pushed back up to 0.6745. Sterling is also stronger, rising to 1.2579 though the JPY is a little softer at 139.35. Asian FX is a bit mixed, with gains from the THB, and IDR, but further weakness from the CNY, which is now 7.13 following a month and a half of losses. G-7 macro: It is a quiet start to the week, though this won’t last. US CPI for May is out tomorrow, and we should see decent falls in the headline rate and some smaller declines in core inflation ahead of the FOMC decision, which comes out at 02:00 SGT on 15 June. China: Aggregate Finance data are released at some point this week, along with the usual monthly data dump on economic activity and MLF rates, which are out on 15 June – and there is some growing market speculation of a small rate cut. Regarding the activity data, we will be watching the retail sales figure, in particular, to see how the main engine of the recovery is doing. We expect it to slow from April as the post-re-opening spending bounce is not sustainable at current levels.   India: CPI data for May will show inflation falling further into the Reserve Bank of India’s (RBI’s) target range. We expect inflation to drop from 4.7% to 4.3%YoY (consensus 4.37%). Keep an eye out for the core inflation figures, which will be key for determining when the RBI may feel it can start thinking about winding back some of its tightening. For the moment, on-hold seems the more likely response. But the RBI won’t ignore a chance to give growth a chance if offered and may signal a more neutral stance at the next meeting on 10 August.     What to look out for: Japan PPI inflation and machine tool orders (12 June) India CPI inflation (12 June) Australia Westpac consumer confidence and NAB business confidence (13 June) US CPI inflation and NFIB small business optimism (13 June) South Korea unemployment (14 June) India Wholesale prices (14 June) Philippines OF remittances (14 June) US PPI inflation and MBA mortgage applications (14 June) FOMC policy meeting (15 June) New Zealand GDP (15 June) Japan core machine orders (15 June) Australia unemployment (15 June) China industrial production and retail sales (15 June) Indonesia trade (15 June) India trade (15 June) Taiwan policy meeting (15 June) ECB policy meeting (15 June) US retail sales and initial jobless claims (15June) Singapore NODX (16 June) BoJ policy meeting (16 June) US University of Michigan sentiment (16 June)

Asia Morning Bites China's monetary stimulus and lower US inflation provide a positive backdrop for risk assets ahead of tonight's FOMC meeting.   Global Macro and Markets Global markets:  Equities seemed to like the continued decline in US inflation yesterday, as it bolsters the case for a pause from the Fed (next decision at 02:00 SGT Thursday). The S&P500 rose 0.69% yesterday, and the NASDAQ added another 0.83%. Chinese stocks also rose, helped by yesterday’s unexpected PBoC rate cut. Still, despite the lower inflation print, US Treasury yields rose some more – the yield on 2Y notes rose 8.9bp to 4.666%, and the 10Y bond yield rose 7.8bp to 3.813%. Once the Fed is out of the way, and the market has settled, perhaps with an even slightly higher bond yield, this might well feel excessively high, given that inflation for July will probably come in at the low 3% level. EURUSD rose a little yesterday, reaching 1.0789, Other G-10 currencies also made gains, though the JPY continues to look soft at 140.18.  The KRW was the standout in Asia yesterday, gapping lower to 1271.50, possibly helped by hawkish comments from the latest BoK minutes. Strong labour data just out will also likely help (see below).   G-7 macro: Yesterday’s US inflation figures for May came out more or less in line with expectations. Headline inflation dropped to just 4.0% from 4.9%, while the core fell a little less, reaching 5.3% (it was 5.5% previously). James Knightley’s note on what this means is worth a close read. But the short version is that it boosts the chances of a Fed pause tonight – even if they indicate further hikes in the dot-plot (we don’t think they will ultimately deliver).  US May PPI data due out should add to the case for falling pipeline inflation pressures. UK April industrial production will not make pleasant reading, though the index of services could be a bit stronger. The ECB meets to decide on rates tomorrow. There is a wide consensus for a further 25bp of tightening.   South Korea: The jobless rate unexpectedly fell to 2.5% in May (vs 2.6% in April, 2.7% market consensus). Employment of services such as whole/retail sales, recreation, and transportation, led the improvement. One interesting thing is that job growth in ICT and professional, scientific& technical activities has been particularly strong over the past several months, despite the recent weakness in the semiconductor business. We think this is not directly related to semiconductor manufacturing itself but more related to platform services and software development, including AI technology. We believe that the tech sector has held up relatively well. Meanwhile, the construction industry shed jobs for the second consecutive month, and real estate also cut jobs.  We think that despite weakness in manufacturing and construction, service-led labour market improvements have continued, and this probably supports the hawkish tone of the BoK. In a separate data release, import prices dropped significantly to -12.0% YoY in May (vs -6.0% in April), mostly due to falling commodity prices. We expect consumer inflation to decelerate further in the coming months and to reach the 2% range as early as June.     What to look out for: FOMC meeting South Korea unemployment (14 June) India Wholesale prices (14 June) US PPI inflation and MBA mortgage applications (14 June) FOMC policy meeting (15 June) New Zealand GDP (15 June) Japan core machine orders (15 June) Australia unemployment (15 June) China industrial production and retail sales (15 June) Indonesia trade (15 June) India trade (15 June) Taiwan policy meeting (15 June) ECB policy meeting (15 June) US retail sales and initial jobless claims (15 June) Singapore NODX (16 June) BoJ policy meeting (16 June) US University of Michigan sentiment (16 June)

Asia Morning Bites Early Korean Trade data showed a surprise gain in June, and a separate release also shows pipeline price pressures diminishing. Jerome Powell starts his 2-day testimony to the US Congress.   Global Macro and Markets Global markets: US stocks returned from vacation to resume their decline, though didn’t fall much and firmed up a bit after opening lower. The NASDAQ fell just 0.16% and the S&P 500 lost 0.47% on the day. Equity futures remain negative though, so more declines beckon today. Chinese stocks also fell. The CSI 300 was also only slightly down but the Hang Seng index fell 1.54%. US Treasury yields declined slightly too. The yield on the 2Y note fell 2.9bp to 4.685%, while 10Y yields fell 4.1bp to 3.721%.   EURUSD is almost unchanged from this time yesterday at about 1.0922, after testing both higher and lower. The AUD is lower though, falling to 0.6788. GBP is also a bit weaker ahead of this week’s Bank of England rate hike. But the JPY has rallied a bit, moving to 141.308, down from a high of 142.251 yesterday. The PHP also made some gains yesterday, though most of the Asian pack made slight losses against the USD yesterday. The TWD and CNY were both down about 0.25-0.3%. USDCNY is now 7.1809. G-7 macro: US housing starts and permits jumped strongly in May. The annualized rate of starts jumped from 1340 thousand to 1631 thousand. And permits were also stronger, suggesting more gains in the pipeline.   There isn’t much else on the macro calendar today, apart from Jerome Powell who will testify in front of Congress today for the start of his 2-day grilling. So expect plenty of headlines from that, although we doubt he will stray too far from the June FOMC comments. There’s also a fairly packed ECB schedule of speakers today to provide a variety of views on how high terminal rates for the Eurozone will be, and just as importantly, when they will reach that point. South Korea: Early June exports (1-20 days) rebounded 5.3%YoY – the first gain in ten months. As expected, chip exports (-23.5%) and exports to China (-12.5%) were particularly weak while exports to the US rose firmly (18.4%), probably due to robust auto exports. Korea’s exports have bottomed out from the fourth quarter of last year, but the recovery has been pretty shallow. Imports dropped -11.2% during the period on the back of falling global commodity prices. We believe that the trade balance will return to a surplus by the end of the third quarter. Meanwhile, price pressures continue to diminish as producer price inflation decelerated to 0.6%YoY in May from 1.6% in April. PPI declined 0.3% MoM (nsa) after a 0.1% drop in April. This morning, the government announced that there would be no electricity fee hike for the third quarter. As we argued earlier, ahead of the national election in April next year, it is likely that electricity rates will be held steady. As global commodity prices have fallen sharply, this would also support the freezing of electricity fees.   We look for consumer price inflation to reach the 2%-3% range from June We forecast a 2.7% YoY rate for inflation in June (vs 3.3% in May) and for inflation to stay in this range until the end of this year. Pipeline prices suggest price declines continue due to falling global commodity prices and recent KRW appreciation. Import prices have already dropped for three months in a row and producer prices are expected to fall in YoY terms from June. Thus, we believe that the Bank of Korea will take a pause on hiking in 3Q24. Currently, we have marked a rate cut in 4Q23, but depending on the Fed’s rate cut timing, the BoK’s cut may come later, perhaps in the first quarter of next year. But, for now, we are keeping our current BoK forecast as it is.   What to look out for: Powell's testimony before US congress South Korea PPI (21 June) Australia Westpac leading index (21 June) US MBA mortgage applications (21 June) Fed’s Powell speaks (21 June) Fed’s Goolsbee speaks (21 June) Philippines BSP policy meeting (22 June) Indonesia BI policy meeting (22 June) US initial jobless claims (22 June) Fed’s Waller, Bowman and Mester speak (22 June) Japan CPI inflation and Jibun PMI (23 June) Singapore CPI inflation (23 June) Thailand trade balance (23 June) Fed’s Barkin and Bullard speak (23 June)

Markets have certainly reacted. In money markets, SONIA OIS pricing has shifted higher by up to 15bp since yesterday alone. A forward of 34bp higher for the upcoming meeting period implies that markets are now seeing a more than 30% chance of a 50bp hike today. The BoE reaching a terminal rate of 6% by early next year is now the market’s base case - 150bp above the current interest rate level. For comparison - and to highlight the significance of the recent shift in pricing - after the May meeting the market was looking for a peak rate of 4.75% to 5% after this summer.   The main question around this meeting for markets will be to what extent the monetary policy committee will push back against this extreme market pricing. Our economists think pushback will be unlikely. For one, the BoE appears to be just as wise about the near-term outlook of inflation as the market and is probably unwilling to pick a side for the risk of having to walk back later. And BoE officials have passed on plenty of opportunities to already do so in the recent past.     Inflation and wage data have led to aggressive market pricing of the BoE       oday's events and market view Central banks will remain in focus, certainly with the BoE meeting today as well as the Swiss National Bank and Norges Bank decisions in the broader global picture. But we also have Fed Chair Powell’s second day on Capitol Hill giving testimony to the Senate Banking panel today. Add to that a busy slate of other speakers, where from the Fed we will hear from Christopher Waller, Michelle Bowman, Loretta Mester and Thomas Barkin, while over in the eurozone, the European Central Bank's Fabio Panetta and Luis de Guindos are speaking. Given what is priced, the question is, of course, how much more can be priced in. As the UK CPI release has shown, data remains key. And given central banks' narrow focus, inflation data is particularly important. Other data feeding into investors’ concerns over the longer-term outlook, with central banks potentially taking the tightening too far, could further feed into the curve flattening bias. Today’s US initial jobless claims are expected to remain elevated after they had come in higher than expected last month. Other releases today are data on US existing home sales and the Chicago and Kansas Fed activity indices. In the eurozone we get the preliminary consumer confidence reading for June. Sovereign primary market activity today is limited to the US selling a 5Y inflation-linked bond.

FX Daily: Riksbank needs to show the krona some love The central message coming from this week's Sintra conference is that economies are holding up better than expected, the decline in inflation has been frustratingly slow and more tightening needs to be done. Expect the dollar to stay bid ahead of what should be another high US core inflation print tomorrow. Elsewhere, the Riksbank is expected to hike 25bp.   USD: No reason to fight dollar strength this week Central bank communication at this week's Sintra conference in Portugal has stayed pretty hawkish. The core message seems to be that low unemployment rates have allowed economies to withstand large tightening cycles reasonably well, meaning that inflation has not fallen as much as expected. Expectations for the duration and terminal rates for tightening cycles are being revised higher. This is most credibly being done in the US, where the economy appears to be outperforming. This is allowing the dollar to stay quite bid - especially against those currencies without much/any interest rate difference such as the Japanese yen and the Chinese renminbi. On the latter, policymakers are gently trying to fight the steady move higher in USD/CNY by setting lower fixings. However, they may be forced to cut the required reserve on FX deposits as they did last September if they want to send a stronger message of displeasure over renminbi depreciation. And as we have seen over the years, a steady uptrend in USD/CNY is not conducive to an overall bear trend in the dollar. Back to the Fed. If central banks are increasingly data-dependent, what's next in store for the Fed? The most important data point of the week will be tomorrow's release of the core PCE deflator for May expected at 0.3/0.4% month-on-month. Presumably, investors will be a little long dollars going into that release. Before that, however, we today see the weekly initial jobless claims figures. These have recently settled at higher levels. Any big upside surprise here could knock the dollar intra-day on the view that tighter policy is finally easing up labour supply - a key shoe to drop in the fight against inflation.  DXY looks biased to 103.30/35 and possibly 103.65 - as long as initial claims do not spike higher today.

Asia Morning Bites Market attention today will be on regional PMI figures and China's Caixin manufacturing report. Later in the week, the focus will shift to the FOMC minutes and US non-farm payrolls.   Global Macro and Markets Global markets:  US stocks finished last week on a positive footing, with both the S&P 500 and NASDAQ rising more than a per cent. That was a better performance than Chinese stocks. The CSI 300 did rise about half a per cent on Friday, but the Hang Seng was roughly unchanged. Tomorrow is the 4th of July, so the US will be out, and markets may be a bit thin ahead of the holiday. US Treasury yields nosed higher again on Friday. The 2Y UST yield rose 3.6bp to 4.895%, while the yield on the 10Y actually edged down 0.2bp to 3.837%. EURUSD staged an abrupt turn on Friday, rising back above 1.09 and it sits just above that level currently. The AUD has also made gains, rising to 0.666 ahead of tomorrow's RBA decision (we think no change, but the consensus is split), as has Cable, which is up to 1.2698. The Yen briefly went above 145 on Friday but with concern about intervention, it came down to 144.3 and traded in the narrow range. From previous years’ experience, intervention could be imminent, but we should watch the pace of depreciation more closely than the actual level of the JPY.  If the yen depreciates by more than 2% within 1-2 business days, we think that could be a trigger for government intervention. Other Asian FX has also made some gains against the USD. The THB and PHP were the main gainers on Friday, while the TWD lagged the pack.   G-7 macro:  US data on Friday was a little softer than predicted. Personal spending was up just 0.1% MoM, and flat on the previous month in real terms. The core PCE deflator rose 0.3%MoM, in line with expectations, but the core PCE inflation rate came in a little softer on rounding, to 4.6%YoY, down from 4.7%. Core inflation in the Eurozone edged 0.1pp higher to 5.4%, though this wasn’t quite as bad as had been expected. To kick this week off, we have the US Manufacturing ISM survey. Forecasters expect the headline index to move to a slightly less negative reading of 47.2 after 46.9 last month.   China: Caixin releases PMI data today. The official PMI numbers last week showed manufacturing still struggling with a below-50 reading. But although the non-manufacturing survey index was still in the expansion zone above 50, it was lower than the previous month. The Caixin manufacturing PMI has been a little stronger than the official numbers and was still just above 50 last month. We think it will probably drift down to about the 50 level this month, in line with the consensus view.   Japan:  The latest Tankan survey showed that Japan’s economy stays on its recovery path and will likely accelerate in the third quarter. The Tankan survey for large firms (both manufacturing and non-manufacturing) rose in both the current conditions and outlook indices. The current condition for manufacturing advanced from 1 to 5 for the first rise since June 2021 with confidence rising in the auto and electronics sectors. The outlook index also advanced to 9, beating the market expectation of 4. Despite the weakening of global demand, solid domestic demand, strong auto-sector performance and improving profits due to the weak JPY all may have supported the improvement seen in the manufacturing indices. The service-sector index also improved as expected. More importantly, capital investment across large enterprises rose 13.4% YoY (vs 3.2% 1Q, 10.0% market consensus).  The Tankan survey is one of the most closely watched indicators by the Bank of Japan, and we think the BoJ will likely upgrade its growth outlook in its quarterly macro-outlook report.   South Korea:  The trade balance in June recorded a surplus for the first time in sixteen months mainly due to falling global commodity prices. Within the export side, transportation - autos and vessels - gained the most, but this was more than offset by a decline in chips and petroleum. By destination, exports to the US fell for a third month while exports to the Middle East rose solidly due to regional infrastructure investment projects.  Please see the link for more details. However, business surveys showed that the manufacturing sector recovery is not so promising. Today’s manufacturing PMI fell to 47.8 in June from 48.4 in May. Last week’s local business survey also retreated. Thus, we are cautious about the improvement in manufacturing and exports in the current quarter.   Indonesia:  Indonesia reports inflation numbers today.  We expect inflation to moderate further with the market consensus pointing to a 3.6% YoY increase in prices last June.  Despite the slowdown in inflation, BI may opt to extend their pause and keep rates at 5.75% in the near term to help support the IDR.     What to look out for: Regional PMI reports and US NFP Japan Tankan survey and Jibun PMI (3 July) Regional PMI reports (3 July) Australia building approvals (3 July) China Caixin PMI manufacturing (3 July) Indonesia CPI inflation (3 July) US ISM manufacturing (3 July) South Korea CPI inflation (4 July) Australia RBA meeting (4 July) Japan Jibun PMI services (5 July) Philippines CPI inflation (5 July) China Caixin PMI services (5 July) Thailand CPI inflation (5 July) Singapore retail sales (5 July) US factory orders and durable goods (5 July) FOMC minutes (6 July) Australia trade (6 July) Malaysia BNM meeting (6 July) Taiwan CPI inflation (6 July) US ADP employment, initial jobless claims, trade balance, ISM services (6 July) South Korea BOP balance (7 July) Taiwan trade (7 July) US NFP (7 July)

Asia Morning Bites The RBA decision will be the main data release for the day as the US takes a holiday.   Global Macro and Markets Global markets:  Not surprisingly, it was a fairly moribund start to the week for US stocks ahead of today’s US holiday.  Both the NASDAQ and S&P 500 made small gains. There was more action on Chinese bourses, where the Hang Seng rose 2.06% and the CSI 300 rose 1.31%. US Treasury yields continued to rise with 2Y yields up a further 4bp but 10Y yields up just 1.8bp. EURUSD is largely unchanged at 1.0914. The AUD is looking a little stronger at 0.6675 ahead of the RBA later today (we expect no change from them, though the market is split).  Cable was little changed, but the JPY lost further ground rising to 144.64. In Asian Markets, the KRW and THB made some gains, but it was a lacklustre day for most currency pairs.   G-7 macro:  The US Manufacturing ISM index weakened further to 46.0 from 46.9, and the employment index dipped into contraction territory, falling from 51.4 to 48.1. New orders were slightly less bad at 45.6, up from 42.6, but still in contraction territory. The equivalent manufacturing PMI index produced by S&P also registered 46.0, though was flat from the previous month. US construction data was stronger than expected, rising 0.9% MoM, though there were a lot of downward revisions. Apart from German trade data, it is quiet for Macro today in the G-7.   Australia:  The RBA decision today has the market split. Of 32 economists surveyed by Bloomberg, 13 expect a rise of 25bp to 4.35%, while 19 (including ourselves) expect no change to the current 4.1% cash rate target. The main reasons for our decision are as follows: The RBA hiked in June, and although the data has been mixed, back-to-back hikes seem excessive with rates already at an elevated level. Moreover, the run of recent inflation data has been far more benign than was expected, and if last month’s finely balanced decision was pushed over the edge by higher-than-expected inflation, this month’s decision should result in no change by the same logic. See this note on the latest CPI data for more on this. Finally, there will be much better occasions for the RBA to hike in the months ahead if that remains necessary. September will be one of those, as the RBA can assess the impact of large electricity tariff increases which are due in July, and should be visible in CPI data by September. Also, favourable base effects drop out after July's CPI release for several months, so it is not inconceivable that we see some backing up of inflation over the third quarter before it dips again into the year-end.   South Korea: Consumer prices rose 2.7% YoY in June, slowing for a fifth month (vs 3.3% in May, 2.8% market consensus) as gasoline (-23.8%) and diesel (-35.2%) prices limited overall price increases. Excluding agricultural products and oils, core inflation also slowed to 4.1% from 4.3% in May. We believe that inflation will stay in the 2% range throughout the year, there will be some ups and downs, but inflation probably won’t return above 3%. KEPCO raised power bills from the middle of May leading utility fees to rise sharply (25.9%), but we don’t expect additional fee hikes throughout this year due to falling global commodity prices. Also, rent prices marked five monthly drops in month-on-month comparisons, and the declines are gradually increasing each month. As a result, we think that service prices will come down further in the coming months. Today’s data support our view that the Bank of Korea (BoK) will continue to stay on hold.  Now, the question is the timing of the first rate cut. We have pencilled in a 25bp cut in October as inflation is expected to head towards 2% while the economic recovery remains sluggish. The BoK may be concerned that rate cuts could cause a rebound of household borrowing, along with the recent easing of mortgage measures. At the same time, rising delinquency rates and default rates will also be a concern for the BoK as strict credit conditions have increased the burden on households.     What to look out for: RBA meeting South Korea CPI inflation (4 July) Australia RBA meeting (4 July) Japan Jibun PMI services (5 July) Philippines CPI inflation (5 July) China Caixin PMI services (5 July) Thailand CPI inflation (5 July) Singapore retail sales (5 July) US factory orders and durable goods (5 July) FOMC minutes (6 July) Australia trade (6 July) Malaysia BNM meeting (6 July) Taiwan CPI inflation (6 July) US ADP employment, initial jobless claims, trade balance, ISM services (6 July) South Korea BOP balance (7 July) Taiwan trade (7 July) US NFP (7 July)

Asia Morning Bites Philippine inflation and Singapore retail sales are all slated for release today.   Global Macro and Markets Global markets:  With the US on vacation yesterday, there wasn’t much going on in global markets. Chinese stocks made small gains, while European bourses were mostly in the red. Bond markets generally saw yields make small declines at the front end of the yield curve, but 10Y yields rose slightly except in the UK and Australia, where they dropped very slightly following the RBA’s (Reserve Bank of Australia) no-change rate decision. In currency space, EURUSD moved lower to 1.0881. The AUD dropped sharply after the RBA but recovered and ended slightly higher on the day at 0.6692. Cable also made gains, rising to just under 1.2740 before easing back down to 1.2714. The JPY made slight gains and is currently 144.47. Most of the Asia FX pack made gains against the USD, led by the KRW and THB. The CNY moved down to 7.2163 G-7 macro: A slight shrinkage in Germany’s trade balance yesterday was the main data from Tuesday. Here’s Carsten Brzeski’s take on the data. European Service sector and composite PMI numbers dominate the calendar today. The US releases final durable goods numbers and vehicle sales. Australia: The RBA left rates on hold at 4.1% yesterday, though signalled a willingness to hike again dependent on the flow of data. Our expectation is that the RBA will hold fire again in August, as we expect further downward progress in inflation, but that they will hike once more in September, as inflation progress at that point may be hampered by electricity price rises in July (data released later). We think (hope) that this will be the last hike in the current cycle.    Singapore:  Retail sales for May will be reported today.  Market consensus points to a modest 1.9%YoY gain.  Sales may have been supported by a resurgence of visitor arrivals, countering the likely negative fallout from still elevated inflation.  We can expect this trend of modest expansion to continue in the near term until inflation cools off further by the end of the year.     Philippines:  Inflation numbers will be released this morning. June inflation will likely slow down further from the 6.1%YoY expansion recorded in the previous month with consensus suggesting a slide to 5.5%YoY.  Moderating inflation will give newly minted Governor Remolona space to extend the BSP's recent pause and we could see the central bank on hold for at least the next couple of meetings.      What to look out for: Japan Jibun PMI services (5 July) Philippines CPI inflation (5 July) China Caixin PMI services (5 July) Thailand CPI inflation (5 July) Singapore retail sales (5 July) US factory orders and durable goods (5 July) FOMC minutes (6 July) Australia trade (6 July) Malaysia BNM meeting (6 July) Taiwan CPI inflation (6 July) US ADP employment, initial jobless claims, trade balance, ISM services (6 July) South Korea BOP balance (7 July) Taiwan trade (7 July) US NFP (7 July)

Traders will focus on the upcoming US inflation report. The US will publish key inflation reports that will trigger high volatility among dollar pairs, including the EUR/USD pair. At the end of last week, buyers actively traded as they approached the boundaries of the 10th figure. Traders interpreted June's Non-farms against the US currency, although the report itself was rather contradictory (for example, the wage component came out in the "green").   Inflation reports can restore confidence to the dollar bulls if they reflect an acceleration of the main indicators. But they can also plunge the greenback, enhancing doubts about the interest rate hike within the "post-July" period (the fact of the rate hike at the July meeting is beyond doubt, judging by market expectations). Therefore, traders will focus on the three US inflation reports that will be published during the upcoming week. All other macroeconomic reports will be of secondary importance, although they should not be ignored either.   Consumer Price Index The most important release of the week is the report on the growth of the consumer price index in the US for June (Wednesday, July 12). According to most experts, the indicator will reflect a slowdown in inflation growth. Thus, the general consumer price index in June should decrease quite sharply - to 3.1% y/y (from the previous value of 4.0%). The core index, excluding food and energy prices, should also demonstrate a downward dynamic, slowing down from the May value of 5.3% to 5.0% y/y. Take note that even if the CPI surprises market participants with unexpected growth, this fact is unlikely to fundamentally change the situation in the context of the July FED meeting. According to the CME FedWatch Tool, the likelihood of a rate hike this month is 93%.   That is, traders are practically confident in the hawkish outcome of the July meeting - the "green tint" of the inflation report will maintain (confirm) this confidence, but no more. However, if the consumer price index ends up in the "red", the dollar will be under quite strong pressure.   The fact is that the probability of another rate hike in September is now only 24% (again, according to the CME FedWatch Tool). If inflation indicators decrease at a more active pace, the probability of another increase (after July) by the end of the current year will weaken, and this fact will put pressure on the greenback. Producer Price Index, Import Price Index... and more Interestingly, the other inflation reports to be published in the coming week are also expected to reflect a slowdown in US inflation. For example, on Thursday, July 13, we will learn the value of the producer price index.   Experts believe that the overall PPI in monthly terms will come out at 0.2%, and in annual terms - at 0.4%. In annual terms, the indicator has been consistently decreasing for 11 months in a row, and June will accordingly be the 12th month. If it comes out at the forecast level, it will be the weakest result since August 2020. The core producer price index should show a similar dynamic. In annual terms, it should decrease to 2.7% (from the previous value of 2.8%). In this case, it will be the fifteenth consecutive decrease in the indicator. For comparison, it should be noted that in March of last year the base PPI was at 9.6%. On Friday, July 14, we will learn the dynamics of the import price index.   This indicator can be an early signal of changes in inflation trends, or their confirmation. In this case - more likely a confirmation. According to general forecasts, in monthly terms, the indicator will remain in the negative area, standing at -0.1%. In annual terms, the index has been below zero for three months in a row, and in June it should also remain in the negative area (-6.9%). Certainly, aside from US inflation reports, the economic calendar for the upcoming week is packed with other events: for instance, many Fed representatives (Barr, Bostic, Daly, Mester) will speak on Monday, the ZEW indices will be published on Tuesday, and a speech by Fed Reserve representative Neel Kashkari and ECB governing council member Philip Lane is expected on Wednesday. Also, we have the release of the ECB's June meeting minutes and the initial jobless claims data in the US.   On Friday, the release of the University of Michigan's consumer sentiment index and a speech by Fed Reserve governing board member Christopher Waller is expected. But all these events will serve as a kind of information backdrop. The main focus will be on US inflation. Conclusions The aforementioned inflation reports have the potential to greatly influence the dollar, especially if they end up in the "red", i.e., if the pace of inflation decline in the US accelerates. Amid contradictory Nonfarm, this would mean that the Federal Reserve may limit itself to just one additional rate hike, which will obviously occur at the July meeting.   The July rate hike has already been factored into the market, so any doubts about further tightening of monetary policy will be detrimental to the greenback. In this case, buyers will be the beneficiaries of the current situation: their path will be open not only to the boundaries of the 10th figure, but also to the 1.1080 mark (upper line of the Bollinger Bands on the weekly chart).  

June ECB minutes – gaps in the hawkish line? The European Central Bank will release the minutes of the June policy meeting. Recall that the ECB hiked rates by 25bp and all but pre-announced another 25bp hike for this month. Markets have more than complied and are now more than fully discounting one more hike by the end of the year. This contrasts with more signs that inflation pressure is actually starting to ease, not just in the US but also in the eurozone. But it also suggests markets are for now still fully embracing the ECB’s focus on current inflation and it basing the policy stance on backward-looking data – a clear preference to err on the side of doing too much when it comes to inflation. But there have also been important voices within the ECB’s governing council which seem to take a more centrist view. The Bank of France’s Francois Villeroy recently acknowledged that there was “first good news” on inflation and that policy rates would soon reach their terminal rate. ECB observers will scour today’s minutes to see whether the hawkish consensus is starting to crack in light of the softer macro backdrop. After all, we also believe that the ECB’s own growth forecasts on which the hawkish case is based look overly optimistic.   Today's events and market view The main event from a European perspective is the ECB minutes of the June meeting. The question is whether a softening macro backdrop will also heat up the debate between the ECB’s relatively silent doves and the currently dominant hawks. Over in the US, the focus will be on producer prices, which should suggest further easing pipeline pressure for prices. The initial jobless claims give a more contemporaneous read on the job market after the underwhelming payrolls report last week. Consensus is not seeing a large change with 250k initial claims after 248k last week and stable continuing claims, but with more signs of inflation cooling, the resilience of the labour market may be less of a worry, at least in the eyes of the market. Fed speakers will be watched more closely following the CPI release and given the fact that the pre-meeting black-out period will set in this weekend, a meeting at which the Fed could well deliver this cycle’s last hike. First voices yesterday, such as Richmond’s Thomas Barkin, already warned against backing off too soon. Scheduled for today is San Francisco’s Mary Daly while Governor Christopher Waller is slated for tomorrow. Supply will come from Italy and later in the day from the US, where a US$8bn 30y bond auction awaits.

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)

Asia Morning Bites Politburo pledges support for China's economy - we await detailed plans.   Global Macro and Markets Global markets:  US equity markets made small gains yesterday, though the price action was far from conclusive. The S&P settled 0.4% higher than the previous day while the NASDAQ rose just 0.19%. Chinese stocks fell. The Hang Seng was down 2.13% and the CSI 300 fell 0.44%. That might change today after a Chinese Politburo meeting yesterday vowed to provide more aid for the property sector as well as boost consumption and tackle local government debt issues. Equity futures are positive, but we will reserve judgement until we hear some details. We have had plenty of vague promises already, which don’t amount to a great deal so far. US Treasury yields seem to have decided that this week’s FOMC meeting will be hawkish, and 2Y yields jumped up 8.2bp to 4.919% yesterday. The yield on 10Y bonds rose just 3.8bp to 3.872%. EURUSD fell again yesterday, dropping to 1.1063. The AUD was flat at 0.6734, Cable dipped to 1.2816, and the JPY remained stable at 141.59. Asian FX didn’t move much yesterday. The TWD fell 0.39% after industrial production fell slightly more than expected. At the other end of the spectrum, the KRW made gains of 0.28%. The CNY was unchanged. G-7 macro:  PMI data yesterday was weaker across much of the Eurozone, and the aggregate composite PMI dropped a full point to 48.9, with very weak manufacturing (42.7 from 43.4) and a slowdown in service sector growth (51.5 from 53.7). The equivalent US series showed a smaller manufacturing contraction (49.0) but also showed service sector growth slowing (52.4 from 54.4). Today, Germany’s Ifo survey will add more detail on the German situation. The US releases house price data (S&P CoreLogic numbers as well as FHFA data). And the US Conference Board releases its July confidence data. South Korea: Korea’s real GDP rose 0.6% QoQ sa in 2Q23 (vs 0.3% in 1Q23, 0.5% market consensus). 2QGDP was up from the previous quarter and slightly higher than the market consensus, but the details were quite disappointing. Net exports contributed to the growth (+1.3pt) but it was mainly because the contraction of imports (-4.2%) was deeper than that of exports (-1.8%). Looking ahead, we think that GDP in 2H23 will slow down again, as forward-looking data for domestic demand indicates a further deterioration. Please see our 2H23 outlook details here.  We think today’s data should be a concern for the Bank of Korea as exports remain sluggish amid expectations of a further worsening of domestic growth. Also, this year’s fiscal support is likely to remain weak, considering the tax revenue deficit and normalization of covid related fiscal spending. Thus, the BoK’s policy focus will gradually shift from inflation to growth over the next few months as we expect inflation to stay in the 2% range most of the time in 2H23. Indonesia:  Bank Indonesia meets today to decide on policy.  BI is widely expected to keep rates untouched at 5.75% to help shore up the IDR and ensure FX stability.  Previous dovish comments from BI Governor Warjiyo suggesting rate cuts could be considered have been set aside for now and we could see an extended pause from BI with any rate cut only considered later on.     What to look out for: Central bank decisions 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)

Korea: 2Q23 GDP improved but with disappointing details South Korea’s real GDP accelerated to 0.6% QoQ (sa) in 2Q23 from 0.3% in 1Q23, which was slightly higher than the market consensus of 0.5%. However, the details were quite disappointing with exports, consumption, and investment all shrinking. We expect growth to slow in 2H23.   Net exports contributed positively to overall growth The upside surprise mainly came from a positive contribution from net exports (+1.3pt). However, we do not interpret this in a positive light, because it was not driven by an improvement in exports, but rather by a contraction of imports (-4.2%), which was deeper than that of exports (-1.8%). By major item, exports of vehicles and semiconductors rose as global supply conditions improved and global demand remained solid. But, exports of petroleum/chemicals and shipping services declined further with unfavourable price effects weighing. Falling commodity prices have had a positive impact on Korea's overall terms of trade, having a greater impact on imports, but "processed" exports such as petroleum/chemicals and shipping took more of a hit.   Net exports led growth but due to sharper decline of imports than exports   Meanwhile, domestic demand dragged down overall growth by -0.6pt As monthly activity and sentiment data already suggested, private consumption was down -0.1% with declining service consumption, while investment – both construction (-0.3%) and facilities (-0.2%) – contracted. Also, government expenditure dropped quite sharply (-1.9%) as spending on social security declined. We believe that the reopening boost effects on consumption have finally faded away, while tight credit conditions have also dampened investment. R&D investment (0.4%) was an exception, rising for the second consecutive quarter on the back of continued investment in new technologies.   GDP in 2H23 will likely decelerate again Forward-looking data on domestic demand indicates a further deterioration in domestic growth. Construction orders, permits, and starts have been declining for several months, while capital goods imports and machinery orders have also trended down recently. With continued market noise surrounding project financing and growing uncertainty over global demand conditions, business sentiment for new investment is very weak. This year’s fiscal spending will also not support the economy meaningfully, considering the tax revenue deficit and normalization of covid related spending. However, we think trade will take the lead in a modest recovery. We believe that exports will rebound by the end of the third quarter with support from improved vehicle demand, semiconductors, and machinery (despite the global headwinds). Please see our 2H23 outlook details here.   Korea's GDP is expected to slow down in 2H23     Although 2Q23 GDP was higher than expected, the details suggest a weaker-than-expected recovery in 2H23, together with weak forward-looking data, thus we keep our current annual GDP forecast for 2023 unchanged at 0.9% YoY.   The Bank of Korea watch We think today’s data should be a concern for the Bank of Korea (BoK). The BoK forecast growth to accelerate in 2H23 on the back of better exports. We agree that export conditions will improve, but we don't think they will be strong enough to dominate weak domestic growth, and today’s data also suggests that growth will slow down in the near future. Thus, the BoK’s policy focus will probably gradually shift from inflation to growth in 4Q23. In 3Q23, we believe that the BoK will continue to keep its hawkish stance while keeping a close eye on other major central banks’ monetary policies. Also, inflation may fluctuate a bit over the Summer season due to soaring fresh food prices amid continued severe weather conditions. However, if inflation stays in the 2% range for most of 2H23, then the BoK’s tone should shift to neutral and eventually revert to an easing cycle.

Asia Morning Bites After the Fed, attention now shifts to the BoJ tomorrow and ECB later today.   Global Macro and Markets Global markets:  US equities didn’t hate Jerome Powell’s message last night at the FOMC following the latest 25bp rate hike. But they didn’t love it either. That probably suggests Powell got it about right in terms of the overall tone. (see our detailed note here). The door is left wide open for more hikes, the question is, will they actually deliver?   The S&P 500 was down just 0.02%, while the NASDAQ fell only 0.12%. Practically flat on the day. Chinese stocks were a bit more subdued also, maybe figuring that the earlier Politburo comments were more hot air than cold cash, and the CSI 300 drifted 0.21% lower, while the Hang Seng index fell 0.36%. US Treasury markets clearly felt that they were appropriately priced for the FOMC message, and 2Y yields came off just 2.3bp, while the 10Y dropped just 1.8bp to 3.867%. These slight yield reductions enabled the EUR to claw a little ground back against the USD, and EURUSD rose to 1.1083. Other G-10 currencies – GBP and  JPY made gains against the USD, though the AUD lost some ground after their June inflation figures, which on the whole, could have been better even though they did show inflation still dropping (see our note here for more detail). Asian FX had a mixed day. The CNY has begun to drift weaker again after its Politburo-induced strengthening earlier. But there were some positive outcomes from the THB and MYR. G-7 macro:  After the FOMC excitement, which turned out not to be so exciting after all, it’s the turn of the ECB today. Here’s a cheat sheet from our European economists, rates and FX strategists, who think that they may veer towards a more data-dependent strategy after this meeting, which could be viewed as a slightly dovish tilt and lead to a weaker EUR. On top of that, we also get Advance 2Q GDP from the US, with a consensus view of 1.8%QoQ annualized growth – only slightly down from 2.0% in 1Q23. Any upside surprise is likely to see bond yields pushing higher again. China: Industrial profits data for June will not likely buck the trend of other weak data. Industrial production growth remained weak in June, while producer price inflation turned more negative. So a  further dip from May’s -12.6%YoY outcome seems possible. What to look out for: ECB and BoJ 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)

FX Daily: Fed patience provides breathing room for risk assets The market reaction to last night's FOMC statement was a mildly positive one, as Chair Powell's acknowledgement that the Fed could afford to be a little patient saw US yields and the dollar soften slightly. Today, all eyes will be on the ECB, where a 25bp hike is widely expected along with the door being left open for another hike in September.   USD: A little early to chase the dollar lower In the end, the dollar tracked US yields and marginally softened after yesterday's FOMC rate decision and press conference. Fed Chair Jerome Powell delivered another credible performance, and it seemed that markets – perhaps because of positioning – latched onto comments that the Fed "could afford to be a little patient" as a result of all the tightening implemented so far. US two-year yields edged some 7-8 bps lower, and December 2024 futures contracts priced Fed Funds some eight ticks lower at 4.07%, embracing five 25bp cuts in 2024. One of the clearest messages coming through from the press conference was that Chair Powell felt the Fed was "not in an environment where we want to provide a lot of forward guidance". In other words: listen to the data, not the Fed. On that subject, he highlighted that by the time of the next meeting on September 20th, the Fed would have two new CPI reports, two new job reports, and the Employment Cost Index (which will be released tomorrow).  While the dollar is a little lower today post-Fed, we would not chase the move just yet and prefer to take our cue from the data, starting with tomorrow's ECI. As we discussed in our FOMC review, the carry trade environment will still be popular and with overnight deposit rates at 5.25%, the dollar is clearly not a funding currency. Beyond the ECB meeting today, the US calendar should see some downward revisions to second quarter GDP, durable goods orders, and initial jobless claims. Of these, claims might be the most important given the ongoing need to see tight conditions ease in the US labour market. Barring any hawkish surprise from the ECB today, DXY should trade within a 100.60-101.20 range.

FX Daily: US Treasury wobble unnerves risk assets A sell-off at the long end of the US Treasury market has cast a shadow over risk assets and hit cyclical currencies. The dollar has been the main beneficiary. Expect focus to very much remain on the US bond market into next week's quarterly refunding. For today, attention is on whether the BoE hikes 25bp or 50bp and how Brazilian assets react to the 50bp rate cut.   USD: Tracking Treasuries Wednesday's session was all about the US bond market and the sell-off at the long end of the curve. US 30-year Treasury yields were briefly 15bp higher. And far from the benign bullish disinversion of the curve we saw after the soft June CPI print, yesterday's move was a more negative bullish steepening. Higher risk-free rates hit US growth stocks (Nasdaq -2%) and also hit 'growth' currencies, such as the commodity complex and the unloved Scandi currencies. At the heart of yesterday's move was the US fiscal story. Despite the Democrat administration and its supporters in the media decrying Fitch's decision to remove the sovereign's AAA status on Tuesday evening, there is genuine concern over US fiscal dynamics. And it looks like the Fitch release was carefully timed. Yesterday also saw a slightly higher than expected US quarterly refunding announcement, where $103bn of 3, 10, and 30-year bonds will be sold next week. The fact that fiscal dynamics were in play yesterday was reflected in wider US asset swap spreads (Treasuries underperforming the US swap curve) and the US yield curve steepening. As above, higher risk-free rates are providing greater headwinds to risk asset markets - including equities. We are also seeing some slightly higher cross-market volatility readings which may prompt investors to partially de-risk from carry trade strategies (good for the Japanese yen and Swiss franc on the crosses, bad for the high yielders). We will also be interested to see how the Brazilian real performs today after Brazil's central bank started its easing cycle last night with a 50bp cut and promised similar magnitude cuts over coming meetings. The currency could edge a little lower today given the international environment. While the US Treasury story will be with us into next week's auctions, the focus today will be on the initial jobless claims (these have been moving markets) and the services ISM index. Barring a significant rise in claims or a big dip in the services ISM, it looks like the dollar will hang onto recent gains into what should be a decent US July nonfarm payrolls report tomorrow.    DXY could grind its way toward the 103.50 area.  

US Everyone will be watching the US inflation report as a cool report could help support soft landing hopes and seal the deal for some that the Fed is done raising rates. Expectations for the July inflation report is for headline inflation to rise towards the mid-3% range, while core inflation remains steady and holding onto the lowest levels since 2021 on both a monthly basis at 0.2% and at 4.8% from a year ago.   Any hot surprises might bolster the case that the Fed may need to raise rates at the November meeting. Wall Street will pay close attention to Tuesday’s NFIB Small Business Optimism report and trade data. Thursday is all about the inflation report and the initial jobless claims. Friday contains the release of the PPI report and the preliminary University of Michigan Sentiment report/inflation expectations. Fed speak will also include appearances by Bostic and Bowman on Monday. Harker speaks on Tuesday and Bostic provides remarks on employment on Thursday. Earnings for the week include Alibaba Group Holding, Allianz, Bayer, Berkshire Hathaway, China Mobile, China Telecom, Eli Lilly, Honda Motor, Novo Nordisk, Palantir Technologies, Rivian Automotive, RWE, Saudi Arabian Oil, Siemens, SoftBank Group, United Parcel Service, and Walt Disney Eurozone Next week starts quickly on Monday with both Eurozone Investor Sentiment and German Industrial Production.  The August Sentix Eurozone sentiment reading should show confidence remains low in August, declining further from -22.5 to -25.0.   The June German industrial production data should show the manufacturing isn’t ready to rebound as expectations on a monthly basis are for a -0.5% drop, worse than the -0.2% prior reading. Weakening data points should support the view that inflation will slow significantly later this year. UK This week is all about growth and that is disappearing in the UK. Friday’s preliminary look at Q2 GDP is expected to show the economy is stagnating.  The consensus estimate for Q2 GDP is for a flat reading (consensus range of 0.0% to 0.1%), down from 0.1% in Q1.  The BOE is still likely to deliver more rate hikes, which should mean the UK economy is recession bound. Russia The CBR will have further pressure to keep on raising rates after a hot July inflation report.  Headline inflation in July is expected to jump from 3.25% to 4.25%, well above the 4% target.  At the end of the week, the release of the advance Q2 GDP reading is expected to show the economy rebounded from -1.8% to +3.3%. South Africa Next week mainly offers tier two and three economic data with both mining data and Manufacturing production results that are expected to show a modest rebound. Turkey A few economic indicators will be released this week, with the focus mainly on June Industrial Production, which should show activity turned negative. Switzerland Unemployment data on Monday is expected to show the labor market remains tight as the unemployment rate holds steady at 2.0%.  The focus remains on inflation for Switzerland and a strong labor market could keep wages strong and that should support the SNB case for a September hike. China Three key data to watch. On Tuesday, the Balance of Trade for July, another horrendous print is being forecasted for exports growth to plunge further to -14% year-on-year from -12.4% recorded in June If it turns out as expected, it will be the third consecutive month of contraction. Imports growth is forecasted to improve slightly to -5.2% year-on-year from -6.8% in June but still a potential fifth consecutive month of contraction. Overall, such forecasts are pointing to a continuation of weak internal and external demand that market participants are getting fatigued from China’s top policymakers’ ongoing stimulus rhetoric that is too vague and too minor in the past two months in order to boost domestic consumption and the languish property sector. Consumer inflation and producer prices data will be out on Wednesday. Higher odds of deflationary risk as the forecast is calling a negative reading on inflation at -0.3% year-on-year from 0% printed in June. Producer prices are forecasted to contract again to -5% year-on-year from -5.4% in June, a potential ten consecutive months of negative growth. On Friday, we will have outstanding loan growth and M2 money supply data for July. On the earnings front, Alibaba, one of China’s Big Tech will report its June quarter 2023 earnings results on Thursday, 10 August. Noteworthy to scrutinise Alibaba’s earnings and forward guidance as China policymakers have loosened their grip on the business operations of China’s Big Tech firms. India The key highlight will be RBI’s interest rate decision on Thursday where the consensus is expecting RBI to stand pat at 6.5%, a potential third consecutive of no change on the policy rate due to easing inflationary pressures. On Friday, industrial production for June will be out, and a drop in growth is being forecasted at 4.1% year-on-year from 5.7% in May, still a potential eight consecutive month of expansion. Australia A light data week ahead, Westpac consumer confidence for August out on Tuesday where a dip of -0.7% month-on-month is being forecasted from 2.7% printed in July. Lastly, consumer inflation expectations for August will be released on Thursday.     New Zealand Two data to take note of: electronic retail card spending for July out on Wednesday, and manufacturing PMI for July on Friday. Japan The Bank of Japan (BoJ) Summary of Opinions will be out on Monday and market participants will be scrutinising any hints on the next step in monetary policy normalisation in terms of timing and form as BoJ has indirectly revised upward on the upper limit of its Yield Curve Control (YCC) on the 10-year JGB yield to 1% during its last meeting in July. On Tuesday, we will have household spending for June where the consensus is expecting a slight contraction to -4.1% year-on-year from 4% in May but on a month-month basis, a recovery is expected at 0.3% in June from -1.1% printed in May. Bank lending data for July will be released as well on the same day. Singapore The only key data will be the Q2 GDP finalised reading out on Friday where the prior flash figures brushed away a recession scare as Q2 q/q and y/y came in positive at 0.3% and 0.7% respectively. Markets Energy Oil prices have remained supported by OPEC+, as they appear committed to keeping this market tight.  The upcoming week should have some of the focus shift back to demand.  On Monday, Saudi Aramco will post their earnings results.  Tuesday has two events, with the release of some key Chinese trade data, which includes oil imports and the US EIA Short-term Energy Outlook (STEO).  On Thursday, OPEC publishes their monthly report, while the EIA releases their monthly publication on Friday. Natural gas prices have also steadied in the US over cooler weather, while Europe continues to deal with a tight market over Norwegian outages. Gold After the Treasury’s quarterly refunding announcement, concerns grew over the US widening deficit.  Gold pared weekly losses as the bond market selloff saw some relief after the NFP report showed the labor market is softening. The focus next week will be all about US inflation and some major data out of China. Soft landing hopes remain, but that could get rattled if the disinflation process stalls. Crypto Bitcoin continues to consolidate below $29,000 as volatility struggles to return.  Bitcoin was little changed after both the Treasury quarterly refunding announcement and NFP report. Regulatory decisions and ETF rulings still remain the likely catalysts to trigger a meaningful crypto move.  

Asia Morning Bites Chinese stocks weather the latest US investment ban. Chinese lending data today and 2Q23 GDP from the Philippines.   Global Macro and Markets Global markets:  It was another day of slight falls for US stocks on Wednesday, though things could have gone either way until late trading when there was a final dip lower. The S&P 500 fell 0.7% while the NASDAQ fell 1.17%. Chinese stocks were mixed, which isn’t a bad result considering the inflation data which turned negative, and the new US ban on investment in Chinese technology. The Hang Seng fell 0.32%, while the CSI 300 fell 0.31%. US treasury bond yields were also mixed on Wednesday, the 2Y yield rose 5.7bp to 4.808%, though the 10Y yield fell 1.4bp to 4.008% after a good auction.  EURUSD recovered a little ground, rising to 1.0976, but failed to make it above 1.10. The AUD and GBP were both fairly flat relative to the previous day, though the JPY saw further losses, rising to 143.657. Asian FX was fairly rangebound yesterday too, with most registering small gains of less than a quarter of a percent. G-7 macro:  US CPI inflation data for July is due today, and we are likely to see something we haven’t seen for some time, namely, annual inflation rising. The good news is that this is mainly due to base effects, and the month-on-month gain in the CPI index is expected to be modest at 0.2%, which is broadly in line with the Fed’s target. The bad news is that this indicates that the going will be a lot heavier for inflation from now on, without those nice helpful base effects that dominated the second quarter. Core inflation is expected to drop only 0.1pp to 4.7%. China: Aggregate finance data is released today. New CNY loans are forecast to rise by CNY780bn, which puts it slightly ahead of last year’s CNY678bn figure. Given the recent disappointing macro data, there might be some downward surprises here, though loans have been one of the stronger parts of China’s data in recent months.   Philippines:  2Q GDP is set for release today.  Market consensus is at 6.0%YoY, a slowdown from the 6.4% reported in 1Q.  Elevated prices likely capped household spending while capital formation also probably slowed due to the lagged impact of previous monetary tightening. Government officials are targeting full-year growth of 6-7%YoY, although given various headwinds, we feel that growth may be headed for a slowdown for the rest of the year.  What to look out for: US inflation Philippines GDP (10 August) RBI policy meeting (10 August) US initial jobless claims and CPI inflation (10 August) Singapore CPI inflation (11 August) Hong Kong GDP (11 August) US PPI inflation, University of Michigan sentiment (11 August)

Global Macro and Markets Global markets:  Equity sentiment turned sour again on Tuesday. US stocks fell, with consumer finance and regional banks towards the bottom of the pile. The S&P 500 and NASDAQ both fell by more than 1.1% though equity futures suggest a positive open later today. Chinese stocks also fell, despite yesterday’s rate cuts, as activity data turned even worse.  The CSI 300 fell 0.24% while the Hang Seng fell 1.03%. US Treasury yields were mixed yesterday. The 2Y yield lost 1.5bp taking it to 4.952%, while the 10Y yield put on 2bp to 4.258%. With yields not doing much aside from intra-day volatility, EURUSD is roughly unchanged from this time yesterday at just over 1.09. The AUD is weaker though, falling to 0.6456, responding to the weaker-than-expected wage-price numbers for 2Q23. Cable is slightly stronger at 1.2701, but the JPY is very slightly softer at 145.63, despite yesterday’s bumper GDP release for 2Q23. Regional Asian FX is weaker across the board. USDCNY jumped higher to 7.2884 on the bad macro news. The THB and VND were the region’s worst performers yesterday, responding to the negative China data. G-7 macro:  Yesterday’s US Retail sales figure was much stronger than forecast. Headline sales for July rose 0.7% against expectations for a 0.3% MoM rise. The core (control) figure rose 1.0% MoM. Not even a hint of a slowdown here. There was, however, a much weaker US Empire Manufacturing survey and some softer housing data (existing home sales and NAHB housing index). Today, the US releases more housing data (housing starts, building permits and mortgage applications) as well as industrial production. Production is expected to grow 0.3% MoM, with the manufacturing component remaining flat from the previous month.  We also get EU GDP data for 2Q23 – a 0.3% QoQ increase is the consensus forecast. And after stronger wage data yesterday, the UK will publish July CPI inflation numbers.   China:  New home price data for July are due out shortly. Last month, prices fell by a very marginal 0.06%. If the decline begins to accelerate, it will feed back on weaker consumer confidence and weigh on already feeble retail sales growth. New Zealand: The RBNZ is not expected to raise rates when they meet today, though they are expected to keep up their hawkish rhetoric and signal that rates will remain restrictive until well into 2024, despite the macroeconomy’s worsening situation.   What to look out for: Fed minutes and RBNZ meeting New Zealand RBNZ policy (16 August) US building permits, housing starts and industrial production (16 August) US Fed minutes (17 August) Japan trade balance (17 August) Singapore NODX (17 August) Australia employment report (17 August) Philippines BSP policy (17 August) US initial jobless claims (17 August) Japan CPI inflation (18 August) Malaysia GDP (18 August) Taiwan GDP (18 August)

Rates Spark: Let’s start talking louder about 4.5% Let's talk louder about 4.5%! There has been a consolidation of the market discount for a soft landing. High yield has been an outperformer and the big talk has been of elevated re-financing risks as rates remain higher for longer. Given that and the latest data, there is still an upside for market rates to come, especially in longer tenors.   Enough from the data to tempt the US 10yr towards 4.5% Key levels were hit on the US curve on Tuesday: 4.25% for the 10yr and 5% for the 2yr. Then there has been a brief consolidative theme, but only for more bond weakness to show overnight, with the 10yr hitting 4.3%. That is within spitting distance of last October's yield highs. Risk assets cannot quite decide whether to go risk-on or risk-off. It still feels biased to a risk-off tone in net terms. The issue here for risk assets is how to interpret the notion of a soft landing. On the one hand, it's good as it implies minimal default elevation. On the other, it also implies less room for rate cuts and, more damaging, the maintenance of elevated official rates for longer. This is a growing issue for players that need to get some re-financing done, as this is only going to be at more penal funding rates relative to what was obtained over the past 3-5 years (and further back too). The bulk of this has to do with the robustness of the US economy. This is the main driver behind the paring back of future rate cuts as discounted by the strip. It’s also showing up in a delay on the point at which the Fed is discounted to begin cutting rates. But then, on the very front end, there has been a pullback in the expectation for more rate hikes. Most of this has come from the significant fall in headline inflation and also in core inflation (albeit less dramatically so). That, in turn, has allowed the Fed to get less fussed over pushing the funds rate higher. Keeping it higher for longer is what squares the circle here in terms of the market discount. The rise in the 10yr Treasury yield reflects this, and it is a rationale for the 10yr Treasury yield to maintain an upward-looking profile, at least until this dynamic meaningfully changes. Latest data pushes in the same direction. Industrial production came in at 1% on the month, and capacity utilisation rose, which typically does not happen to an economy facing into an imminent recession. Even the latest housing market data came in on the firm side. Basically, July has followed the June data so far as being very much 'glass half full' for the economy. Not even an economy that seems to be landing at all. Hence the logic for market yields to hold on up here for a period. The 10yr can hit 4.5% unless some dramatic tilt happens.   The 10y UST's October yield highs are close   Today's events and market view The FOMC minutes did not contain anything particularly surprising. The key passage was that “most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy". Limited summer trading is likely amplifying market reactions, but the bias for rates remains to the upside.  There are only a few data points of note on today’s calendar. However, the initial jobless claims data has, in the past, been a source of knee-jerk reactions. With initial claims seen somewhat lower at 240k, the market seems to seek confirmation for the story of economic resilience. The other data point is the Conference Board’s Leading Index, seen posting its 16th consecutive contraction. It has been crying wolf for some time now. The eurozone will release its trade balance for June. French short- to medium-term bond and inflation-linked bond auctions make up today’s government bond supply.

FX Daily: Attention turns to Turkey Ahead of tomorrow's main event of the week – speeches at the Fed's Jackson Hole symposium – attention today will turn to Turkey. In focus will be whether the Central Bank of Turkey accelerates its policy tightening in a return to a more orthodox policy. Consensus suggests probably not. Elsewhere, the dollar should remain steady, with jobs in focus.   USD: Focus on the jobs market The dollar and US yields were knocked off their highs yesterday as an annual benchmark revision (up to March 2023) deducted 306,000 from the reported US payroll growth figures. Several expectations had in fact looked for a 500,000 reduction. The market reaction (a 10bp drop in the US yield curve) looked a little exaggerated but perhaps proves a reminder that the employment story is the most important US variable right now. In other words, US disinflation is welcome, but if the unemployment rate remains at its lows and consumption stays strong, inflation may never make it back to 2% on a sustainable basis.    For that reason, look out for the weekly initial jobless claims data today, where any tick higher to the 250,000 area could slightly weigh on US yields and the dollar. We would not expect big moves, however, before Federal Reserve Chair Jerome Powell's 1605CET speech tomorrow at the Fed's Jackson Hole symposium. Given that the risk environment is a little better bid today – with Nvidia's results keeping the tech boom alive – DXY could trade slightly offered in a 103.15 to 103.50 range.

EUR: Pessimism reigns Yesterday's worrying release of flash PMIs for August certainly made their mark on markets. The ECB's trade-weighted euro fell around 0.5% and the two-year EUR/USD swap differential widened by a large 10bp on the day. At around 145bp in favour of the dollar, this differential is back to the widest levels seen since March and is a clean EUR/USD negative. The EUR/USD test of the 200-day moving average at 1.0800 yesterday looked fully justified and were it not for those US payroll revisions, EUR/USD would be trading much closer to 1.0800 this European morning. We have not heard much from ECB speakers recently (President Christine Lagarde will speak late tomorrow), but markets are quickly losing confidence that the central bank will be able to squeeze in another rate hike before the drop in eurozone activity closes the door on the tightening cycle. This is certainly frustrating the case for EUR/USD to be making it quickly back above 1.10. The clear near-term range for EUR/USD looks to be 1.0800-1.0930. Despite today's slightly better risk environment, we doubt investors will want to chase EUR/USD too much higher and unless there is a sharp spike higher in US initial jobless claims today, EUR/USD may well end up gravitating back towards 1.0800.

Overview of macroeconomic reports   On Thursday, no significant reports lined up for the UK, the European Union, or Germany. The US will publish reports on initial jobless claims and durable-goods orders. Unemployment claims is a relatively weak indicator simply because it is published weekly, and deviations from forecasts are rare. Since there are no deviations, there is no market reaction. Durable goods orders are more important as it reflects the change in purchase volumes of expensive category goods, such as cars, real estate, or major appliances. But the same thing applies here, it is important for the values to deviate from forecasts. If there is none, there's also no reaction. If there is, then we can expect a strong market reaction.   Overview of fundamental events There is absolutely nothing to highlight among Thursday's fundamental events. There are no speeches from officials of the Federal Reserve, European Central Bank, and the Bank of England. However, the Jackson Hole Symposium is about to begin. Nonetheless, all the most important speeches are scheduled for Friday, and today, there's not much to focus on.     Bottom line On Thursday, beginners might only focus on the two US reports. We don't know if they will trigger a market reaction, but at the same time, there are no other events. The movement patterns of the two main currency pairs are unlikely to change. For the euro, it's a downtrend, and for the pound, it's a flat trend. Main rules of the trading system: The strength of the signal is calculated by the time it took to form the signal (bounce/drop or overcoming the level). The less time it took, the stronger the signal. If two or more trades were opened near a certain level due to false signals, all subsequent signals from this level should be ignored. In a flat market, any currency pair can generate a lot of false signals or not generate them at all. But in any case, as soon as the first signs of a flat market are detected, it is better to stop trading. Trades are opened in the time interval between the beginning of the European session and the middle of the American one when all trades must be closed manually. On the 30-minute timeframe, you can trade based on MACD signals only on the condition of good volatility and provided that a trend is confirmed by the trend line or a trend channel. If two levels are located too close to each other (from 5 to 15 points), they should be considered as an area of support or resistance. Comments on charts Support and resistance levels are levels that serve as targets when opening long or short positions. Take Profit orders can be placed around them. Red lines are channels or trend lines that display the current trend and show which direction is preferable for trading now. The MACD (14,22,3) indicator, both histogram and signal line, is an auxiliary indicator that can also be used as a source of signals. Important speeches and reports (always found in the news calendar) can significantly influence the movement of a currency pair. Therefore, during their release, it is recommended to trade with utmost caution or to exit the market to avoid a sharp price reversal against the previous movement. Beginners trading in the forex market should remember that not every trade can be profitable. Developing a clear strategy and money management is the key to success in trading over a long period of time.    

Atlanta Fed’s GDP estimate sees real Q3 GDP growth of 5.9%, up from last week’s 5.8% Fed Chair Powell’s Jackson Hole Speech is scheduled for tomorrow at 10:05 am EST Fed’s Harker (voter) says they’ve done enough with rates while Fed’s Collins (non-voter) more rate hikes may be needed   As Wall Street awaits Fed Chair Powell’s Jackson Hole speech, some traders shifted their focus to Federal Reserve Bank of Philadelphia Patrick Harker’s CNBC interview. When talking about interest Harker said, “Right now, I think that we’ve probably done enough.” Harker is a voting member of the FOMC and he appears to be positioning himself to turn dovish in the near future. He also noted that, “I’m in the camp of, let the restrictive stance work for a while, let’s just let this play out for a while, and that should bring inflation down.” He added that if inflation comes down quicker, they may cut rates sooner. A month ago, Harker was saying that they are making progress with inflation and that sometime next year the Fed will start cutting rates. Harker for most of this year has been viewed as a neutral FOMC voting member, one notch below Fed Chair Powell who has being leaning-hawkish.  Harker’s dovish comments don’t imply that is what we will get from Fed Chair Powell, but it does suggest the committee might be gaining confidence that they will be able to bring down inflation to the Fed’s 2% target. Fed’s Collins, a non-voter noted that “We may need additional increments, and we may be very near a place where we can hold for a substantial amount of time.”   Foreign Investment Flows US stocks initially rallied after Nvidia’s miraculous earnings reignited the AI trade.  If AI is the future, then Nvidia is the “fluxcapacitor” that will drive the biggest transformation in tech since the Back to the Future trilogy wrapped up in the 1990s.  With Europe looking more recession bound, foreign investment might steadily come to US equities and that should support US equities. It is clear that massive investments are coming AI’s way and that could keep stock market bulls very happy as long as we don’t have Fed Chair Powell spoil the party.  If the bond market selloff doesn’t resume after Powell’s speech, the stock market might have a bullish case to make a run at record highs, which should provide underlying support for the dollar.   US data keeps Fed rate hike expectations low for the September 20th This morning’s round of data didn’t really move the needle on Fed rate hike expectations.  Yesterday odds were at 12% and today they rose to 17% for the September 20th meeting. Filings for unemployment benefits came in less than expected, signaling that the labor market is slowly cooling.  Initial jobless claims fell by 10,000 to 230,000, while continuing claims dipped from 1.711 million to 1.702 million.  A surge in claims (+3.7K) came from Hawaii as they were heavily impacted by the devastating wildfires. Jobless claims will likely stabilize or rise going forward. Durable goods order data showed business spending activity barely increased as companies became more cautious with the budget. ​ Bookings for all durable goods tumbled ​ given softness with the volatile commercial aircraft orders. ​ Businesses are turning very cautious here given how high borrowing costs have gotten and over the deteriorating outlook for business equipment.   USD/JPY 60-minute chart   USD/JPY (60-minute chart) as of Thursday (8/24/2023) shows the bullish move that started yesterday has continued by respecting short-term trendline support(shown in purple).  If we see a substantial rally towards last October’s high, that could trigger intervention pressure from Japan.  If the surge in Treasury yields continues, that could provide some tactical bullish positioning between the 145.00-148.00 region. If risk aversion emerges post Jackson Hole, the 143.50  level provides major support and a possible re-entry for long-term bulls.  

Rates Spark: Different focus, different outcomes US data disappointments are still putting downward pressure on yields, and a busy calendar suggests more volatility ahead. EUR rates may detach from US dynamics as inflation data and European Central Bank minutes sharpen the focus on the upcoming ECB meeting.   The resilience narrative has driven US rates on the way up, and now down US Treasury yields remain under downward pressure as 10Y yields are trying to get a foothold at around 4.1% – early last week they had hit a high at 4.35%. Bund yields, on the other hand, have managed to bounce off the 2.5% level and as a result, the 10Y UST/Bund spread has tightened to 157bp. The narrative that has driven the wedge between the US and EUR rates is now narrowing it. That is also illustrated when looking at the market moves in real rates. They had been the driver of US rates going up and are now mostly the driver on the way down. 10Y real OIS rates have dropped some 17bp from the recent peak, although inflation swaps also slipped 8bp.       Real rates were the driver the UST/Bund gap, and also the latest retightening   Inflation remains the main preoccupation of EUR rates In Europe, the concerns have been more centred around inflation. Longer real rates never picked up and stuck to a tight range, reflecting the outlook for a longer period of stagnation that was also confirmed by the latest PMIs. Instead we had a slow grind higher in longer-term inflation expectations, picking up pace again with the second quarter. While the often cited 5y5y forward inflation has come off its recent highs, the market remains sensitive to the inflation topic, with the ECB now calibrating the final stage of its tightening cycle. The somewhat slower-than-anticipated decline in German inflation yesterday was important in keeping Bund yields off the 2.5% mark. It provided the ECB’s hawks with arguments for further tightening. Never mind that it could be the last burst of German inflation for a while, as our economist thinks – with the ECB’s current mindset being more focused on actual data than forecasts, that may well be all the more reason for the hawks to push for a hike in September and not wait any longer. It may be the last opportunity. Market pricing now sees the chances for a hike next month a tad above 50%, and 90% that we will see a hike by the end of the year.    Dynamics of inflation expectations played a larger role for EUR rates   Today's events and market view US data disappointments are still putting downward pressure on yields, having stalled any attempt to move these higher over the past sessions. A busy slate of US data featuring Challenger job cuts data, initial jobless claims, personal income and spending data, as well as the Federal Reserve's preferred inflation measure – the PCE deflator, which is seen slightly up this time – means there is plenty in store to push yields around again. EUR rates, however, may manage to detach from the US rates again as the focus turns to the flash eurozone CPI release and the ECB minutes of the July meeting. The latter may provide some more insight into any changes to the balancing of inflation versus macro risks and of course the growing debate between the Council’s hawks and doves. With Isabel Schnabel, there is also a prominent hawk slated to speak in the morning – she gives the opening remarks at a conference titled “Inflation: drivers and dynamics” and may well set the tone for the day. 

Rates Spark: Different focus, different outcomes US data disappointments are still putting downward pressure on yields, and a busy calendar suggests more volatility ahead. EUR rates may detach from US dynamics as inflation data and European Central Bank minutes sharpen the focus on the upcoming ECB meeting.   The resilience narrative has driven US rates on the way up, and now down US Treasury yields remain under downward pressure as 10Y yields are trying to get a foothold at around 4.1% – early last week they had hit a high at 4.35%. Bund yields, on the other hand, have managed to bounce off the 2.5% level and as a result, the 10Y UST/Bund spread has tightened to 157bp. The narrative that has driven the wedge between the US and EUR rates is now narrowing it. That is also illustrated when looking at the market moves in real rates. They had been the driver of US rates going up and are now mostly the driver on the way down. 10Y real OIS rates have dropped some 17bp from the recent peak, although inflation swaps also slipped 8bp.       Real rates were the driver the UST/Bund gap, and also the latest retightening   Inflation remains the main preoccupation of EUR rates In Europe, the concerns have been more centred around inflation. Longer real rates never picked up and stuck to a tight range, reflecting the outlook for a longer period of stagnation that was also confirmed by the latest PMIs. Instead we had a slow grind higher in longer-term inflation expectations, picking up pace again with the second quarter. While the often cited 5y5y forward inflation has come off its recent highs, the market remains sensitive to the inflation topic, with the ECB now calibrating the final stage of its tightening cycle. The somewhat slower-than-anticipated decline in German inflation yesterday was important in keeping Bund yields off the 2.5% mark. It provided the ECB’s hawks with arguments for further tightening. Never mind that it could be the last burst of German inflation for a while, as our economist thinks – with the ECB’s current mindset being more focused on actual data than forecasts, that may well be all the more reason for the hawks to push for a hike in September and not wait any longer. It may be the last opportunity. Market pricing now sees the chances for a hike next month a tad above 50%, and 90% that we will see a hike by the end of the year.    Dynamics of inflation expectations played a larger role for EUR rates   Today's events and market view US data disappointments are still putting downward pressure on yields, having stalled any attempt to move these higher over the past sessions. A busy slate of US data featuring Challenger job cuts data, initial jobless claims, personal income and spending data, as well as the Federal Reserve's preferred inflation measure – the PCE deflator, which is seen slightly up this time – means there is plenty in store to push yields around again. EUR rates, however, may manage to detach from the US rates again as the focus turns to the flash eurozone CPI release and the ECB minutes of the July meeting. The latter may provide some more insight into any changes to the balancing of inflation versus macro risks and of course the growing debate between the Council’s hawks and doves. With Isabel Schnabel, there is also a prominent hawk slated to speak in the morning – she gives the opening remarks at a conference titled “Inflation: drivers and dynamics” and may well set the tone for the day. 

FX Daily: Resistance to dollar strength is futile The dollar remains well-bid across the board as a relentless run of above-consensus US data suggests the Federal Reserve will be in no mood to relax its hawkish stance. Resistance to the strong dollar is crumbling - most notably in China where a higher USD/CNY fixing suggests the People's Bank of China is becoming more tolerant of renminbi weakness.   USD: No reason to unwind dollar longs The dollar is consolidating near the highest levels since March as US data continues to surprise on the upside. Following the above-expected ISM Services index on Wednesday, yesterday it was the turn of the weekly initial jobless claims to drop back to the lowest levels since February and question the narrative that tightness in the US labour market is easing. With activity data staying strong, it seems the market may be more minded to buy into the idea of another 'skip' - i.e. the Fed not hiking in September but hiking again later in the year. Clearly, this pushes the idea of a Fed easing cycle later and keeps the dollar stronger for longer. As has been the case so often, the dollar is the United States currency and everyone else's problem. Here, both Japanese and Chinese officials are fighting against dollar strength - with limited degrees of success. Japanese officials are sounding like we could well see intervention shortly - e.g. in the 148-150 window in USD/JPY. The highlight of the overnight session, however, has been the People's Bank of China (PBoC) allowing a higher fixing in the onshore USD/CNY. They have maintained the spread of the fixings to the model-implied fixings of around 1100 CNY pips, but the higher fixing has put paid to ideas that Chinese officials have some kind of line in the sand for USD/CNY at 7.35. USD/CNH is currently trading above that level. Low Chinese CPI next week and a PBoC rate decision with the one-year lending rate will keep expectations alive of further rate cuts too. The weaker CNY/CNH will continue to keep EM FX broadly offered and the dollar bid. There is very little in the way of US speakers or US data today. The weekend sees a G20 meeting in New Delhi, with much focus on how new alliances develop following the recently announced expansion plans of the BRICS.  We cannot see investors wanting to offload dollar balances anytime soon. This suggests DXY stays bid near 105.00.

Asia Morning Bites US inflation report out tonight could see Asian markets mark time today.   Global Macro and Markets Global markets:  US stocks are up one day, down the next at the moment. Yesterday, it was time for some losses led by tech stocks following an Apple event to launch the iPhone 15. The S&P 500 dropped 0.57% while the NASDAQ lost 1.04%. This was actually in line with the steer from equity futures yesterday. But today, they are giving little away. Chinese stocks fell also. The Hang Seng was down 0.39% and the CSI 300 was down 0.18%. 2Y US Treasury yields nosed up 2.9bp to 5.02%, while the 10Y Treasury yield was marginally lower by 0.8bp taking it to 4.28%. EURUSD is slightly higher at 1.0758, but spent a lot of time yesterday exploring the downside before recovering. This hasn’t helped the AUD, which has been steady to slightly weaker over the last 24 hours, sitting at 0.6427 currently. Cable also slid yesterday and made a less robust recovery than the euro, leaving it at 1.2492 currently. And the JPY is also softer, rising to 147.126.  The PBoC’s recent browbeating of the market still seems to be keeping a lid on the CNY, which remains at 7.2923. We’d expect it to test the 7.30 level again in the coming days, though tomorrow’s data dump will need to be taken into account – we think it might be slightly less negative than in recent months…The KRW had a positive day, rising 0.28% to 1327.64, and the THB weakened 0.38% to 35.640, but there were few other notable movements in the rest of the Asia FX pack.   G-7 macro:  Today, we get August inflation data from the US. And the news will be mixed. Headline inflation will likely rise from 3.2% to 3.6%YoY - all the helpful base effects that helped lower inflation in the first half of the year are used up now, and the month-on-month rate at 0.6% (expected), is still far too high to result in anything other than an inflation increase. But it is exactly the opposite story for core inflation, which has been much stickier, but could now benefit from more helpful base effects, and the fact that most of the price increases are in the non-core food and energy sectors. We should see core inflation falling to 4.4% (consensus 4.3%) from 4.7% YoY. Exactly how the market takes this mix of data is difficult to judge in advance, and could come down to small deviations from the consensus numbers on both figures. Other than this, the UK releases a raft of production, trade, construction and monthly GDP data for July.   India: Trade balance data for August will likely show the deficit in the -USD20bn to -USD21bn range. Export growth has been on a slow but steady decline for a long time, and was -15.86%YoY in July. Looked at in USD levels terms, exports are still trending slightly lower, but the rate of annual decline should moderate to low single digits this month. Inflation data released yesterday evening came in at 6.83%, only slightly higher than our 6.7% forecast, and slightly lower than the consensus 7.1% estimate.   South Korea: The jobless rate unexpectedly declined to 2.4% in August (vs 2.8% July, 2.9% market consensus). The construction sector added jobs for the first time in six months but manufacturing shed jobs for a second month. With summer holidays underway, hotels and restaurant jobs gained. Rising pipeline inflation raised concerns that consumer prices could rise more than expected in the coming months. Import prices surged 4.4% MoM nsa (0.2% in July), the largest increase in 17 months, but due to base effects the YoY growth still fell -9.0%YoY (vs -13.6% in July). Weak currency and strong commodity prices are the two main reasons for the price increases. The KRW is hovering above the 1,300 level and oil prices continue to rise. We are concerned that consumer price inflation may rise more than expected. The tighter job market and rising prices will support the BoK’s hawkish stance. But we still don’t think this will push them to deliver additional hikes by the end of this year given sluggish exports and weak investment.   What to look out for: US CPI inflation and China data South Korea unemployment (13 September) Japan PPI inflation (13 September) India trade balance (13 September) US CPI inflation (13 September) Japan core machine orders and industrial production (14 September) Australia unemployment (14 September) ECB policy meeting (14 September) US initial jobless claims, PPI and retail sales (14 September) China medium term lending rate (15 September) Indonesia trade balance (15 September) China retail sales, industrial production (15 September) US University of Michigan sentiment (15 September)

US and European equity futures markets trade higher with Asian markets also climbing on cautious optimism the Federal Reserve may decide to pause rate hikes after US core inflation advanced the least in two years. The dollar and Treasury yield both trade softer ahead of US retail sales with the euro ticking higher as traders' price in a two-third chance of a rate hike from the European Central Bank later today. Crude trades near a ten-month high on concerns about a supply shortfall, copper higher on yuan strength while gold prices have steadied following a two-day decline.   Equities: S&P 500 futures are holding up well against recent weakness trading around the 4,530 level despite yesterday’s higher-than-expected US inflation opening the door for the Fed to hike interest rates one more time in December. Arm IPO was priced at the top end of the range at $51 per share with trading set to being today. Adobe earnings after the US market close could be a key event for the AI-related cluster of stocks. FX: The US dollar wobbled on the CPI release but could not close the day higher with Treasury yields slipping. EUR in the spotlight today as ECB decision is due, and EURUSD has found support at 1.07 for now with a rate hike priced in with over 65% probability. USDJPY trades softer after government minister talked about the need for strong economic measures. Yuan strengthened further with authorities increasing bill sales in Hong Kong to soak up yuan liquidity making it more expensive to short the currency. Commodities: Brent holds above $92 and WTI near $90 after the IEA joined OPEC’s warnings of a supply shortfall in the coming months, thereby supporting a rally that started back in June when Saudi Arabia curbed supply to boost prices. Softening the rally was a weekly US stock report showing rising stocks and production near the 2020 record. Near-term the market looks overbought and in need of a pullback. Gold looking for support ahead of $1900 with a hawkish FOMC pause back on the agenda while copper trades firmer with a stronger yuan offsetting a rise in LME stocks to a two-year high Fixed income: The US yield curve bull-steepened yesterday despite higher-than-expected CPI numbers, indicating that the Federal Reserve might be approaching the end of the hiking cycle. Yet, long-term yields remained flat as the 30-year auction showed a drop in indirect demand and tailed by 1bps despite pricing at the highest yield since 2011. Overall, we remain cautious, favouring the front part of the yield curve over a long duration. Bonds will gain as the economy starts to show signs of deceleration. Still, larger coupon auction sizes and a hawkish BOJ will support long-term yields unless a tail event materializes. We still see 10-year yields rising further to test strong resistance at 4.5%. Today, the focus will be on the ECB, which markets expect to hike. Due to a recession in Germany and in Netherlands, we believe that the ECB will deliver a hawkish pause today, which might result in a short-lived bond rally.   Macro: US CPI surprised to the upside, but it did not alter the markets thinking around the Fed. Core CPI rose 0.3% MoM, or +0.278% unrounded, above the prior/expected +0.2%, with core YoY printing 4.3%, down from July's 4.7%, and in line with expectations. Headline print was in line with expectations at 0.6% MoM, up from +0.2% on account of energy price increases, with YoY lifting to 3.7% from 3.2%, above the expected 3.6%. The PBoC announced plans to issue RMB15 billion Central Bank Bills in Hong Kong on September 19, which is going to tighten CNH (offshore renminbi) liquidity further In the news: Asset managers BlackRock and Amundi are warning that US recession risks are rising – full story in the FT. Germany is facing big structural problems in its manufacturing sector with gloom taking over among workers – full story in the FT. The EU is weighing tariffs against China over flooding the market with cheap electric vehicles – full story on Reuters. Technical analysis: S&P 500. Key at resistance at 4,540. Key Support at 4,340. Nasdaq 100 15,561 is key resistance. EURUSD downtrend, support at 1.0685, Expect short-term bounce to 1.08. AUDJPY testing resistance at 95.00. Crude oil uptrend stretched, expect a correction lower Macro events: ECB Main Refinancing Rate exp. unchanged at 4.25% (1215 GMT), US Retail Sales (Aug) exp. 0.1% vs 0.7% prior (1230 GMT), US Initial Jobless Claims exp. 225k vs 216k prior (1230 GMT), US PPI (Aug) exp. 0.4% vs 0.3% prior (1230 GMT), Commodities events:  EIA’s Weekly Natural Gas Storage Change (1430 GMT) Earnings events: Adobe reports FY23 Q3 earnings (ending 31 August) after the US market close with analyst expecting revenue growth of 10% y/y and EPS of $3.98 up 63% y/y. Read our earnings preview here.    

FX Daily: A dovish hike ahead of a hawkish hold The ECB hiked rates yesterday but offered enough hints to convince markets this is the end of the tightening cycle. EUR/USD sensitivity to the dollar leg and – by extension – US activity data should be even higher at this point. Elsewhere, some BoJ members have reportedly pushed back against hawkish interpretations of Ueda’s comments earlier this week. USD: Starting to gear up for a hawkish Fed meeting The dovish ECB hike (more in the EUR section below) and another round of strong US activity data sent the dollar on another rally yesterday. US August retail sales rose more than the consensus (0.6% month-on-month), even though the bulk of spending growth was due to higher gasoline prices. When stripped of fuel sales, the print was a more modest 0.2%, although still higher than expected. PPI was also higher than expected, while initial jobless claims were slightly changed (216k to 220k) after last week’s big drop. With the ECB meeting now past us, market attention will shift to next Wednesday’s FOMC announcement. Evidence of slower disinflation has provided an incentive to keep one hike in the dot plot projections for the end of 2023, while resilient US data may well see a revision higher of the 2024 median plot (currently embedding 100bp of easing). We doubt that sort of adjustment would come as a shock to markets, but would further discourage bearish positioning on the dollar. Today will see the final bits of data that can move markets before the Fed meeting. The University of Michigan's sentiment indicators are expected to decline, but inflation expectations remain unchanged. Empire Manufacturing is improving, while industrial production should slow down on the month-on-month read. It looks unlikely that these releases can materially affect expectations for next week’s meeting when a hold appears a done deal, and all focus will be on new projections and forward-looking language. The next resistance for DXY is the 105.85 March high: beyond that, it would explore levels last seen in November 2022. Today is starting on a more risk-supportive tone in FX, as China’s August industrial production and retail sales both surprised to the upside, fuelling expectations that the worst may be behind us on the Chinese data flow. The dollar may correct a bit lower today, but the risks remain skewed towards further strengthening in the near term, or at least until the US activity picture starts to show some cracks.  

Asia Morning Bites Following rising speculation, will the BoJ tweak policy today? Chinese PMI data also due. Global Macro and Markets Global markets:  US stocks bounced off recent lows on Monday. Both the NASDAQ and S&P 500 gained more than a per cent ahead of this week’s expected no-change  FOMC meeting. Equity futures suggest that today’s open may take back some of these gains. Chinese stocks also had a reasonable day. The CSI 300 rose 0.6%, but the Hang Seng was more or less unchanged on the day. US Treasury yields also rose on Monday. 2Y UST yields rose 5.2bp to 5.054%, while 10Y yields rose 6bp to 4.894%. There was no macro data of note for the US on Monday driving these moves, and this close to the FOMC meeting, no Fed speakers either due to the blackout period. Despite the rise in yields, the USD had a softer day. EURUSD rose to 1.0613 in spite of weak GDP and inflation figures (see below) and also the failure of the EU and Australia to agree on a free trade deal due to disagreements over agriculture access. The AUD rose to 0.6366, Cable rallied to 1.2165, and the JPY dropped back briefly through 149 on speculation of further tweaks to BoJ policy at today’s meeting (see below), though it is currently 149.14. Other Asian FX also rallied against the USD on Monday. The THB and KRW led gains. The CNY dropped to 7.311. G-7 macro:  German GDP was slightly less awful in 3Q23 than expected, but still fell 0.1%QoQ (see here for more by Carsten Brzeski). The flip side of this is that this economic weakness is weighing on inflation, which fell to 3.8% YoY in October, down more than expected from the September rate of 4.5%. Eurozone GDP and inflation are released today, so with the German figures already out, there is some chance of an undershoot to the respective consensus expectations of 0.0% QoQ and 3.0%YoY for these figures. House price data and the Conference Board’s consumer confidence survey are today’s US data offerings. None of these releases look likely to alter the expectation for a pause at the Fed’s 2 November meeting. China:  Official PMI data is due at 0930 (HKT/SGT) today. Both manufacturing and non-manufacturing surveys are expected to confirm the slight firming in activity suggested by other recent activity data. Japan:  The BoJ has its policy meeting today. Speculation has been growing over the last couple of days that they may take steps to relieve pressure on Japanese government bonds (JGBs) and the JPY. Yesterday, local news media Nikkei, reported that the BoJ may allow the upper limit for 10Y JGBs to rise above 1% and also make some adjustments to their bond purchase operations. The latest quarterly outlook report will also be closely watched. We think that the BoJ will revise up its FY24 inflation forecast to above 2%, but leave untouched the FY25 forecast number. That way, they can maintain that sustainable inflation is not yet reached or that they are not yet confident about reaching the sustainable inflation target, which will buy them some more time to keep their negative interest rate policy until next year. Still, if FY24 inflation is above 2% then the market’s expectations for a policy change in early 2024 will rise. Japan's September monthly activity data was a bit soft.  September industrial production (IP) rebounded less than expected (0.2% MoM sa vs -0.7% in August, 2.5% market consensus) while retail sales unexpectedly dropped -0.1% (vs revised 0.2% in August). As September IP and retail sales were softer than expected, we think 3Q23 GDP is likely to record a small contraction. However, labour market conditions remained tight and showed some improvement. The jobless rate edged down to 2.6% in September (vs 2.7% in August, 2.6% market consensus) and labour participation rose to 63.3% from the previous month’s 63.1%. Also, the job-to-applications ratio was unchanged at 1.29. South Korea:  Monthly activity data was solid as suggested by 3Q23 GDP (0.6% QoQ sa). All industry industrial production (IP) rose for a second month (1.1% MoM sa) in September with manufacturing (1.9% MoM sa), services (0.4%), construction (2.5%), and public administration (2.3%).  Among manufacturing industries, semiconductors (12.9%) and machinery (5.1%) were big gainers, offsetting a big drop in motor production (-7.5%). Solid demand for high-end chips, which are higher value-added and have higher prices than legacy chips, is the main reason for the rise in chip production. Meanwhile, production cuts in legacy chips continued as inventory levels came down, and we believe that this differentiated trend will continue for the time being. We think October exports will finally bounce back after twelve months of year-on-year declines on the back of a recovery in semiconductors. Other activity data also made gains. Retail sales (0.2%) rebounded marginally after having fallen for the previous two months. Equipment investment gained (8.7%) with increases in transportation (12.6%) such as aircraft, and special machinery (7.3%) such as semiconductor manufacturing machines. Construction also rose 2.5% despite the contraction in residential building construction as civil engineering rose solidly (20.0%). September monthly activity data showed some recovery in the domestic economy but forward-looking data such as machinery orders (-20.4% YoY) and construction orders (-44.1%) all fell, suggesting a cloudy outlook for the current quarter and we expect 4Q23 GDP to decelerate.   What to look out for: BoJ meeting and China PMI reports South Korea industrial production (31 October) BoJ meeting, Japan retail sales, industrial production and labour data (31 October) China PMI manufacturing and non-manufacturing (31 October) Taiwan GDP (31 October) Philippines bank lending (31 October) US Conference board confidence (31 October) Australia Judo PMI manufacturing (1 November) South Korea trade (1 November) Regional PMI manufacturing (1 November) Indonesia CPI inflation (1 November) US ISM manufacturing, ADP report, JOLTS report (1 November) FOMC decision (2 November) South Korea CPI inflation (2 November) Australia trade balance (2 November) Malaysia BNM policy (2 November) US factory orders and initial jobless claims (2 November) Australia retail sales (3 November) China Caixin PMI services (3 November) Singapore retail sales (3 November) US NFP and ISM services (3 November)

Rates Spark: Supply relief, weaker data and the Fed proceeding carefully Rates rallied on a mix of supply relief, weaker data and the Fed pointing to the tightening impact of the still overall higher long-end rates. Before we test further downside, we likely have to see tomorrow’s payrolls report first. Today's BoE meeting should complete the unfolding holding pattern across major central banks.   US rates rally on a mix of supply relief, weaker data and a Fed "proceeding carefully" US rates drove a bull flattening of curves. At the end of the US session, the 10Y UST yield rallied below 4.75% with the 2s10s curve flattening 5bp on a mix of supply relief, weaker data and the Federal Reserve pointing to the tightening impact of the still overall higher long-end rates. The Treasury’s refunding announcement was deemed tolerable, partly because the headline requirement of the upcoming November refunding of US $112bn was $2bn lower than the market had expected. But more importantly, the gradual increases of auction sizes over the quarter were focused on shorter tenors, with 2Y, 3Y, 5Y, and 7Y sizes increasing by $9bn, $6bn, $9bn, and $3bn respectively, by the end of January 2024. In contrast, 10Y and 30Y new issue and reopening auction sizes were increased by only $2bn and $1bn, respectively, and 20Y auction sizes were left unchanged.   The Fed kept rates on hold and maintained a hawkish bias, pointing to further tightening becoming less likely. The Fed acknowledged that the higher real rates are having a clear tightening effect, and it can let the debt markets do the last of the pain infliction for them. The rise in real yields has helped to push the curve steeper, and the 5s10s has recently joined the 10s30s with a positive upward-sloping curve. Only the 2s5s spread remains inverted. This overall look does suggest the bond market is positioning for a turn in market rates ahead. The big move will come when the 2Y starts to anticipate cuts.   Yields turn lower, but 5% is not entirely out of reach yet for the 10Y   BoE to complete the holding pattern across major central banks It feels like the Bank of England is more of a sideshow given the gyrations spilling over from the US. The market is also quite firm in its expectations of the BoE keeping rates on hold at today’s meeting and it is also our view. However, looking a little further ahead the markets still see a more than one-in-three chance that the bank rate could be raised one more time. The Monetary Policy Committee is unlikely to close the door to further tightening, but as holding patterns of other major central banks are unfolding, this pricing could eventually shift even more towards reflecting the “Table Mountain” once touted by the Bank’s chief economist.   Central banks seen on hold for the next months   Today's events and market view The UST yield now sits notably lower at 4.73%, but it has not materially broken any trends though. Before we test further downside we likely have to see tomorrow’s payrolls report first. An outcome close to the consensus might not be enough to materially lower rates from here. There is still a path back up to 5%. We still feel that pressure for higher real rates remains a feature, despite the easing off on longer tenor issuance pressure. We need to see the economy really lurch lower, in particular on the labour market, before the bond bulls take over. That said, there will be other job market indicators out already today such as the Challenger job cuts data and the usual weekly initial jobless claims figures. Factory orders and the final durable goods orders round off today's US data releases. In Europe, the BoE decision takes centre stage. For the eurozone, we will be looking at the unemployment data, but probably focus more on what European Central Bank key officials Philip Lane and Isabel Schnabel will have to say.   Today’s government bond supply will come from France in 10Y to 50Y maturities and in Spain in 5Y to 30Y maturities.

Asia Morning Bites Final 3Q23 Singapore GDP posts stronger-then-expected gain on a quiet day for markets ahead of the US Thanksgiving holiday. Global Macro and Markets Global markets:  Tuesday saw modest declines in bond yields and also some slight weakness in stocks while the dollar made back some of its recent losses. The yields on 2Y and 10Y US Treasuries fell by 3.9bp and 2.7bp respectively. The 10Y now sits at 4.393%. The S&P 500 dropped by 0.2%, though it was a fairly flat day after the lower open. The NASDAQ fell 0.59%.  Equity futures are pointing to a lower open again today. The USD shrugged off lower yields and rallied against the EUR to take EURUSD back down to 1.0917 after briefly touching 1.09 intraday. The AUD was flattish at 0.6559, but Cable put on some further gains to 1.2542 ahead of the UK Chancellor’s Autumn Statement, where modest tax cuts are expected. The JPY was also roughly unchanged from this time yesterday, though it did look at 147 before retreating back up above 148. Most of the Asia pack made modest gains yesterday. The TWD topped the group with a 0.7% gain, dropping to 31.428. USDCNY is now 7.1407. G-7 macro:  It was another extremely quiet day for macro releases. FOMC minutes overnight appear to confirm the cautious approach to Fed policy which is being interpreted by markets as evidence that the Fed has peaked. Here’s a link to the FOMC minutes. US existing home sales dropped 4.1% MoM in October. Durable goods orders and the University of Michigan Consumer Sentiment survey are the main releases of the day. Elsewhere, UK public finances for October showed the government borrowing GBP14bn during the month, more than had been expected, and reducing the room for manoeuvre for Chancellor Jeremy Hunt in today’s Autumn Statement, where he will attempt to shore up the Tories’ flagging popularity with some tax cuts. Singapore: The final estimate for 3Q GDP showed the economy grew 1.1% YoY beating consensus expectations for a 0.8% YoY gain and higher than the initial estimate of 0.7% YoY.  Compared to the previous quarter, the economy grew by 1.4%.  Singapore now expects full-year 2023 GDP to settle at roughly 1.0% YoY.  Despite the better-than-expected 3Q GDP report, risks to the growth outlook remain with global demand still patchy, while Singapore's inflation is still expected to remain elevated in 2024.   What to look out for: US data reports Australia Westpac leading index (22 November) US Univ of Michigan sentiment, initial jobless claims and durable goods orders (22 November) Singapore CPI inflation (23 November) Bank Indonesia policy (23 November) Japan CPI inflation (24 November) Singapore industrial production (24 November)

Analysis of GBP/USD 5M   GBP/USD also experienced a minor downward correction on Wednesday, while overall volatility reached 100 pips. This is already something to talk about. Unfortunately, during the European session, movements left much to be desired. In general, we witnessed a flat, and the pair only started to move normally during the U.S. session when three more or less significant reports were published in America. As we mentioned before, reports on durable goods orders and the University of Michigan's consumer sentiment turned out to be weaker than expected. However, the third report on initial jobless claims was better than the market's expectations. In our opinion, one positive report could not outweigh two negatives, so we believe that the British pound fell on Wednesday due to the pair's overbought condition. Speaking of trading signals, the flat condition during the European session did not bring any profit. During the first half of the day, four signals were formed around the level of 1.2520, and they were all false signals because the pair, essentially, stood still. Therefore, when the fifth signal was formed around the level of 1.2520 during the U.S. session, it should not have been executed. And the best movement of the day began at this time. Traders could open 1-2 trades in the morning, incurring a small loss, and could then work out the rebound from the level of 1.2445, which allowed them to offset this loss. However, there was no substantial profit.

It's early December, which means traders have very little time left before the start of the "dead season." The currency market will be active for a few more weeks before entering the Christmas-New Year lethargy. The EUR/USD pair is no exception here. Typically, life in the FX market slows down after the December meetings of the Federal Reserve and the European Central Bank (on December 12-13 and 14, respectively). For some time, traders reflect on the outcomes of these meetings, but inevitably, "winter holidays" set in. The main feature of the upcoming week is the "silence" of the Fed officials. The so-called "blackout period" started on Saturday: for 10 days leading up to the Fed meeting, officials of the U.S. central bank generally do not speak publicly or grant interviews. Therefore, EUR/USD traders will be focused on economic reports. Let's take a look at the economic calendar and see what awaits us in the coming days.   Monday The first working day is traditionally quite empty for EUR/USD. During the European session, the Sentix investor confidence indicator will be published. This is a leading indicator as it measures investors' sentiment towards the eurozone economy. Since March 2022, the indicator has been in the negative territory, but in November, it showed positive dynamics, rising from -21.9 to -18.6. In December, experts expect a further improvement to -15.0. Also on Monday, ECB President Christine Lagarde is expected to speak. She will participate in a conference that includes a Q&A session. The head of the ECB may comment on the latest eurozone inflation data, although the theme of the meeting, let's say, does not lend itself to such questions (the conference is organized by the French Academy of Ethics and Political Sciences). During the U.S. session, a report on factory orders in America will be published. The volume of total orders is expected to decrease by 2.7% in October, while core orders are expected to increase by only 0.3%. Tuesday On Tuesday, the final estimates of the PMI data for November will be published. According to forecasts, they will coincide with the initial reports (in this case, the market will likely ignore this data). Traders will focus on the ISM Non-Manufacturing Purchasing Managers' Index (PMI), which will be published during the U.S. session. This indicator has declined over the past two months, but according to most experts, it will rise to 52.5 points in November. However, if the index falls into the "red zone," the dollar will come under significant pressure. Let me remind you that the ISM Manufacturing Index published last week did not support the greenback. In November, it reached 46.7 points, against forecasts of an increase to 48.0 (the manufacturing index has been in contraction territory for the 13th consecutive month). In addition, the U.S. Bureau of Labor Statistics will release data on the level of job vacancies and labor turnover. However, considering that the market is anticipating the Non-Farm Payrolls data later in the week, they will likely overlook Tuesday's report.   Wednesday At the start of the European session, we will learn about the October volume of industrial orders in Germany. In annual terms, the indicator has been in the negative territory since July, and judging by forecasts, the situation is not expected to improve in October (forecast -5.6%). The main report of the day will be announced during the U.S. session, which is the non-farm employment in the United States from ADP. This report is considered to play the role of a kind of "harbinger" ahead of the release of official data—although quite often these indicators do not correlate. Nevertheless, the ADP report can trigger increased volatility among dollar pairs, especially if it comes out in the green/red zone. According to experts, 120,000 non-farm jobs were created in November. If the figure falls below the 100,000 mark, the greenback may come under pressure. Also, U.S. data on labor cost will be published (final estimate). This indicator, for the first time since the beginning of 2021, dropped into negative territory in the third quarter. According to forecasts, the final estimate will be revised downwards (from -0.8% to -0.9%). On the same day, ECB Executive Board member Joachim Nagel (head of the Bundesbank) will speak. Before the release of the latest data on eurozone inflation, he voiced rather hawkish theses, allowing for additional interest rate hikes in the foreseeable future. We do not know whether his position will change in light of recent events.   Thursday On this day, we will learn the final estimate of the eurozone Q3 GDP data. According to forecasts, the final result should match the second estimate (-0.1%). During the U.S. session, weekly data on initial jobless claims will be published. Since mid-October, this indicator has fluctuated in the range of 210,000 to 220,000 (except for one week when the count jumped to 233,000). According to forecasts, for the upcoming week, the indicator will come in at 220,000, i.e., at the upper limit of the "established" range. Furthermore, secondary economic reports will be released (wholesale inventories - final estimate, and consumer credit), but they usually do not have any significant impact on the market.   Friday On the last day of the trading week, key U.S. labor market data for the month of November will be published. According to preliminary forecasts, the unemployment rate in November will remain at the October level, i.e., at 3.9%. The number of non-farm payrolls is expected to increase by 185,000 (after a 150,000 increase in October) – meaning the figure will once again fall short of the 200,000 mark. In the private sector, the number of employed is expected to grow by 155,000 (after a 99,000 increase in October). And the average hourly wage level is expected to demonstrate a downtrend again – down to 4.0% YoY (in this case, it will be the lowest value of the indicator since August 2021). Obviously, such a result will not benefit the dollar, especially amid a decrease in CPI, producer price index, and the core PCE index.   On the bullish side, we have the dovish comments from some of the Fed officials (Waller, Goolsby), conflicting signals from Fed Chair Jerome Powell, and a decline in key inflation indicators. On the bearish side, we have the eurozone inflation data. The "red tint" of the latest report put an end to the discussion about the ECB rate hike in the coming months. The euro lost its fundamental trump card, but, as we know, the EUR/USD pair can successfully rise only due to the dollar's weakness. For instance, on Friday, the bears tried to break through to the 1.08 level but eventually failed. In my opinion, in the medium-term perspective (until the release of the NFP data), traders will exercise caution (both sellers and buyers), trading on "neutral territory," i.e., in the range of 1.0850 – 1.0930 (lower and middle Bollinger Bands lines on the 4H timeframe, respectively).

Sticky US inflation reduces chances of an early Fed rate cut In the wake of the Federal Reserve's dovish shift in December, financial markets had moved to price an interest rate cut as soon as March. However, the tight jobs market and today's firmer-than-expected inflation numbers suggest this is unlikely, barring an economic or financial system shock. We continue to think the Fed will prefer to wait until May.   CPI comes in above expectations December US CPI has come in at 0.3% month-on-month/3.4%year-on-year and core 0.3%/3.9% versus the 0.2/3.2% expectation for headline and 0.3/3.8% for core. So, it is a little disappointing, but not a huge miss. Meanwhile, initial jobless claims and continuing claims both came in lower than expected with continuing claims dropping to 1834k from 1868k – the lowest since late October. The combination of the two – slightly firmer inflation and good jobs numbers really brings into doubt the market expectation of a March rate cut from the Federal Reserve. We continue to see May as the most likely start point.   Core CPI measured in MoM, 3M annualised and YoY terms   This means that the annual rate of headline inflation has actually risen to 3.4% from 3.1% in November while the core rate (ex food and energy) has only fallen a tenth of a percentage point, so we appear to have plateaued after a strong disinflationary trend through the first nine months of 2023. The details show housing remains firm, with the key rent components continuing to post 0.4/0.5% MoM gains while used cars also rose 0.5% and airline fares increased 1% while medical care is also still running pretty hot at 0.6%. Motor vehicle insurance is especially strong, rising another 1.5% MoM, meaning costs are up more than 20%YoY. The so called “super-core” measure (core services CPI ex housing), which the Fed has been emphasising due to it reflecting tightness in the labour market given high wage cost inputs, posted another 0.4% MoM increase. This backdrop remains too hot for the Fed to want to cut rates imminently, especially with the economy likely posting 2-2.5% GDP growth in the fourth quarter of last year and the labour market remaining as tight as it is.   But this is just one measure and the outlook remains encouraging Nonetheless, the CPI report isn’t the only inflation measure the Fed looks at. In fact the preferred measure – the core personal consumer expenditure deflator – has shown much better performance. To get to 2% YoY we need to see the MoM% change averaging 0.17%. 0.31% MoM for core CPI is near enough double what we want to see, but for the core PCE deflator we have seen it come in below 0.17% MoM in five of the past six months. The reasons for the divergence are slight methodological differences in the calculations, with weights for key components such as housing and cars, being very different.   Observed rents still point to a sharp slowdown in housing inflation   Nonetheless, the prospects for consumer price inflation returning to 2% YoY remain good. We have to remember that cars and housing have a 50% weighting within the core CPI basket and we have pretty good visibility for both components. Observed private sector rents point to a clear slowdown in the housing components, while declines in Manheim car auction prices point to used car prices falling outright over the next two months. Also note that the NFIB small business survey showed only 25% of businesses are raising prices right now versus 50% in the fourth quarter of 2022. In fact, the last time we saw fewer businesses raising prices was January 2021. So, while today's report wasn't as good as it could have been, there are still reasons for optimism on sustained lower inflation rates in 2024. We still see a good chance headline and core CPI to be in the 2-2.5% YoY range by late second quarter.