US Treasury yields

Asia Morning Bites

The PBoC announced a larger-then-expected required reserve rate (RRR) reduction late Wednesday. South Korea reported stronger-than-expected GDP numbers today.

 

Global Macro and Markets

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    ING Economics ING Economics 31.05.2023 08:37
    10Y US Treasury yields are more than 60bp away from the peak they reached in early March, prior to the regional banking crisis. The Fed has been pushing a more hawkish line disappointed by the lack of progress on the inflation front, but end-2023 Sofr futures still price a rate that is 50bp below the early March peak.   At least so far, this doesn’t feel like a wholesale reappraisal of the market’s macro view although a more forceful Fed communication at the 14 June meeting, with potentially a hike and a higher end-2023 median dot, could push us closer to this year’s peak in rates.     ECB pricing is hard to move but markets look to the BoE for guidance In Europe, today’s inflation prints from France, Germany, and Italy will, in addition to yesterday’s Spanish release, give us a pretty good idea of where the eurozone-wide number will fall tomorrow. If the drop in Spain’s core inflation is any guide, EUR markets will struggle to follow their US peers higher.   Add to this that it is difficult for euro rates to price a path for policy rates that materially diverges from their US peers. Even if the Fed hikes in June or July, the EUR swap curve already prices ECB hikes at both meetings. Swaps assign a low probability to another hike in September for now.   That probability may well rise but we think any labour-market induced sell-off in US Treasuries will reflect, in part, in wider rates differentials between the two currencies.   It is difficult for euro rates to price a path for policy rates that materially diverges from their US peers  
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    Market Outlook: Indian Inflation Declines and Global Macro Developments Ahead of Fed Pause Decision

    ING Economics ING Economics 12.06.2023 08:20
    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)
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    Asia Morning Bites: China's Stimulus and FOMC Meeting Set Positive Tone for Risk Assets

    ING Economics ING Economics 14.06.2023 08:27
    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)
    Market Updates: China Data, Fed Decision, and ECB Expectations

    Market Updates: China Data, Fed Decision, and ECB Expectations

    ING Economics ING Economics 15.06.2023 08:40
    Asia Morning Bites China activity data are due shortly - expectations are low. After the Fed yesterday, today we have the ECB, and more tightening is expected. Australian employment data and US retail sales complete the data excitement for the day.     Global Macro and Markets Global markets: Stocks had little trouble digesting the FOMC “skip", which did almost exactly what was expected of it – perhaps the dot plot 2 additional hikes was one more hike than had been expected. Anyway, the result was a virtually flat S&P 500 and a modest 0.39% gain from the NASDAQ. It certainly could have been worse. US Treasury yields were mixed. 2Y yields rose 2bp to 4.688%, while those on the 10Y UST actually dropped 2.7bp to 3.786%. EURUSD rose to 1.0842, and other G-10 currencies also made gains against the USD – with the notable exception of the JPY which remains at about 140. Have we reached a turning point for the USD and bond yields….? Other Asian FX was quite mixed. The KRW gave back some of its gains from the previous day. The THB and IDR were also softer, while the INR pushed stronger to 82.106. Other than that, not too much change.   G-7 macro: An almost playbook FOMC last night. A hawkish “skip” but a slightly higher-than-expected dot plot. James Knightley provides all the detail in this linked note. The ECB also meets today. That could be a somewhat different meeting with a hike fully expected, and few reasons for the ECB to be able to sound a more dovish note. Here is a link to a cheat sheet from our FX colleagues. We also get US retail sales, which are not expected to look very good (consensus looks for a -0.2%MoM headline result). China: A busy morning with the 1Y MLF likely also showing a 10bp cut, and then a little later (10:00 SGT) the data dump, which we feel could come in softer than the initial consensus numbers posted on newswires. There is a lot of speculation about further stimulus measures being announced, which might follow today’s data release, though far from certain.   Australia: The monthly data report today is as hard to call as usual. A small increase in overall employment is the consensus view. But the devil will be in the detail with the split between full-time and part-time jobs being very important, as well as the unemployment rate.   Japan: This morning’s data release is upbeat and supports our view that the economy is still recovering. Exports rose 0.6% year-on-year in May (2.6% in April, market consensus -1.2%). Exports to the U.S. and the EU rose 9.4% and 16.6% respectively, but this is partly due to the low base comparison last year. Exports to Asia and China continued to weaken, falling -8.1% and -3.4%, respectively. By export items, strong auto exports led the growth but declines in exports of chip-making machinery and semiconductor parts dragged down exports. Export growth has slowed down recently, but Japan’s performance is relatively good compared to other Asian countries, where exports have recorded a series of deep contractions. Also, core machinery orders, a forward-looking indicator for investment, rebounded 5.5% MoM (sa) in April, more than offsetting the decline in March (-3.9%), thus 3-month sequential comparison increased for three months in a row. Consequently, we think that the growth momentum is still alive in Japan. Regarding the recent speculation on the early election in Japan, we think it would have a limited impact on the BoJ’s policymaking because the election won’t have any immediate influence on inflation.   Indonesia: Indonesia reports trade figures today. We expect both exports and imports to stay in negative territory with the trade surplus set to narrow further to roughly $3bn. The progressive narrowing of the trade surplus over the past few months points to fading support for the IDR, which has faced some pressure of late. With exports not likely to replicate last year’s strong performance, we expect the trade surplus to normalize at these levels over the coming months. Meanwhile, Indonesia’s constitutional courts are set to rule on a petition to amend the country’s voting system today. The said petition would bring back closed ballot list system voting and inevitably delay next year’s election. Expect a revival of anxiety if the courts rule in favour of the change given its implications for the February 2024 election.     What to look out for: China activity data 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)
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    Asia Morning Bites: Korean Trade Data, Powell's Testimony, and Global Market Trends"

    ING Economics ING Economics 21.06.2023 08:29
    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)
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    Asia Morning Bites: Japanese Inflation Rises, Anticipation of BOJ Policy Adjustment

    ING Economics ING Economics 23.06.2023 12:00
    Asia Morning Bites Japanese core inflation excluding food and energy edges higher in May - tees up the Bank of Japan for a July tweak to policy.   Global Macro and Markets Global markets:  After several days of decline, US stocks turned around on Thursday, and equity futures indicate that they may have a little further to go today. The S&P 500 rose 0.37%, while the NASDAQ rose 0.95%. China was out for Dragon Boat Day and will be out today too.  US Treasury yields went higher again. The Yield on both the 2Y note and the 10Y bond rose 7.6bp, taking 10Y yields to 3.795%. 10Y UK Gilt yields fell 3.8bp after the larger-than-expected Bank of England hike. EURUSD pushed above 1.10 yesterday, despite the rise in US yields, but it could not hold on to its gains and has retreated back to 1.0956 – not much changed from 24 hours ago.  G-10 currencies including the AUD and JPY lost ground to the USD, but GBP was steadier, helped by higher rates. Most Asian currencies weakened against the USD yesterday. The THB rose to 35.075, and the SGD rose to 1.3447. USDCNH has risen to 7.1957 and topped 7.20 overnight.   G-7 macro: There were further hawkish comments from Jerome Powell overnight, who said that the US may need one or two more rate hikes. Barkin also indicated that he was happy to see rates go higher. The main macro release from the US for the day was existing home sales. Lack of supply seems to be helping house prices to remain supported, as James Knightley writes here. Initial jobless claims held on to the recent highs at 264K, though continuing claims drifted a little lower. Not quite a smoking gun for the labour market, but it is becoming a little more interesting. The Bank of England’s 50bp hike took markets by surprise. James Smith and Chris Turner write about it here. James notes, “We’re tempted to say that today’s 50bp move won’t become a new trend, but two further 25bp hikes seem like the most likely route after today’s meeting”. Today is another quiet day for macro releases, with nothing of note from the US and only retail sales from the UK to look at.   Japan:  May inflation data came out slightly higher than expected. The headline inflation rate was 3.2% YoY in May (vs 3.5% in April, 3.2% market consensus) but core (3.2%) and "core-core" (4.3%) inflation beat market expectations. Inflation excluding food and energy even rose from 4.1% in April. The headline CPI index was unchanged month-on-month, but goods prices fell 0.1% MoM sa, while service prices rose 0.1%. Housing, transportation, telecommunications, and entertainment prices continued to rise, while utilities fell again. We think there are signs of inflationary pressure building up on the supply side, but it is certainly not strong enough for the BoJ to bring about immediate tightening.Looking ahead, the current energy subsidy program will end in September and some power companies will begin to raise electricity fees again. Thus, we see headline inflation staying above 2% for a considerable time. We expect June Tokyo inflation, released next week, will also pick up again.  We think that the BoJ will upgrade its inflation outlook in July and a yield curve control (YCC) tweak is still possible despite the dovish comments from several board members. They will probably justify their action by saying that a YCC tweak is not a tightening, but instead, that it is done to improve market functionality. Another reason that we think a July tweak is possible is that a shift in YCC may need to come as a surprise to avoid a large bond selloff. Singapore:  May inflation is set for release today.  The market consensus points to a slight softening in inflation with core and headline inflation slipping to 4.7%YoY and 5.4%YoY, respectively.  Continued robust domestic demand is preventing price pressures from dissipating quickly.  Despite the dip in inflation, the MAS will likely be on notice monitoring price developments with core inflation still well above target.  
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    Asia Morning Bites: Central Banks, Global Markets, and Key Economic Data

    ING Economics ING Economics 26.06.2023 07:58
    Asia Morning Bites Markets are still digesting the more hawkish central bank backdrop and events in Russia over the weekend. More central bank flavour will come this week from the Sintra ECB event, where Powell, Lagarde, Bailey and Ueda will be speaking. US PCE data rounds off the week.   Global Macro and Markets Global markets: Equities finished in the red on Friday. There was not much upside. Bourses opened down and then stayed down for most of the session. The S&P 500 fell 0.77%, and the NASDAQ fell 1.01%. Digesting the Fed’s recent comments about further rate hikes, and also the similar noises coming from the ECB and the Bank of England's surprise 50bp hike, together with anxiety about the unfurling events in Russia would all have weighed on sentiment. US equity futures are looking a bit brighter this morning. China was still on holiday at the end of last week. US Treasury yields dropped last Friday. The 2Y US Treasury yield fell 5bp to 4.741%. 10Y UST yields fell 6bp to 3.735%. EURUSD moved lower on Friday, falling to 1.0845 intraday before recovering to just above 1.09. The AUD was also weaker against the USD, falling to 0.668. Sterling was steadier, but Cable also lost ground to 1.2728, and the JPY was also weaker, rising to 143.521. Friday was a poor day for Asian FX, with declines across the board except where markets were closed for public holidays. The KRW, SGD, THB and MYR all lost 0.5% or more.   G-7 macro: US PMI data showed some signs of weakness on Friday. The Manufacturing PMI slid further into contraction territory, dropping to 46.3 from 48.4, while the service sector PMI softened to 54.1 from 54.9, though remains in expansion mode. Germany’s Ifo survey is about all we have to get excited about today. The ECB’s Central Bank forum in Sintra kicks off today.  The end of the week will be more interesting, with another dose of PCE data from the US.   Singapore:  Industrial production data will be released later this afternoon.  The market consensus points to another month of contraction (-7.1%YoY) as production tracks the struggles on the trade front.  We can expect this trend to continue in the near term given the outlook for global trade.    Philippines: President Marcos appointed former Monetary Board Member Remolona to take over as Bangko Sentral ng Pilipinas (BSP) Governor next week.  We are not expecting any major shifts in policy thinking from incumbent BSP Governor Medalla and we expect the BSP to match any moves by the Fed in the coming months.      What to look out for: Singapore industrial production and Powell's comments later in the week Singapore industrial production (26 June) Taiwan industrial production (26 June) Japan leading index (27 June) Hong Kong trade balance (27 June) US durable goods orders, new home sales and Conference Board consumer confidence (27 June) Australia CPI inflation (28 June) Philippines bank lending (28 June) US MBA mortgage applications and wholesale inventories (28 June) Fed’s Powell speaks (28 June) Japan retail sales (29 June) Australia retail sales (29 June) US initial jobless claims and pending home sales (29 June) Fed’s Powell and Bostic speak (29 June) South Korea industrial production (30 June) Japan labour market data (30 June) China PMI manufacturing (30 June) US personal spending and Univ of Michigan sentiment (30 June)
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    Market Focus: CNY Surge, Global Macro Trends, and Key Data Releases

    ING Economics ING Economics 27.06.2023 10:41
    Asia Morning Bites CNY pushes up to 7.24. Next stop 7.30?   Global Macro and Markets Global markets:  Eclipsing other market moves on Monday, the sharp upwards shift of the CNY after China returned from public holidays last week is the obvious starting point for today’s reflection. The CNY had last traded at 7.18 on 21 June, but it gapped higher immediately on opening yesterday and kept climbing to finish at 7.24. The October 2022 peak of 7.30 is now firmly in focus, the main question for many will now be how quickly it gets there, and whether the PBoC tries to slow the ascent or add some two-way risk. So far, the PBoC seem to be pretty relaxed about the moves, which are sizeable, but orderly. The rest of Asia has been able to shrug off much of the CNY move. The TWD weakened 0.32% yesterday, moving slightly less than the CNH on the day. Other Asian FX saw small losses for the most part, but nothing major. Indeed, as we observed in a recent note, the correlations between CNY moves and other Asian FX seem to have fallen substantially recently. In G-10 currency space, there was little going on. EURUSD was almost unchanged at 1.0908. Other G-10 currencies were fairly muted yesterday. Equities didn’t deliver the increase that had been promised by futures this time yesterday, and US stocks suffered another decline. The S&P 500 fell 0.45% while the NASDAQ dropped 1.16%. Both are still up strongly year-to-date (12.74% and 27.41% respectively) so can absorb some further losses. Chinese stocks were also down. The CSI 300 fell 1.41% and the Hang Seng was down 0.51%. US Treasury yields were little changed across the curve. The 10Y yield is now 3.721%.   G-7 macro:  It was a very quiet day for macro on Monday. Germany’s Ifo survey delivered another set of weak numbers. Carsten Brzeski suggested that Germany’s recovery was over before it really began in a note yesterday. Today we get US durable goods orders data for May, together with US house price data for April from CoreLogic. The Durable goods numbers are exceptionally choppy and most of the relevant detail will lie buried in the core orders and shipments numbers. The house price data have been firming lately, which doesn’t make Fed forecasting any easier. Still, some good news is that Bloomberg reports rents falling according to a national survey by Realtor.com.  Actually, other industry data had already been giving that message, but it is helpful to have further corroboration.  Conference Board consumer confidence as well as some regional US activity surveys complete the data calendar for the day.      What to look out for: US durable goods and consumer confidence Japan leading index (27 June) Hong Kong trade balance (27 June) US durable goods orders, new home sales and Conference Board consumer confidence (27 June) Australia CPI inflation (28 June) Philippines bank lending (28 June) US MBA mortgage applications and wholesale inventories (28 June) Fed’s Powell speaks (28 June) Japan retail sales (29 June) Australia retail sales (29 June) US initial jobless claims and pending home sales (29 June) Fed’s Powell and Bostic speak (29 June) South Korea industrial production (30 June) Japan labour market data (30 June) China PMI manufacturing (30 June) US personal spending and Univ of Michigan sentiment (30 June)
    Asia Morning Bites: Focus on Regional PMI Figures, China's Caixin Manufacturing Report, and Upcoming FOMC Minutes and US Non-Farm Payrolls"

    Asia Morning Bites: Focus on Regional PMI Figures, China's Caixin Manufacturing Report, and Upcoming FOMC Minutes and US Non-Farm Payrolls"

    ING Economics ING Economics 03.07.2023 08:56
    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)
    AUD Faces Dual Challenges: US CPI Data and Australian Labor Market Statistics

    RBA Decision and Global Market Updates

    ING Economics ING Economics 04.07.2023 08:45
    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: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

    Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

    ING Economics ING Economics 06.07.2023 08:15
    Asia Morning Bites Australia reports trade this morning, and Taiwan releases June inflation data. US Fed minutes showed officials in favour of additional rate hikes. Busy day for US data ahead of Friday's payrolls.   Global Macro and Markets Global markets:  It was the turn of the back end of the yield curve to rise yesterday. 10Y US Treasury yields rose 7.7bp to 3.932%. But despite some fairly hawkish Fed minutes, the front end didn’t move much. 2Y yields rose only 0.9bp to 4.945%. US equities opened lower yesterday, but after a choppy day which lacked direction, finished only slightly down. The S&P 500 ended 0.2% lower while the NASDAQ fell 0.18%. The USD continued to find support from the Fed outlook, and EURUSD moved down to 1.0855. Other G-10 currencies also lost ground.  The JPY remains at 144.43, similar to this time yesterday, though it has been quite volatile. Most of the Asian FX pack lost ground to the USD yesterday. The CNH has traded back up above 7.26. G-7 macro:  Despite what was clearly a meeting with considerable differences of opinion, and very low conviction on the way forward, the key element to the June FOMC minutes seems to be that “almost all” officials thought more tightening would be needed this year. Here’s a link to the transcript. Today, we have the ADP survey of employment, jobless claims, and the service sector ISM survey, all coming ahead of tomorrow’s payrolls. Taiwan: June inflation data will remain subdued, with consensus estimates targeting a 1.8%YoY inflation rate, slightly down from the 2.02% reading in May. Core CPI is running slightly higher, but not much, and could also decline slightly from the 2.57% May reading. This all suggests that Taiwan’s central bank need not follow the Fed if they decide to hike rates again this month, as now looks likely.   What to look out for: US ADP and Australia trade Australia trade (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)
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    Asia Morning Bites: Korean Authorities Limit Fallout as MGCCC Branches Close, US Non-Farm Payrolls in Focus

    Michael Hewson Michael Hewson 07.07.2023 08:48
    Asia Morning Bites Korean authorities give a strong deposit protection message to limit fallout as it closes some branches of MGCCC. US non-farm payrolls later - and a big number is expected following the ADP release.   Global Macro and Markets Global markets:  Strong US labour data ahead of today’s payrolls release caused US Treasury yields to move higher again yesterday. US 2Y yields rose a further 3.6bp while those on 10Y USTs rose 9.8bp taking them to 4.029% for the first time since early March. Equities didn’t respond well to the stronger-than-expected data. The S&P 500 fell 0.79%, while the NASDAQ dropped by 0.82%. Chinese stocks were also down. The Hang Seng fell 3.03%, while the CSI 300 fell a more modest 0.67%. In spite of the rise in yields, the USD lost a little ground to the EUR, and EURUSD moved up to 1.0894. The AUD was weaker though, falling back to 0.6630, while the GBP moved a little higher to 1.2743, and the JPY also made some gains, moving to just below 144. Most of the Asian FX pack was weaker against the USD yesterday G-7 macro: Yesterday’s market-moving release was the US ADP survey, which showed a 497 thousand increase in private employment in June. This was more than twice what had been expected and could set the market up for an upside surprise to the 230 thousand payrolls median forecast today. There was also a stronger-than-expected reading from the service sector ISM index, with both headline and employment indices rising a lot. It is going to be quite hard for the Fed to ignore these numbers at its 27 July meeting. As well as payrolls today, we also get hourly earnings data, which is expected to show a slight moderation from the 4.3% rate of annual growth in May. The unemployment rate, however, is thought likely to go down, not up. Korea: The risk of a bank run emerged suddenly as the delinquency rates of MGCCC rose sharply and a couple of branches decided to close. The government has issued a strong message that deposits will be protected. The BoK will keep rates on hold as financial market stress is expected to continue for a while. Please see details. Taiwan: Trade figures for June could show rates of decline moderating in year-on-year terms, though they are likely to remain in a double-digit descent. In USD terms, Taiwan’s exports have been steadily declining since August 2022, and today’s reading may simply signal that the rate of decline has eased slightly. This would be in line with what we see in other regional peers like South Korea.   What to look out for: US jobs report South Korea BOP balance (7 July) Taiwan trade (7 July) US non-farm payrolls (7 July)
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    Global Markets React to Disinflationary Pressure as USD Weakens and Stocks Rally

    ING Economics ING Economics 14.07.2023 08:24
    Asia Morning Bites The RBA is to get a new Governor, Michelle Bullock, in September. In the US, James Bullard will step down from the St Louis Fed. More disinflationary pressure from June PPI data helps stocks to rally and the USD and US treasury yields to slide.   Global Macro and Markets Global markets:  Further disinflationary signs from US PPI data yesterday helped US Treasury yields to drop sharply. 2Y yields fell 11.6bp to 4.63%, while 10Y yields fell 9.4bp to 3.763%. This probably helped to spur further USD weakness. At 1.1224, it does really look as if the long-awaited USD turn has arrived. We haven’t seen levels like this since March 2022.  The AUD also made solid gains against the USD, rising to 0.6890. Cable too has surged, rising to 1.3131, and the JPY has plunged below 140 to 137.96. All Asian currencies were stronger against the USD yesterday, and it looks like a fair bet that this will be the theme in trading this morning. US stocks also seemed to like the additional disinflationary message from the PPI numbers. The NASDAQ rose 1.58% while the S&P500 rose 0.85%. Chinese stocks were also positive. The Hang Seng rose a very solid 2.6% while the CSI 300 rose 1.43%.   G-7 macro: US PPI rose just 0.1% MoM in June for both the headline and core measures. This resulted in a final demand PPI inflation rate of just 0.1%YoY, though the ex-food-and-energy PPI inflation rate was 2.4%YoY, down from 2.6% in the prior month. Initial jobless claims were a little lower though, so we shouldn’t get too carried away with the disinflationary theme.  Today, the US releases import and export price data, which should also indicate falling pipeline prices The University of Michigan confidence publication will also throw some light on inflation expectations, which are forecast to come down slightly on a 1Y horizon. There is May trade data out of the Eurozone. In Fed news, James Bullard, one of the FOMC hawks, and in this author’s view, one of the most thought-provoking and consensus-challenging members of the FOMC, is to step down to pursue a career in academia. Shame.  Meanwhile, Christopher Waller has said the Fed will need two more hikes to contain inflation because the negative impact of the banking turmoil earlier in the year has faded. Markets don’t agree.     Australia:  According to a Bloomberg article, the Reserve Bank of Australia’s Governor, Philip Lowe, will not be reappointed when his 7-year term ends on September 17. This may not come as a massive surprise following an independent review of the central bank, which criticized some of the RBA’s forward guidance on rates during Covid and the pace of the response to higher inflation. Lowe will be replaced by Michele Bullock, who is currently Deputy Governor.   China:  June FDI data is due anytime between now and 18 July. The last reading for May showed utilized FDI running almost flat from a year ago. Given the run of recent data, it is conceivable that we see a small negative number for June, indicating net FDI outflows.   India: Trade data took a sharply negative turn in May, and today’s June numbers, while likely to show exports still falling from a year ago, may have moderated slightly from the -10.3%YoY rate of decline in May. The trade deficit could shrink slightly from the May $22.12bn figure.     Singapore: 2Q GDP surprised on the upside and settled at 0.7%YoY compared to 1Q GDP growth of 0.4%YoY.  The Market consensus had estimated growth at 0.5%YoY. Compared to the previous quarter, GDP was up 0.3% after a 0.4% contraction in 1Q23. The upside surprise to growth may have been delivered by retail sales, with department store sales and recreational services supported by the return of visitor arrivals. Services industries as a whole expanded 3%YoY, much faster than the 1.8% gain reported in 1Q.  The rest of the economy, however, continues to face challenges with manufacturing down 7.5%YoY, tracking a similar downturn faced by non-oil domestic exports as global demand remains soft.    What to look out for: China FDI, India trade and US University of Michigan sentiment China FDI (14 July) Japan industrial production (14 July) India trade (14 July) US import prices and University of Michigan sentiment (14 July)
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    Asian Markets Await Detailed Plans After Politburo Pledges Support for China's Economy

    ING Economics ING Economics 25.07.2023 08:17
    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)
    Hungary's Economic Outlook: Anticipating Positive Second Quarter GDP Growth

    Asia Morning Bites: Politburo's Economic Support and Global Market Analysis

    ING Economics ING Economics 25.07.2023 08:20
    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.
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    Asia Morning Bites: China PMI in Focus, Global Markets Positive, and Key Economic Indicators Ahead

    ING Economics ING Economics 31.07.2023 15:48
    Asia Morning Bites China PMI reports to be the main focus for Monday with US non-farm payrolls looming on Friday.   Global Macro and Markets Global markets: US stocks finished the week on a positive note.  The S&P 500 gained 0.99% while the NASDAQ rose 1.9%. Chinese stocks also gained. The CSI 300 rose 2.32% while the Hang Seng rose 1.41%. The so-called Goldilocks trade of rates at or near their peak and a projected soft landing seem to be providing a supportive backdrop for continued stock gains. But to really be a supportive background, we need headline inflation to keep falling, and to be joined by a lower core inflation rate. Until this month, the evidence for the latter was quite thin. It may be gaining some traction now, but one month is not a trend. US Treasury yields actually fell on Friday. The yield on the 2Y Treasury fell 5.4bp to 4.874%, while the 10Y yield fell 4.8bp to 3.951%. The decline in yields no doubt helped the EUR to claw its way back above the 1.10 level to 1.1025 currently. The AUD remains subdued at 0.6658. We don’t expect anything from the RBA this week, though we are in the minority here. We don’t think the RBA is done, we just think there will be better months for them to hike, and that the inflation data this month was sufficiently good to keep rates on hold in the meantime. Cable also rose to 1.2858. The Bank of England will likely raise rates again this week, but only by 25bp after better inflation data. The JPY has given back most of its post BoJ gains after Friday’s marginal YCC tweak (see here for Min Joo Kang’s note on this), and is currently at 140.85. Most of the Asian currencies lost ground to the USD on Friday , though the CNY saw some further consolidation, declining to 7.1485 from the Thursday close of 7.1675. G-7 macro:  US June core PCE data on Friday helped bring that inflation rate down to 4.1% from 4.6%. The 0.2%MoM increase in the core figure is in the ballpark of what the US needs to deliver each month to get core inflation close to its target of 2%. A couple of 0.1% MoM outcomes will be needed to actually bring core PCE inflation below the 2% target, though it may be that the Fed thinks that “close is good enough”? Here’s James Knightley for more on the US data. Today, we get June German retail spending, and some advanced EU GDP data for 2Q23. The consensus on the GDP report is for a 0.2%QoQ increase, after the upwardly revised 0.0% result for 1Q23. In addition, EU July CPI is estimated, to come down from 5.5% to 5.2%, with the core rate dropping just 0.1pp to 5.4%. China:  The official PMI data for July are out later this morning. The manufacturing index will most likely remain in modest contraction territory at close to last month’s 49.0 reading, while the non-manufacturing PMI should show a further decline from last month’s 53.2 figure, reflecting cooling retail spending activity. India:  Fiscal deficit data for June are released today. So far this fiscal year, the deficit outturns have been roughly in line with those of last year, which should translate into a modest decline relative to what will be a higher nominal GDP level. Last June’s deficit figure was about INR1.48tr, so anything at about that level or lower would be a decent outcome. Japan: Monthly activity data was a bit mixed as retail sales slightly dropped but industrial production rebounded. Retail sales fell -0.4% MoM sa in June (vs revised 1.4% in May, -0.7% market consensus). Consumption goods sales such as apparel (-2.5%) made a second monthly drop while durable goods sales remained relatively healthy with vehicles up 3.9%.  Meanwhile, industrial production rose 2.0% MoM sa in June (vs -2.2% in May, 2.4% market consensus). By product details, motor vehicles, electronic parts and devices, and machinery contributed to the rise while petroleum and coal, pulp, and transportation excluding motor vehicles declined. Shipments were also up 1.5% which brought the inventory ratio down -1.2%. Looking ahead, we believe that strong vehicle production will likely drive the gradual recovery in manufacturing at least for the current quarter. On a quarterly comparison, manufacturing improved from the first quarter while retail sales weakened a bit. But service consumption still gained from the previous quarter, so private consumption growth should remain positive in the second quarter.  We expect 2QGDP to decelerate modestly to 0.5% QoQ sa from 0.7% in the first quarter. We think the net export contribution improved meaningfully with a  sharper decline in imports.     What to look out for: China PMI reports China PMI manufacturing and non-manufacturing (31 July) Hong Kong GDP (31 July) New Zealand building permits (1 August) Japan labour market figures (1 August) South Korea trade balance (1 August) Indonesia CPI inflation (1 August) PMI regional reports (1 August) China Caixin PMI (1 August) Australia RBA (1 August) Hong Kong retail sales (1 August) US ISM manufacturing and JOLTS report (1 August) South Korea CPI inflation (2 August) Thailand BoT policy (2 August) US ADP jobs report (2 August) Japan Jibun PMI (3 August) Australia trade balance (3 August) China Caixin PMI services (3 August) UK BoE policy meeting (3 August) US initial jobless claims, factory orders, durable goods orders, ISM services (3 August) Philippines CPI inflation (4 August) Singapore retail sales (4 August) US non-farm payrolls (4 August)
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    Asia Morning Bites: RBA Decision and China's Caixin PMI in Focus

    ING Economics ING Economics 01.08.2023 10:12
    Asia Morning Bites A finely balanced RBA decision as well as China's Caixin manufacturing PMI data are today's main events.   Global Macro and Markets Global markets: US stocks made feeble gains on Monday to close out July, but that still leaves stocks strongly up over the month, and indeed the prior month too. The S&P 500 is up 19.52% ytd, and the NASDAQ is up 37.07%.  Chinese stocks made firmer gains, helped by a further set of policies to help boost consumption. Once again though, the measures stopped short of direct stimulus, and instead, we have further "signals of support" and supply-side measures. The Hang Seng index rose 0.82%, while the CSI 300 rose 0.55%. US Treasury yields were almost unchanged on the day. 10Y JGBs were a little higher at 0.599%. EURUSD moved lower to 1.0998, though the AUD gained ahead of today’s RBA meeting, rising to 0.6718. The JPY was a little weaker at 142.379 while Cable was steady at 1.2835. There wasn’t much direction for most of the Asian FX pack yesterday, though the MYR gained more than a per cent against the USD moving to 4.507. The THB was softer ahead of tomorrow's BoT meeting. G-7 macro: Eurozone inflation data for July showed a small fall to 5.3% YoY from 5.5% for the headline index. But there was no decline in the core inflation rate, which remained at 5.5%YoY. Today is fairly quiet for macro releases, though we do get the US Manufacturing ISM for July, together with backwards-looking labour data for June from the JOLTS survey. Australia: A small majority of forecasters are expecting the Reserve Bank of Australia (RBA) to hike rates by 25bp today. We aren’t among them, believing that the need to hike will be more readily apparent in later months. With the RBA keen not to overdo the tightening, it seems unnecessary to hike today when in all likelihood the macro signals for hiking will look much stronger at the September meeting. India: The June fiscal deficit came in a lot higher than the initially reported INR1.48tr deficit for June 2022, coming in at INR2.41tr. There were some upward revisions to last year’s data, so relative to the revised figures of INR2.11tr the increase is not as startling. These numbers do need watching. Next month’s comparison is with a small surplus in 2022, so if the deficit numbers for July do not dip sharply, then the government’s 5.9% deficit target may be at risk. South Korea: The export contraction deepened again in July. Exports fell by 16.5% YoY (vs -6.0% in June, -15% market consensus). By export item, Semiconductor exports fell 34%, petroleum fell 42%, and chemicals also fell 25%. Unfavourable price effects dragged down the export performance of these items. Meanwhile, vehicle exports rose a robust 15% YoY.   Imports also fell sharply (-25.4% vs -11.7% in June, -25.0 market consensus) mainly due to falling global commodity prices (crude oil -46%, gas -61%, coal -46%). With a larger decline in imports than exports, the trade balance recorded a surplus for the second month. We believe that the trade balance will stay in surplus for most of the second half of the year, but exports will likely stay in the contraction zone for the current quarter. Korea's July manufacturing PMI rose to 49.4 from 47.8 in June, the highest reading since July 2022, but remains in the contraction zone where it has languished for thirteen consecutive months. With new orders and output rising, we believe that a modest recovery in manufacturing and exports can continue. We expect exports to turn positive in 4Q. Japan: Japan’s labour market remains tight, and this is an optimistic sign that sustainable wage growth may continue for some time. The unemployment rate edged down to 2.5% in June (vs 2.6% in May and market consensus), and labour participation also rose to 63.1% from 62.9% in May.  Although labour demand conditions weakened recently as the Job-to-application ratio continued to decline to 1.30 in June from the recent peak of 1.36 in December, we still think that the current level of labour demand is quite healthy. By industry, job offers for hospitality services such as hotels and restaurants rose, but those for manufacturing declined. We believe that Japan’s recovery will continue, mostly driven by the service sector. Indonesia:  July inflation is set for release today.  The market consensus points to a further moderation in headline inflation. July inflation is pegged to slip to 3.1%YoY from 3.5% as favourable base effects kick in.  Likewise, core inflation is set to cool further to 2.5%YoY from 2.6% in the previous month.  Despite slowing inflation, Bank Indonesia will likely remain on hold in the near term to help provide stability to the IDR which has been under pressure lately.      What to look out for: RBA decision and regional PMI New Zealand building permits (1 August) Japan labour market figures (1 August) South Korea trade balance (1 August) Indonesia CPI inflation (1 August) PMI regional reports (1 August) China Caixin PMI (1 August) Australia RBA (1 August) Hong Kong retail sales (1 August) US ISM manufacturing and JOLTS report (1 August) South Korea CPI inflation (2 August) Thailand BoT policy (2 August) US ADP jobs report (2 August) Japan Jibun PMI (3 August) Australia trade balance (3 August) China Caixin PMI services (3 August) UK BoE policy meeting (3 August) US initial jobless claims, factory orders, durable goods orders, ISM services (3 August) Philippines CPI inflation (4 August) Singapore retail sales (4 August) US non-farm payrolls (4 August)
    Why India Leads the Way in Economic Growth Amid Global Slowdown

    The Commodities Feed: Risk-Off Sentiment Weighs on Energy and Metals as US Oil Inventories Record Steep Decline

    ING Economics ING Economics 03.08.2023 14:44
    The Commodities Feed: Risk-off sentiment weighs on the complex The overall risk-off sentiment has weighed on the commodity complex with both energy and metals facing the pressure. US crude oil inventory dropped by a record 17MMbbls last week, reflecting a tight physical market.   Energy – US weekly oil inventories report record declines The oil market came under pressure yesterday and traded weak this morning as rising US Treasury yields and strength in the USD index overshadowed a record drop in the US crude oil inventories. The weekly petroleum status report from the Energy Information Administration (EIA) was constructive for the oil market and shows that US commercial crude oil inventories dropped by a record 17MMbbls over the last week to 439.8MMbbls, the lowest since January and around 1% below the five-year average for this time of the year. The market was anticipating a drawdown of just 0.8MMbbls while the American Petroleum Institute (API) reported a withdrawal of 15.4MMbbls the day before. Meanwhile, oil inventories at Cushing, Oklahoma, fell by 1.3MMbbls for a fifth consecutive week to 34.5MMbbls, the lowest since the first week of May. The inventory withdrawal mainly comes amid a backdrop of a jump in exports which increased to around 5.3MMbbls/d last week compared to 4.6MMbbls/d in the preceding week. The majority of the demand came from Asian refiners as they boosted the purchase of US oil following the output cuts by OPEC+ members. As for refined product inventories, gasoline inventories rose by 1.5MMbbls, against a forecast for a decline of 1.3MMbbls, while distillate stockpiles fell by 0.8MMbbls last week, higher than expectations of a decline of 0.3MMbbls. Meanwhile, refineries operated at 93.5% of their capacity, up from 93.1% in the previous week and 92.9% for the same period last year. Domestic crude oil production remained largely unchanged at 12.2MMbbls/d last week.    
    Euro-dollar Support Tested Amidst Rate Concerns and Labor Strikes

    Asia Morning Bites: Mixed Payrolls Impact and Indonesian 2Q23 GDP Focus

    ING Economics ING Economics 07.08.2023 08:40
    Asia Morning Bites Asian Markets have yet to fully respond to Friday's mixed payrolls report. Indonesian 2Q23 GDP today.   Global Macro and Markets Global markets:  US equities dipped slightly on Friday after a mixed labour report that contained some hints that the US economy was slowing. The S&P 500 declined 0.53% and the NASDAQ fell 0.36%. Chinese stocks had a better end to the week. The Hang Seng rose 0.61% and the CSI 300 rose 0.39%. US Treasury yields retreated sharply on Friday. The 2Y yield dropped 11.7bp, and 10Y Treasury yields fell 14.1bp to 4.034%. The USD also softened against the EUR. EURUSD rose sharply to 1.104 intraday, before settling back to just over 1.10.  The AUD took a look above 0.66 but has also settled back to 0.6572. Cable rose to 1.2747, and the JPY dropped to 141.91. Asian FX was mostly weak against the USD on Friday but will likely recover lost ground in early trading today. The KRW and THB were the two weakest currencies on Friday. The KRW is now 1309.70. G-7 Macro: Friday’s labour report was very mixed, with the headline payroll numbers coming in a bit lower than expectations, but wages growth rising and the unemployment rate falling. James Knightley thinks this should keep the FOMC on hold at their September meeting.  Fed speakers last week gave conflicting messages. Bostic suggested that as the labour market was now slowing, the Fed did not need to hike any more  - a view that is in line with our house forecast. Bowman said that more hikes were likely. There is nothing of any note from the G-7 today. Later this week, we get July CPI inflation from the US, which could move slightly higher again from June’s 3.0% reading.  Core inflation is forecast to stay at 4.8%YoY. Indonesia:  2Q23 GDP is set for release today.  The market consensus points to a 5.0%YoY expansion for 2Q with consumption getting a lift from fading inflation.  Meanwhile, softer export growth, partly due to moderating global commodity prices likely capped growth momentum amidst slower global trade.  This would match the expansion reported in 1Q with growth on track to meet government expectations.  Bank Indonesia recently retained its growth outlook for 2023 at 4.5-5.3%YoY.   What to look out for: Fed speakers Thailand CPI inflation (7 August) Indonesia 2Q GDP (7 August) Fed’s Bowman and Bostic speak (7 August) South Korea BoP current account balance (8 August) Japan trade balance (8 August) Australia Westpac consumer confidence (8 August) China trade (8 August) Philippines trade (8 August) Taiwan trade (8 August) US trade balance (8 August) South Korea unemployment (9 August) China CPI inflation (9 August) Taiwan CPI inflation (9 August) US MBA mortgage application (9 August) Japan PPI inflation (10 August) 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)
    Sterling Slides as Market Anticipates Possible Final BOE Rate Hike Amidst Weakening Consumer and Housing Market Concerns

    Market Overview: Equity Sentiment, Global Macro Trends, and Upcoming Events

    ING Economics ING Economics 16.08.2023 11:09
    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)
    Soft US Jobs Data and Further China Stimulus Boost Risk Appetite

    Rates Spark: Risk-Off Impact and FOMC Minutes in Focus

    ING Economics ING Economics 16.08.2023 11:24
    Rates Spark: Risk-off as a contributor Firm US retail sales were enough to cause the risk-off theme to sustain itself. And should we morph to risk-on, market rates are likely to come under upward pressure. Damned if you do, damned if you don't for market rates, at least for now.   Risk-off is managing to temper room to the upside for yields just for now The risk-off mode of late has become a central containment factor for US Treasuries. Had it not been for that, US Treasury yields would most likely have hit higher levels in the past few weeks. We also know there have been some solid inflows into Treasuries as a theme in the past month or so. There have also been ongoing and material inflows into money market funds. Against that backdrop there has been the build of a risk-off preference in both credit and equities. It’s not been severe, but it’s been there. US data released on Tuesday was all over the place. Yes, there was manufacturing survey weakness, but that’s not new. We’ve had that practically for a year now, and still no macro-wide recession. There was also a fall back in the housing market index. This had shown a remarkable tendency to rise in recent months, but then snapped back to its long-run average at around 50 for August. The big surprise though was retail sales, which were strong for July. Too strong for the Fed to consider easing up just yet. Hence the risk-asset heaviness. This week is shaping up as one that will likely see the US 10yr consolidate at comfortably over 4%. It’s been in the 4.15% to 4.20% area in the past couple of days, with mild breaks above. It may well consolidate a bit from here. Unlikely to break back below 4.1% for now, and more likely to trek up to the 4.25% area and then 4.3%. At that point the issue is whether it gets bought into enough to manifest in a rally, or whether it pushes on towards 4.5%. It’s still to early to look that far, but the odds currently remain in favour of the latter.   A drag on the latest leg higher in yields   FOMC minutes against the backdrop of brewing inflation expectations Officials’ views on what the next steps of the Fed ought to be had been more diverse of late, with some seeing the need for more hikes, others stressing a lot had been done already. But given the resilience of the US economy, especially the consumer, and the brewing of longer-term market inflation expectations over recent weeks, the discussion of whether enough has been done to tackle inflation may gain more traction. Yesterday, it was the Fed’s Neel Kashkari who posed that question more explicitly. A pause in September still remains the base case also for markets, especially after the latest benign inflation print. Rather than pricing in hikes, the question now is more about how long that pause will last. Obviously all eyes are on the upcoming Jackson Hole symposium starting on 24 August for the next policy directives. Today, we will get the minutes of the July FOMC meeting, in which the Fed hiked by 25bp and retained a bias to do more. If that hawkish sentiment is reflected in the minutes it may well resonate with current market sentiment.      Markets price a Fed on hold, followed by cuts starting in the first half of 2024 Today's events and market view Poor risk sentiment finally caught up with rates, but it also looked like investors were covering their short positions. Initially, yesterday's upside surprise in UK wage growth data set the bearish tone for rates, but dynamics switched after the strong US retail sales data. This morning's UK CPI figures surprised slighly to the upside again, but it appears the market's focus is shifting - with China risks top of mind and the recent rating agency warnings around US banks, this time from Fitch. Ahead of this evening's FOMC minutes, markets will also have US housing starts as well as industrial production data to digest. In Europe, we will see 2Q GDP readings and also industrial production data.  In primary markets, the focus is on Germany’s €2.5bn 30Y bond auctions
    Manning the Renminbi Barricade: Navigating FX Markets Amid Chinese Defenses

    Manning the Renminbi Barricade: Navigating FX Markets Amid Chinese Defenses

    ING Economics ING Economics 22.08.2023 08:48
    FX Daily: Manning the renminbi barricade In quiet summer FX markets, the top story remains Chinese authorities' defence of the renminbi, This stands to be a long campaign given that USD/CNY is trading near 7.30 for good reason. Elsewhere, tech stocks are making US equities look bid even though steadily higher US Treasury yields pose a challenge. And looks out for BRICS expansion news today.   USD: 'We've got tech stocks' US equity markets continue to outperform. This seems largely down to the rally in tech stocks on the AI bandwagon, where Nvidia's 2Q results are widely anticipated for tomorrow. US equity performance is adding to the sense of 'US exceptionalism', backed also by better growth numbers and a central bank that has more reason than most to stay hawkish late into its tightening cycle. There is only second-tier US macro data today, but with US Treasury yields continuing to push higher, headwinds to the equity rally are growing, and temporarily parking funds in the dollar paying 5.30% in overnight rates doesn't seem like a bad idea. Equally, we expect the dollar to stay largely bid into Friday's Jackson Hole speech from Fed Chair, Jay Powell. Two other highlights today. The first is the People's Bank of China's battle to keep USD/CNY under the 7.30 area. In addition to representing their displeasure with USD/CNY levels by printing very low onshore fixings (7.1992 last night), yesterday it seemed as though the focus was on the funding side where 1m CNH implied yields spiked over 5% (the highest since 2018) making it more expensive to run CNH short positions. As mentioned recently, Chinese FX intervention is opaque, but another measure to support the renminbi would be cutting the required reserves on FX deposits. Brief dips in USD/CNH see the dollar offered across the board, but with Chinese authorities cutting official interest rates, we suspect any CNH gains will be limited and temporary. Also today we see the start of the BRICS summit in South Africa. Expansion tops the agenda and names in the frame we think could be the United Arab Emirates, Egypt, and Bangladesh - all of which joined the BRICS New Development Bank in 2021. It would be a massive surprise were Saudi Arabia to join the grouping - which would inevitably lead to speculation over oil being priced in non-dollar currencies and a headline that may temporarily hit the dollar. DXY looks very comfortable within the 102.70-103.70 range.
    Sterling Slides as Market Anticipates Possible Final BOE Rate Hike Amidst Weakening Consumer and Housing Market Concerns

    Gold Price Analysis: Technical Outlook and Potential Scenarios

    InstaForex Analysis InstaForex Analysis 22.08.2023 14:52
    Early in the European session, gold (XAU/USD) is trading around 1,894.45, above the 21 SMA, and below the 200 EMA located at 1,904. On the H1 chart, we can see that gold broke the bearish trend channel formed since August 8 and it is expected to consolidate above 1/8 Murray located at 1,890 in the next few hours.     If this scenario occurs, then the instrument could reach the 200 EMA located at 1,904 or go up to 2/8 Murray located at 1,906. 10-year US Treasury yields are trading above 4.3% as investors expect the Fed to continue raising interest rates in September 2023. Bonds and gold are inversely correlated. Since these are overbought, a fall in bonds is expected in the next few days, so it will be seen as an opportunity to buy gold.   We can see that gold is overbought according to the 1-hour chart. Hence, we could expect a technical correction to occur in the next few hours towards the 1,888 area and then from there, a technical rebound could follow.   In case the XAU/USD pair continues to rise, we could expect it to reach 1,906. We could use this opportunity to sell. The eagle indicator is showing an overbought signal. We expect gold to reach the 1,888 level and this will give us an opportunity to buy at a low price. Conversely, a sharp break below the low reached so far around 1,885, could be seen as a continuation of the downward movement. Therefore, the instrument could reach 1,875 and finally 1,867.  
    Euro-dollar Support Tested Amidst Rate Concerns and Labor Strikes

    Asia Morning Bites: Focus on Tug of War Between Markets and PBoC, PMI Reports Dominate Macro Data

    ING Economics ING Economics 23.08.2023 09:58
    Asia Morning Bites The tug of War between markets and the PBoC will remain a focus in Asia today. Macro data is dominated by PMI reports from major economies.   Global Macro and Markets Global markets:  Tuesday was a nothing-day for US stocks as we creep closer to the US Jackson Hole event. US stocks opened up but then slid for most of the session. Chinese stocks, in contrast, managed a rare day of gains. The Hang Seng index rose 0.95% while the CSI 300 rose 0.77%.  US Treasury yields were mixed. The 2Y yield rose to 5.046%, a gain of 4.5bp, though the 10Y yield edged slightly lower by 1.4bp to 4.324%. EURUSD dropped to 1.0847, which looks like a lagged move to respond to Monday’s US yield increases. The AUD pushed slightly higher though, rising to 0.6452, while Cable looked stronger for most of Tuesday before sliding in late trading to return to the 1.2730 area. The JPY looked a bit more solid and strengthened slightly to 145.79. The tug-of-war between markets and the PBoC continued on Tuesday. There was another very strong fix below 7.20 combined with higher funding costs for offshore yuan, though these have now normalized, raising the question of what today's PBoC strategy will be. But the CNY remains just below 7.30 at 7.294, a slight rise from this time yesterday. The THB was the region’s best-performing currency yesterday as the political soup cleared a little with the appointment of a Prime Minister. The KRW also made decent gains. At the other end of the pack, the VND lost about 0.5%  and the PHP was off 0.37%.   G-7 macro:  Yesterday’s macro calendar was devoid of any interest. But today, we have a plethora of PMI releases across the globe, as well as some new home sales data for the US.   Australia:  August PMI data shows the Australian economy slowing further. The service sector PMI, which fell below the breakeven 50-level in July, slid further in August, dropping to 46.7. There was also a slight decline in the manufacturing PMI too, which fell to 49.4 from 49.6, making it the sixth consecutive reading below 50. After the recent softness in labour data, we will have to consider whether to trim out the additional rate hike we still have pencilled in for later this year. We'll leave it for now, but it is looking less obvious.   Singapore:  Singapore reports July inflation today.  The consensus points to a sustained deceleration in inflation with the headline number expected to dip to 4.2%YoY from 4.5%.  Meanwhile, the core number is expected to slip to 3.8%YoY (from 4.0%).  Despite the moderation, inflation remains elevated and we expect the Monetary Authority of Singapore to take this into consideration ahead of its policy meeting in 4Q23.        What to look out for: Jackson hole conference South Korea business survey (23 August) Singapore CPI inflation (23 August) Japan machine tool orders (23 August) Taiwan industrial production (23 August) US new home sales MBA mortgage applications (23 August) South Korea PPI inflation and BoK policy meeting (24 August) Indonesia BI policy meeting (24 August) Hong Kong trade balance (24 August) US initial jobless claims and durable goods orders (24 August) Japan Tokyo CPI inflation (25 August) Malaysia CPI inflation (25 August) Singapore industrial production (25 August) US Univ of Michigan Sentiment (25 August) Jackson hole conference (25 August)
    US Treasury Yields Surge: Implications for Global Markets and Economies

    US Treasury Yields Surge: Implications for Global Markets and Economies

    InstaForex Analysis InstaForex Analysis 23.08.2023 13:07
    US Treasury yields continue to rise, with 2-year bonds exceeding 2% for the first time since 2009, the 10-year rate at its highest since 2007, and 30-year T-bonds setting a record.   On the one hand, the increase in Treasury yields indicates a decrease in risks, as a sell-off in bonds means a sell-off in risky assets. On the other hand, the burden on the US budget increases, and inflation expectations can grow again at any time. The risks on the path of inflation moving to the target level remain high.   The main threat to New Zealand and Australia is China's economic slowdown. Financial stress is increasing, and there are signs that China is heading towards a full-blown financial-economic crisis. The Chinese authorities have tools to prevent such an outcome, but a slowdown in GDP growth is almost inevitable, resulting in a decrease in foreign trade volumes. NZD/USD As expected, the Reserve Bank of New Zealand left the rate at 5.5% at the meeting that ended last week. The tone of the accompanying statement unexpectedly gained an additional hawkish tilt due to a slight increase in the rate forecast (by 9bps). The GDP and inflation forecasts changed little, but the updated OCR track from 0.25% indicates that the RBNZ does not consider the current level as sufficiently restrictive as it did three months ago.     The risks for the New Zealand economy are diverse and to some extent offset each other, but in some cases, they intensify. High net migration is a good thing for the labor market, as the increase in labor supply will raise the unemployment rate but simultaneously allow wage growth to be contained, an essential criterion in the fight against inflation. At the same time, domestic demand is getting weaker, despite the influx of migrants. Exports fell by 14% YoY in July, while a decrease of only 4% was expected.   Imports fell by 15% (forecast 8%), partly due to lower global commodity and goods prices. On Thursday, a quarterly retail trade report will be published, which will serve as the basis for the forecasts for consumer demand. The net short position in the NZD increased by $123 million during the reporting week to -$145 million. Market positioning remains neutral with a slight bearish bias. The price is certainly falling, with no signs of a reversal.   A week earlier, we identified the support zone of 0.5870/5900 as a target, the pair has reached this target, and from a technical perspective, a bullish correction is possible. The nearest target is 0.5975, followed by 0.6010. At the same time, the primary trend remains bearish, so in the long term, after the corrective phase has ended, we expect another wave of sales, with the target being the support zone of 0.5830/50.     AUD/USD Australia's economic calendar for the week is calm, with no significant economic reports to take note of. The next week will be much more saturated - on August 29, Reserve Bank of Australia Deputy Governor Michele Bullock will speak, and we can look forward to several reports, including the monthly Consumer Price Index for July, retail sales, and investment dynamics for the 2nd quarter, which will allow a preliminary assessment of GDP growth rates. The RBA rate forecast assumes another increase in November, as the RBA will likely respond to rising business costs, rent, and energy prices. Inflation is declining more slowly than in the United States. The net short position in the AUD increased by an impressive $620 million over the reporting week and reached -$3.45 billion, with market positioning firmly bearish. The price is below the long-term average but has lost momentum, suggesting an attempt at a corrective phase.  
    AUD: RBA Maintains Rates as New Governor Upholds Continuity

    Asia Morning Bites: Tokyo Inflation Dips and Markets Await Powell's Jackson Hole Speech

    ING Economics ING Economics 25.08.2023 09:03
    Asia Morning Bites Tokyo inflation for August dips slightly on base effects. Asian markets await the outcome of Powell's Jackson Hole speech.   Global Macro and Markets Global markets:  Pre-speech nerves? US equities reversed Wednesday’s gains on Thursday. The S&P 500 dropped by 1.35% while the NASDAQ fell 1.87%. Equity futures are non-committal ahead of Powell’s speech today.  Chinese stocks put in a rare up-day on Thursday. The CSI 300 rose 0.73%, and the Hang Seng index rose 2.05%, though this may have been following the earlier US lead, and could reverse today. US Treasury yields moved a little higher yesterday after Wednesday’s large falls. The 2Y yield is back above 5% now at 5.023%, while the 10Y yield regained 4.5bp to reach 4.237%. That’s still about 13 bp off the recent high.  The increase in yields was enough to push the USD stronger against the G-10 currencies yesterday, and EURUSD is now down to 1.0799. The AUD reversed all of Wednesday’s gains falling to 0.6415, Cable has dropped below 1.26 and the JPY is back up again to just under 146. In Asia, the KRW benefited from the BoK’s hawkish pause, and has gapped down more than a per cent to 1322.35. The TWD was also among the gainers, moving down to 31.786. The VND was weaker again yesterday, rising to 24008 as it looks to recalibrate against the CNY against which it has appreciated this year. The CNY was roughly unchanged on the day at just under 7.28.   G-7 macro:  Today’s Powell speech will get a great deal of scrutiny and there has already been a lot written about what he will say, with the majority view being that he will tread a cautious path with respect to any further potential tightening, looking for confirmation from the totality of the data before committing to any additional hikes. Lots of comparisons to the Greenspan “risk management” era are being wheeled out. At the same time, the Fed pundits are also saying that he will not want to suggest that there is any pre-set path for easing. We will know soon enough how well markets take his comments. The fact that this speech is scripted, and there is no Q&A means that room for going "off-piste" is limited. Besides this, and all the other Fed speakers this weekend, the University of Michigan publishes its August consumer confidence and inflation expectations surveys. Sentiment has been picking up recently, while the inflation expectations numbers have eased back slightly. Yesterday’s data was mixed. Weaker durable goods figures but lower jobless claims.   Japan: Tokyo inflation eased to 2.9% YoY in August (vs 3.2% July, 3.0% market consensus) mainly due to base effects and lower energy prices. Utility prices dropped to -15.0%YoY from the previous month’s -10.8%. However, core inflation excluding fresh food and energy stayed at 4.0%YoY as expected for the second month, the highest level for decades. Demand side pressures are clearly building up, suggested by inflation increases in entertainment (5.7%), transport & communication (3.6%), and medical care (2.8%). On a monthly comparison, goods prices dropped -0.1% MoM sa while services prices stayed flat. Also, higher than expected PPI services inflation (1.7% YoY in July vs revised 1.4% June, 1.3% market consensus) also reinforced the same message.   There are risks on both sides in the near future. On the downside, entertainment price pressures will be partially reduced as the summer holiday season ends. On the upside: The energy subsidy program will come to an end by September; Recent renewed JPY weakness; and rises in pipeline service prices. We believe that upward pressures will likely build a bit more significantly at least for the next few months and push up inflation again. We think inflation will exceed the BoJ’s outlook for this year and next year and core inflation excluding fresh food and energy will likely stay in the 3% range by the end of this year.   Singapore:  July industrial production is set for release today.  We expect another month of contraction, tracing the struggles faced by non-oil domestic exports, which were down 20.2%YoY for the same month.  We can expect industrial production to stay subdued until we see a turn in NODX, which should also weigh on 3Q growth.   What to look out for: Jackson Hole conference Malaysia CPI inflation (25 August) Singapore industrial production (25 August) US Univ of Michigan Sentiment (25 August)
    Rates and Cycles: Central Banks' Strategies in Focus Amid Steepening Impulses

    Asia Morning Bites: Australian Inflation in Focus Amid Market Movements

    ING Economics ING Economics 30.08.2023 09:38
    Asia Morning Bites Eyes down for Australian inflation. Markets brace for weaker payrolls after JOLTS decline in job openings. ADP due later.   Global Macro and Markets Global markets:  There was a lot of green on the boards across the equity world yesterday. Both US, European and Chinese stock indices all rose on the day. The S&P and NASDAQ rose 1.45% and 1.74% respectively, while the Hang Seng and CSI 300 rose 1.95% and 1.0%. The earlier announcement in China of stamp duty cuts and curbs on share sales by major shareholders may have provided some lingering support. Falling US Treasury yields possibly added some additional “oomph” to the US equity market. 2Y US Treasury yields fell 11bp to 4.894%, and the yield on the 10Y Treasury bond fell 8.2bp taking it to 4.12%. EURUSD picked up to 1.0876, having briefly traded below 1.08 intraday.  Other G-10 currencies also rallied against the USD. The AUD rose to 0.6480, Cable pushed up to 1.2644, and the JPY reversed a move up towards 147.50 and came all the way back to 145.89. These moves lifted the SGD too, which has pulled back below 1.35. The PHP and VND both lost ground yesterday.   G-7 macro:  It was a thin day for Macro, but it nonetheless contained some interesting data releases. The US JOLTS survey showed a sharp drop in job openings, falling from 9165K to 8827K. This was way down on the 9500K openings that had been forecast. There was also an unexpected and sharp decline in the Conference Board’s consumer confidence indicators, including those relating to the labour market. And the US house price purchase index also came in a little softer than had been expected. Germany’s GfK consumer confidence survey also came in on the low side. Today, German preliminary  CPI data for August are due. The US publishes the second release of 2Q23 GDP as well as the ADP employment survey (195K expected), to whet our appetites (or perhaps just to confuse us) before Friday’s payroll numbers.   Australia: July CPI inflation data is forecast to decline to 5.2%YoY from 5.4% in June. But the July data will also include some chunky electricity tariff increases, so we think there is a chance the number is higher than this, with an outside chance that inflation actually rises from last month.     What to look out for: US ADP report Australia building approvals and CPI (30 August) South Korea retail sales (30 August) US MBA mortgage applications, ADP employment, GDP and pending home sales (30 August) South Korea industrial production (31 August) Japan retail sales (31 August) China PMI manufacturing and non-manufacturing (31 August) Thailand trade balance (31 August) Hong Kong retail sales (31 August) India GDP (31 August) US initial jobless claims, PCE deflator and personal spending (31 August) Japan capital spending and Jibun PMI (1 September) South Korea trade (1 September) Regional PMI (1 September) China Caixin PMI (1 September) Indonesia CPI inflation (1 September) US NFP, ISM manufacturing and industrial production (1 September)
    FX Markets React to Rising US Rates: Implications and Outlook

    Rates Spark: Different Focus, Different Outcomes

    ING Economics ING Economics 31.08.2023 10:29
    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 Markets React to Rising US Rates: Implications and Outlook

    Rates Spark: Different Focus, Different Outcomes - 31.08.2023

    ING Economics ING Economics 31.08.2023 10:29
    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. 
    Hungary's Temporary Inflation Uptick: Food Price Caps and Fuel Costs in Focus

    The Indestructible Dollar: A Quiet Start to the Week in FX Markets

    ING Economics ING Economics 04.09.2023 10:54
    FX Daily: The indestructible dollar Today's US Labor Day holiday means that it has been a quiet start to the week in the world of FX. The dollar remains near its highs despite Friday's US NFP jobs report showing a jobs market moving better into balance and wages softening. That probably owes to poor growth prospects overseas. Second-tier US data releases look unlikely to hit the dollar too hard.   USD: Little reason to offload dollar positions The dollar has had a good couple of months. It has been buoyed by domestic strength in the US economy and souring sentiment in key trading partners such as Europe and China. The source of that strong domestic demand in the US has been a tight labour market, which has powered consumption. Despite US wage growth softening in August and the unemployment rate finally climbing, US Treasury yields actually rose on Friday and the dollar strengthened. Driving that move may have been the rise in the participation rate with people returning to the workforce. This suggests that the narrative may have moved on from the disinflation debate towards the extension of employment, consumption and domestic demand.  This week's US data calendar looks unlikely to open a decisive new chapter in this narrative – although in the past, the release of the ISM services index (remember that sub-50 reading at the start of the year?) has moved markets. That index is released on Wednesday. There are a few Federal Reserve speakers this week, but market expectations that Fed rates have peaked look set, as do views of a modest 100bp of Fed easing next year (we look for 200bp+). We see little to challenge a strong dollar this week and could see DXY edging up to the 104.50/70 area.  Elsewhere in the world, the central bank policy focus is on the likes of Australia, Canada, Poland, Chile, and Israel. No change is expected in most, although Poland should be starting its easing cycle this week, and Chile is expected to follow up its 100bp cut in July with another large rate cut.
    iPhones Banned in Chinese Offices: Tech Tensions Escalate

    Asia Morning Bites: Asian FX Under Pressure as US Rates Climb, Australia and China Trade Reports in Focus

    ING Economics ING Economics 08.09.2023 10:13
    Asia Morning Bites Higher for longer US rates trade takes its toll on Asian FX. Australia and China trade reports out.   Global Macro and Markets Global markets:  Market sentiment turned sour again yesterday, with stocks across the board dropping. The S&P 500 opened down and went lower over yesterday’s session, falling 0.7% from the previous day. The NASDAQ fell 1.06% and equity futures today are showing no respite. Chinese stocks also fell, though only slightly. The Hang Seng fell 0.04% and the CSI 300 fell just 0.22%. US bond yields pushed higher yesterday as the market continued to take out easing previously priced in for 2024/25. 2Y US Treasury yields rose 5.6bp while 10Y yields rose  2bp to 4.28%. EURUSD stayed at the low end of 1.07 on Wednesday. The AUD was also flat at about 0.6380 despite better-than-expected GDP data, as was the JPY at 147.71 despite comments from officials saying they would take action amid speculative market moves. Sterling dropped below 1.25 on suggestions from Governor Bailey that the rate tightening cycle in the UK was done, or if not, nearly done.  Asian FX sold off against the USD yesterday. The SGD unusually propped up the bottom of the list, weakening 0.27% to 1.3639. The CNY rose above 7.30 to reach 7.3180, and we would anticipate a forceful response from the PBoC at this morning’s fixing. G-7 macro:  The US services ISM index unexpectedly rose yesterday, rising to 54.5 from 52.7 (52.5 expected). There were also gains in the prices paid index, employment, and new orders. This is what drove the market to price out further easing next year, helping to lift the USD. The Fed’s latest Beige Book was somewhat downbeat given the ISM numbers. Today, there isn’t too much to look out for. US non-farm productivity and unit labour costs are both residuals from earlier GDP data and don’t really add to the sum of knowledge on the US economy. Weekly jobless claims are the only other US data of note. The Eurozone releases final GDP figures for 2Q23. No revisions are expected. China:  August trade figures will likely show a slight moderation in the pace of contraction, though it would be generous to describe this as a bounce. A trough might be a more accurate description. Still, that’s better than what has gone before, so it could buoy sentiment. The trade balance may shrink slightly despite this, from the $80.6bn figure from July. Australia:  A slight contraction in Australia’s AUD11.3bn trade surplus for July is also expected for the August figures published later this morning. This is unlikely to have any meaningful impact on the AUD, whose current weakness is more a function of broad USD strength.    What to look out for: China and Australia trade balance Australia trade balance (7 September) China trade balance (7 September) Malaysia BNM policy (7 September) US initial jobless claims (7 September) Japan GDP (8 September) Philippines trade balance (8 September) Taiwan trade balance (8 September) US wholesale inventories (8 September)
    Rates Surge: US Service Sector Strengthens Yields

    Rates Surge: US Service Sector Strengthens Yields

    ING Economics ING Economics 08.09.2023 10:30
    Rates Spark: Service sector oomph We continue to view the dominant market tilt as one point towards upward pressure on market rates. Resilience is the simplest explainer. It will give eventually, but has not done so as of yet. The latest US ISM services report pushes in the same direction.   Another ratchet up in US Treasury yields, and for good reason Another leg higher in US Treasury yields, this time driven by ISM services. New orders and prices paid in the high 50s were the standout contributors. An interesting outcome was the re-inversion of the curve as the front end began to raise the discount for one more 25bp rate hike. It’s still priced for no further hikes but has moved closer to a balanced probability. A more neutral to downbeat Beige Book later in the day tempered enthusiasm, but not by enough to materially take yields off their highs. It still appears to us that the marketplace is not getting a green light to re-test lower, and we continue to read the path of least resistance as pointing higher for market yields. The market discount for the funds rate is now up to 4.3% for January 2025. Remember that was at 2.5% when Silicon Valley Bank went down in March this year. The market continues to discount rate cuts, but nowhere near to the extent they once were. The US 10yr Treasury yield is also at 4.3% and does not look wrong there. There is still a greater likelihood that it heads to the 4.5% area than the 4% one in the weeks ahead. Ultimately there is much more room to the downside for yields when something actually breaks, but for now, things are very much holding together – or at least there is enough constructiveness in the service sector to support ongoing elevation in official rates and market yields.   Resilience keeps the Fed discount elevated   Today's events and market views The goldilocks scenario is a narrow path; things can easily break precipitating a sharper downturn, or stay too hot and keep inflation elevated. The services ISM moved the needle a little to the latter scenario, bear flattening the curve as markets also pushed the implied probability for a Federal Reserve hike before year-end to 50%. The Fed Beige Book however was more downbeat, arguing for a Fed pause this month. Today’s calendar features the weekly initial jobless claims data, a more contemporaneous read of job market conditions than the payrolls data. Markets will also be confronted with another busy slate of Fed speakers.     In Europe, we will get the final reading for second quarter GDP growth. The list of scheduled European Central Bank speakers is long, but the black-out period has started. Yesterday Klaas Knot suggested markets were underestimating the chances for a hike this month, nudging rates higher to now discount a one-in-three chance.   A greater focus will be on the Bank of England publishing the results of the decision-maker panel survey on price expectations. Yesterday Governor Andrew Bailey remarked the Bank was probably “near the top of the cycle”, causing markets to pare their hike expectations. Two more hikes are fully priced, but we think chances still are we get one less.   In government bond primary markets, France and Spain will be active with auctions. Source: Refinitiv, ING
    Asia Morning Bites: Key Comments from Bank of Japan and Upcoming Global Economic Data

    Asia Morning Bites: Key Comments from Bank of Japan and Upcoming Global Economic Data

    ING Economics ING Economics 11.09.2023 10:51
    Asia Morning Bites Comments from the Bank of Japan's Ueda may be the main story for Monday. Later this week, US inflation and the China data dump could provide more direction.   Global Macro and Markets Global markets:  US stocks didn’t manage to make any headway on Friday, despite opening up, and drifted slowly lower over the session, ending only fractionally higher than the previous day’s close. Equity futures suggest another positive open today. Chinese stocks continued to struggle, with nerves showing ahead of what will be a big data week for China. The Hang Seng Index fell 1.34% and the CSI 300 was down 0.49%. US Treasury yields rose again. The yield on the 2Y UST rose 4.4bp, while that on the 10Y bond rose just 2bp to 4.264%. EURUSD skirted just under the 1.07 level at times on Friday, and its attempt to move higher didn’t succeed. It is currently 1.0709. The AUD is slightly stronger though still trading below 64 cents. Cable is fairly flat at 1.2478 and the JPY lost ground but has rallied in early trading today and is back to 147.24 after Bank of Japan (BoJ) Governor Ueda signalled to a newspaper that wages data may provide enough information by the end of the year to determine whether to end its super-easy policy. It was a mixed day for Asian FX currencies. At one end, the PBoC seemed to relinquish more ground with a fix above 7.20 which allowed CNY to trade above 7.35. At the other end, there were gains for the INR and THB.  The INR is trading back now within the previous range and just below 83. G-7 macro:  The G-20 in India managed to achieve more than cynics might have expected, given President Xi’s absence. A joint communique was reached, and actions were agreed on climate change and debt relief, as well as opening the group to the African Union. Ukraine has criticized the communique for watering down the language on Russia’s invasion. There was very little data out on Friday, but one data point that may have flown under the radar, was the US consumer credit figures for July, which dropped sharply from the previous month. Are households maxing out? If so, this could threaten Janet Yellen’s soft landing hypothesis, which she seemed to be embracing at the G-20 summit. There is not much on the G-7 calendar today. The ECB will meet to decide on rates later this week. The consensus is still split on the decision, as is the market. We narrowly favour a hike. China:  Over the weekend, China released August inflation data which rose back above the zero line, though only just, rising to 0.1%YoY. Later this week, we have the monthly data dump, which may also show some modest improvements from last month – the emphasis is on the word modest though… At least we won’t have to endure inaccurate references to deflation for a month. What to look out for: US CPI inflation and China data Japan M3 and machine tool orders (11 September) China M3 money supply (11 September) Australia Westpac consumer confidence (12 September) US NFIB survey (12 September) India CPI (12 September) 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)  
    Global Market Insights: PBoC's Stand Against Speculators, Chinese FDI Trends, and Indian Inflation

    Global Market Insights: PBoC's Stand Against Speculators, Chinese FDI Trends, and Indian Inflation

    ING Economics ING Economics 12.09.2023 08:44
    PBoC pushes back at speculators. Chinese FDI numbers and Indian inflation are Asia's main highlights today.   Global Macro and Markets Global markets:  US stocks returned to growth mode yesterday, with the S&P 500 and NASDAQ rising 0.67% and 1.14% respectively. Equity futures suggest that this might be short-lived, however. Chinese stocks had a mixed day, with the Hang Seng falling 0.58%, but the CSI 300 rising 0.74%.  US Treasury yields haven’t changed much. In fact, 2Y yields are unchanged from a day ago, while the yield on the 10Y US Treasury is only up about 2bp to 4.288%. EURUSD has recovered to 1.0750, after dabbling with levels below 1.07 at times the previous day. The AUD has also benefited from this, rising back to 0.6430 and Cable has pulled itself back up to 1.2512. The JPY has also made further gains following Ueda’s weekend comments about potentially ending super-easy monetary policy later this year and is now 146.55. In the Asian FX space, the PBoC took advantage of the USD’s weakness and some stronger-than-expected lending data and issued a stiff warning against speculative trading to weaken the CNY, resulting in a strong rally, which took the CNY down to 7.27 at one stage, and it is now 7.2894. This move helped lift other currencies such as the SGD. G-7 macro:  Yesterday was a pretty quiet day regarding Macro data, and today isn’t much more interesting. Germany publishes its monthly ZEW business survey, which is expected to show a further decline from already very low levels. The US publishes its NFIB small business survey, which is always a good and detailed snapshot of what is happening outside big business. China:  FDI data started to show a year-on-year decline in inflows of 4%YoY YTD in July, and we anticipate a further decline in the August numbers as overseas firms weigh the geopolitical tensions between China and the West and the disappointing re-opening, against the lure of one of the biggest markets in the world. India:  Inflation surged in July to 7.44%, mainly because of spikes in seasonal foods, especially tomatoes, following erratic weather. Daily price data shows that these spikes have eased a bit since last month, though there are also some sharp increases in the prices of onions. The net result should be a moderation of inflation to about 6.7% for August.   What to look out for: US CPI inflation and China data Australia Westpac consumer confidence (12 September) India CPI inflation (12 September) US NFIB survey (12 September) 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)
    Nasdaq Slips as Tech Stocks Falter, US Inflation Data Awaits

    Nasdaq Slips as Tech Stocks Falter, US Inflation Data Awaits

    ING Economics ING Economics 13.09.2023 08:47
    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)
    Asia Morning Bites: China's Data Deluge, ECB Rate Hike, and US Retail Sales Surprise

    Asia Morning Bites: China's Data Deluge, ECB Rate Hike, and US Retail Sales Surprise

    ING Economics ING Economics 15.09.2023 08:23
    Asia Morning Bites China's data deluge draws near. ECB hikes rates while US retail sales surprise on the upside.   Global Macro and Markets Global markets:  We will start today with FX, given the ECB meeting yesterday, and the response of the market to what our Head of Global Macro is describing as a dovish hike. EURUSD has dropped sharply to 1.0640, and this has taken the GBP lower too, now trading at just over 1.24. The BoE meets next week and is also expected to hike  - also perhaps its last. The AUD has not been much impacted by this move, though despite the stronger-than-expected labour data yesterday, markets seem relaxed and are expecting no further tightening. We are not so relaxed. The JPY was also a little softer, rising to 147.50 . Other Asian FX was fairly quiet yesterday. The CNY is still hovering below 7.28 ahead of today’s big data release. European bond yields dropped after the ECB decision. The yield on the 10Y bond fell 5.8bp to 2.588%. US Treasury yields were not affected by the European news and had to contend with another stronger-than-expected macro release in the form of retail sales. The US 10Y Treasury yield rose 3.8bp to 4.286%, while yields on 2Y USTs rose 4.2bp to 5.011%. Equity markets seemed to like the sense that rates aren’t going any higher (if you believe the central bankers, and it's not like they have a great track record!). The S&P 500 rose 0.84% while the NASDAQ rose 0.81%. The NASDAQ is up 33.05% year-to-date, just in case you’d lost track. Triple witching today, so it may be volatile. Chinese stocks didn’t do a lot yesterday. The Hang Seng rose 0.21%, while the CSI 300 fell 0.08%. Volumes were fairly low.   G-7 macro:  The US economy is still refusing to roll over. August retail sales rose 0.6% MoM, much higher than the 0.1% expected. The control group growth rate was slower at 0.1%, but this was still more than had been expected. Markets are still not even 50% expecting another Fed rate hike. But you have to wonder how long they can keep this up after the recent upside inflation miss. US August PPI data also came in above expectations. It’s a quieter day today, except for US existing home sales and the University of Michigan consumer confidence figures.   China:  The data deluge kicks off at 09:20 this morning (HKT/SGT) with the 1Y medium-term lending facility rate, which given the PBoC’s struggles to support the CNY, and yesterday's RRR cut, seems likely to be left unchanged at 2.5%. New home prices come out at 09:30, and will likely show further month-on-month decline. Other property-related data today is unlikely to offer much sign of life. But at 10:00, the activity data emerges, and here, we think there may be some slightly less negative news. Recent export data and new CNY loan figures could indicate that production and retail sales numbers may increase slightly in year-on-year terms from last month. To be sure, we aren’t expecting them to look strong, but a positive direction of travel could provide some support for markets. We will know soon enough.     India:  August trade figures come out later this afternoon. The slide in exports has been fairly consistent, but we are now reaching a point where year-on-year declines may start to shrink from double digits to low single digits. That is also likely on the import side, and the trade deficit is likely to remain close to last month’s -USD20.67bn.   Indonesia:  Indonesia reports trade numbers today.  The market consensus suggests that we'll have another month of contraction for both exports and imports as global trade remains subdued.  The trade balance is forecast to settle in surplus but at a less substantial level of roughly $1.5bn.  Fading support from the trade surplus could be one reason for the IDR's struggles recently, and we could see the currency stay under pressure until we see this trend reversed.     What to look out for: China data deluge China medium term lending rate (15 September) Indonesia trade balance (15 September) China retail sales, industrial production (15 September) US University of Michigan sentiment and existing home sales (15 September)
    Asia Morning Bites: Singapore Inflation and Global Market Insights - 25 September 2023

    Asia Morning Bites: Singapore Inflation and Global Market Insights - 25 September 2023

    ING Economics ING Economics 25.09.2023 11:23
    Asia Morning Bites 25 September 2023 Singapore inflation to ease slightly lower on a quiet day for macro.   Global Macro and Markets Global Markets: Friday was a choppy day for US stocks, and though they ended marginally down, futures suggest that they will open positively today. Chinese stocks had a rare positive day. The CSI 300 rose 1.81%, while the Hang Seng index climbed 2.28%. US Treasury yields declined across the curve on Friday. 2Y UST yields fell 3.4bp to 5.11%, while yields on the 10Y bond fell 6bp to 4.434%. That didn’t have much impact on the USD. EURUSD. remained almost unchanged at around 1.0650. The AUD gained a little, rising to 0.6440, and the GBP slid further to 1.2243. James Smith has made a video which describes how markets are now eyeing rate cuts following the recent Bank of England pause. The JPY weakened on Friday after the disappointing lack of anything new from Governor Ueda at Friday’s BoJ meeting. Here’s a note by Min Joo Kang on the meeting and her thoughts about what comes next. Apart from the JPY, most Asian currencies made modest gains on Friday, with the THB and KRW out in front. The THB is sitting just above 36 currently, the KRW at 1336.75.   G-7 macro: There was very little on the macro calendar on Friday apart from the Bank of Japan meeting, and it is a quiet start to the week too, with Germany’s September Ifo survey the only notable data point.  Singapore:  Singapore reports inflation today on a quiet day in what will be a quiet week, with much of Asia off for mid-Autimn holidays later this week.  The market consensus suggests a slight dip for both headline and core inflation as favourable base effects and softer retail sales kick in. Headline inflation could dip to 4%YoY (from 4.1%YoY), while core inflation should slip to 3.5%YoY from 3.8%.  This alongside slowing growth will be factored into the upcoming MAS decision next month with no likely adjustments to policy settings just yet.      What to look out for: US sentiment data Singapore inflation (25 September) Japan department store sales (25 September) US Dallas and Chicago Fed national activity (25 September) Fed Kashkari speaks (25 September) South Korea consumer confidence (26 September) Singapore industrial production (26 September) US Conference board consumer confidence, new home sales, FHFA house price index (26 September) Australia CPI inflation (27 September) China industrial profits (27 September) Japan machine tool orders (27 September) US durable goods orders and MBA mortgage applications (27 September) Australia retail sales (28 September) US initial jobless claims, personal consumption, pending home sales (28 September) Fed's Powell, Goolsbee and Barkin speak (29 September) Japan Tokyo CPI inflation and labor report (29 September) Thailand trade (29 September) US University of Michigan sentiment, personal spending (29 September)
    Asia Morning Bites: Singapore Industrial Production and Global Market Updates

    Asia Morning Bites: Singapore Industrial Production and Global Market Updates

    ING Economics ING Economics 26.09.2023 14:40
    Asia Morning Bites Singapore reports August production figures. Global bond yields keep rising. USD keeps gaining.   Global Macro and Markets Global markets:  US equity markets did what the futures markets had earlier suggested, and rose modestly yesterday. The S&P 500 and NASDAQ were both up respectively 0.4% and 0.45%, though this took some effort as stocks opened down and had to dig themselves out of a hole to achieve even this modest increase. Additional slight gains are signalled by the futures markets currently. Chinese stocks turned negative again yesterday, reversing Friday's gains. The Hang Seng fell 1.82% while the CSI 300 fell 0.65%. US Treasury yields continue to move higher. The 10Y yield rose 10bp yesterday, taking it to 4.533%. There was less going on with the 2Y yield, which rose only 1.5bp to sit at 5.125%. Fed speakers are cited as being behind some of the weakness in demand for Treasuries, according to one newswire. However, the most notable Fed speaker yesterday, Austan Goolsbee, a renowned dove, merely said that a soft landing remains a possibility, but that there remain risks. That doesn’t feel like it was worth 10bp on the 10Y, probably not even 1bp. Rising yields have boosted the USD, and EURUSD has dropped below 1.06 to 1.0595. It was slightly lower back in February and March this year when it got down to 1.0516. The AUD has drifted down to 0.6423, Cable has similarly gone down to 1.2215, and the JPY has weakened to 148.83 as Governor Ueda stuck with his exceptionally cautious tone on the outlook for inflation. Other Asian FX was mostly slightly weaker against the USD on Monday. The CNY is back above 7.30 at 7.3120, and despite the recent bond news, the INR has risen back above 83. As has often been the case recently, the THB is propping up the bottom of the league table.      G-7 macro:  Yesterday was thin for Macro, with a slightly weaker German Ifo survey as the main data point. The Chicago Fed national activity index (a contemporaneous recession indicator) fell below the zero mark in August, but house prices continued to rise. Today, US new home sales and the Conference Board consumer confidence index are the main releases.   Singapore:  Singapore reports industrial production numbers for August later today. We can expect another month of contraction for industrial production as the sector tracks the struggling export market.  Non-oil domestic exports have seen a string of negative growth numbers due to soft global demand, and we expect industrial production to stay subdued until we see a meaningful pickup in global trade.      What to look out for: US consumer confidence South Korea consumer confidence (26 September) Singapore industrial production (26 September) US Conference board consumer confidence, new home sales, FHFA house price index (26 September) Australia CPI inflation (27 September) China industrial profits (27 September) Japan machine tool orders (27 September) US durable goods orders and MBA mortgage applications (27 September) Australia retail sales (28 September) US initial jobless claims, personal consumption, pending home sales (28 September) Fed's Powell, Goolsbee and Barkin speak (29 September) Japan Tokyo CPI inflation and labor report (29 September) Thailand trade (29 September) US University of Michigan sentiment, personal spending (29 September)
    BOJ's Ueda: 2% Inflation Target Not Yet Achieved as USD/JPY Pushes Above 149

    BOJ's Ueda: 2% Inflation Target Not Yet Achieved as USD/JPY Pushes Above 149

    Kenny Fisher Kenny Fisher 26.09.2023 14:55
    BoJ Ueda says 2% inflation target not yet achieved USD/JPY pushes above 149 The Japanese yen is unchanged on Tuesday, trading at 148.85. BOJ’s Ueda says monetary policy to continue The Bank of Japan maintained its policy settings on Friday, which really should not have been all that surprising, given the dovish messages that BoJ Governor Ueda and other BoJ members have been sending out for weeks. The BoJ does not appear to be in any rush to phase out its ultra-loose stimulus, given the weakness in Japan’s economy. Domestic consumption remains weak and the slowdown in the global economy is hurting the critical export sector. BoJ Governor Ueda reiterated this stance on Monday, stating that the 2% target of “stable, sustainable” inflation was not yet in sight. Ueda acknowledged that inflation had exceeded 2% for a “prolonged period”, but that was not enough to indicate that the target of stable and sustainable 2% inflation had been achieved. Ueda added that the BoJ would continue to patiently maintain its monetary stance. Inflation has remained above 2% for close to 1.5 years, but that does not seem sufficient for the BoJ. Earlier today, the BoJ Core CPI index, which is closely monitored by the central bank, remained unchanged at 3.3% in August, above the market consensus of 3.2%.   The yen has paid the price for the BoJ’s insistence on maintaining an ultra-loose policy and has had only one winning week against the dollar since July. The US/Japan rate differential continues to rise as Japanese yields stay put while US Treasury yields continue to move higher. USD/JPY broke above the 149 line on Tuesday and the symbolic 150 level seems very close at hand. Japanese officials have responded with some rhetoric about their concern over the depreciating yen and the threat of intervention is rising as the yen falls lower.   USD/JPY Technical There is resistance at 149.19 and 149.93 USD/JPY tested support at 148.79 earlier. Below, there is support at 148.05    
    Gold's Resilience Amidst Dollar and Yield Surge: What's Driving Demand?

    Gold's Resilience Amidst Dollar and Yield Surge: What's Driving Demand?

    Saxo Bank Saxo Bank 26.09.2023 15:17
    Gold continues to defy the gravitational pull from rising US Treasury yields and a stronger dollar which gathered further momentum after the US Federal Reserve last week delivered a hawkish pause in their aggressive rate hike campaign. But while the normally strong inverse correlation with dollar and yields have faded, thereby reducing selling pressure from algorithmic focused trading strategies, gold's resilience continues to point to demand from investors seeking a hedge against nervous markets and the rising risk of stagflation hitting the US economy in the coming months.   Key points in this gold note Gold continues to show resilience despite multiple headwinds from dollar strength to rising yields and lower future rate cut expectations Support is likely to be driven by a market in search for a hedge against the FOMC failing to deliver a soft, as opposed to a hard landing. We maintain a patiently bullish view on investment metals as the timing of a fresh push to the upside remains very US ecnomic data dependent.  Gold continues to defy the gravitational pull from rising US Treasury yields and a stronger dollar which gathered further momentum after the US Federal Reserve last week delivered a hawkish pause in their aggressive rate hike campaign, while at the same forecasting considerably higher rates over 2024 and 2025 because of a resilient US economy, a strong labor market and sticky inflation, recently made worse by an OPEC-supported rise in energy prices. Following the FOMC announcement we have seen the dollar reach a fresh 11-month high against a broad basket of major currencies, while the yield on US 10-year Treasuries has reached a 16-year high above 4.5%. The short-term interest rate futures market has reduced bets on the number of 25 basis-point rate cuts by the end of 2024 to less than three from the current level, with risk of another hike before yearend kept open.      
    Asia Morning Bites: Australia's CPI Inflation Report and Chinese Industrial Profits

    Asia Morning Bites: Australia's CPI Inflation Report and Chinese Industrial Profits

    ING Economics ING Economics 27.09.2023 12:52
    Asia Morning Bites Australia's August CPI inflation report should show inflation rising again. The fall in Chinese industrial profits may be moderating.   Global Macro and Markets Global markets:  For a change, US Treasury yields didn’t rise yesterday. Nor did they fall particularly. The yield on the 2Y UST was down just 0.4bp to 5.121%, while that on the 10Y bond rose just 0.2bp to leave it at 4.536%. This was despite Neel Kashkari, a voter on the FOMC this year, saying that he thought even a soft-landing scenario would probably require one more rate hike this year. Michelle Bowman talked about the need to cool the economy to bring rents down in line with wage growth, though she did not explicitly outline a path for rates. But she implied more was needed. With this, it feels as if markets are listening and choosing to believe that in the end, the Fed will not carry through on their threats to raise rates again, either because the threat lacks credibility, or because they believe that the growth and inflation evidence will turn sufficiently to make it unnecessary. It’s a tough call to make and leaves upside as well as downside risk. Kashkari and Bowman are both due to speak again today. US Stocks cooled on Tuesday. The S&P 500 dropped 1.47% while the NASDAQ fell 1.57%. Equity futures are looking mildly positive. It was also another off-day for Chinese stocks. The Hang Seng fell 1.48%, while the CSI 300 fell 0.58%.   The risk-off sentiment may be helping the USD, which has pushed even lower overnight, dropping to 1.0570. The AUD has declined below the 64 cent level, though may get a boost from CPI inflation data later on today. Cable has dropped to 1.2148, and the JPY has risen to 149.07, a level at which you have to think there could be some more verbal intervention (Finance Minister Suzuki has already waded in) and close to a level where physical intervention may occur. The CNY has held roughly level at 7.3112, though the rest of the Asia pack was weaker against the USD. The KRW and THB, together with the IDR were the weakest currencies in the region yesterday. G-7 macro:  US new home sales fell a little more than expected in August, dropping 8.7% MoM to a 675K annual pace. The Conference Board consumer confidence index was down slightly, breaking down into a slightly stronger present situation response, but a sharply weaker expectations survey. Germany also releases consumer confidence figures from GfK today. The only US data of note is the August durable goods orders and shipments figures.   Australia: A combination of base effects wearing off, and higher gasoline and food prices will take Australia’s monthly inflation rate for August back up again after the surprising decline in July. The inflation rate should push back from the July 4.9% YoY rate to a little over 5%. The consensus estimate sits at 5.2%, which is not far from our estimate of 5.1%. While this does not immediately threaten the market’s view that the RBA has peaked in its rate cycle, a few more results like this, plus some economic resilience may spur thoughts that there is still one more hike to come. We certainly are not ruling another hike out.   China: Industrial profits figures for August are released this morning. The year-on-year decline in this series has been moderating, and we expect this to continue, though probably still leaving profits down from a year ago.   What to look out for: Australia inflation Australia CPI inflation (27 September) China industrial profits (27 September) Japan machine tool orders (27 September) US durable goods orders and MBA mortgage applications (27 September) Australia retail sales (28 September) US initial jobless claims, personal consumption, pending home sales (28 September) Fed's Powell, Goolsbee and Barkin speak (29 September) Japan Tokyo CPI inflation and labor report (29 September) Thailand trade (29 September) US University of Michigan sentiment, personal spending (29 September)
    The Complex Factors Influencing Gold Prices in 2023: From Interest Rates to China's Impact

    EUR/USD: Exploring the Potential Bottom at 1.0200 Amid US Treasury Yield Surge

    ING Economics ING Economics 27.09.2023 12:54
    EUR: 1.0200 is the outside risk bottom In the article mentioned above, we estimate that an extension of the run in US treasury yields to the 5.0% mark would take EUR/USD to 1.02. That is not our base case, but the ongoing pressure on the euro is clearly not confined to the US rates story. The ongoing re-rating of growth expectations in the eurozone has ultimately come through to the FX market and taking a toll on the common currency. Developments in the US activity story remain much more important, and if signs of weakness emerge across the Atlantic (and markets price in more Fed tightening) we expect a swift turnaround in EUR/USD, but that may not be a story for the near-term. Holding at the key 1.0500 support will be a success for those hoping for that turnaround to happen anytime soon. Today, the eurozone calendar is light until tomorrow’s CPI figures start to come in, and there are no scheduled European Central Bank (ECB) speakers after Austrian hawk Robert Holzmann said it was unclear whether the peak in rates had been reached yesterday. Across the British channel, the economic calendar is also looking empty today, with no scheduled central bank speakers. We continue to flag downside risks to the 1.2000 area in Cable, while EUR/GBP may struggle to hold on to recent gains as sterling’s recent underperformance relative to the euro starts to look a bit overdone now that the big bulk of the Bank of England repricing has happened.
    Navigating Gold's Resilience Amidst Rising Yields and a Strong Dollar

    Navigating Gold's Resilience Amidst Rising Yields and a Strong Dollar

    InstaForex Analysis InstaForex Analysis 27.09.2023 15:02
    Gold continues to defy the gravitational pull from rising US Treasury yields and a stronger dollar which gathered further momentum after the US Federal Reserve last week delivered a hawkish pause in their aggressive rate hike campaign. But while the normally strong inverse correlation with dollar and yields have faded, thereby reducing selling pressure from algorithmic focused trading strategies, gold's resilience continues to point to demand from investors seeking a hedge against nervous markets and the rising risk of stagflation hitting the US economy in the coming months.   Key points in this gold note Gold continues to show resilience despite multiple headwinds from dollar strength to rising yields and lower future rate cut expectations Support is likely to be driven by a market in search for a hedge against the FOMC failing to deliver a soft, as opposed to a hard landing. We maintain a patiently bullish view on investment metals as the timing of a fresh push to the upside remains very US ecnomic data dependent.  Gold continues to defy the gravitational pull from rising US Treasury yields and a stronger dollar which gathered further momentum after the US Federal Reserve last week delivered a hawkish pause in their aggressive rate hike campaign, while at the same forecasting considerably higher rates over 2024 and 2025 because of a resilient US economy, a strong labor market and sticky inflation, recently made worse by an OPEC-supported rise in energy prices. Following the FOMC announcement we have seen the dollar reach a fresh 11-month high against a broad basket of major currencies, while the yield on US 10-year Treasuries has reached a 16-year high above 4.5%. The short-term interest rate futures market has reduced bets on the number of 25 basis-point rate cuts by the end of 2024 to less than three from the current level, with risk of another hike before yearend kept open.     Looking at our gold monitor below, it is difficult to build a bullish case for gold if current developments were the only driver for the yellow metal. With the dollar and bond yields on the rise, the inverse correlation with a relatively stable gold has deteriorated, a development that has reduced selling pressures from algorithmic trading strategies, normally a major contributor to daily trading volumes. In addition, as mentioned the tailwind from future rate cuts has also faded as the market price in a higher for longer scenario. A development which for now continues to see some asset managers vote with their feet when it comes to investing in gold through Exchange-traded funds, the reason being the high opportunity cost of holding a non-interest paying position relative to short-term government bonds. The current cost of holding a gold position for 12 month is close to 6%, the bulk of that being the cost of borrowing dollars for one year, and until we see a clear trend towards lower rates and/or a upside break forcing a response, real money allocators will be looking for opportunities elsewhere. ETF investors which include the above mentioned group of real money allocators have been cutting holdings for the past four months, leaving the total down by 172.4 tons during this time to 2757.8 tons, a 3-1/2-year low. The leverage fund net long position meanwhile continue to hover around 60k contracts (6 million ounces), some 35k below the one-year average.            
    Not much relief, after all: Markets React to Political Uncertainties and Hawkish Fed Rhetoric - 05.10.2023

    Not much relief, after all: Markets React to Political Uncertainties and Hawkish Fed Rhetoric

    Markus Helsing Markus Helsing 05.10.2023 08:31
    Not much relief, after all By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Relief that came with the news of a temporary avoidance of a potential government shutdown remained short lived. Sentiment in stocks markets turned rapidly sour, both in Europe and in the US, while the US treasury yields didn't even react positively to the no shutdown news in the first place. The selloff in the US 10-year bonds accelerated instead; the 10-year yield hit the 4.70% mark, whereas the 2-year yield remained steady-ish at around the 5.10% level, as the Federal Reserve (Fed) Chair Jerome Powell didn't say much regarding the future of the monetary policy yesterday, but his colleagues continued to sound hawkish. Fed's Michelle Bowman said that multiple more interest rate hikes could be needed to tame inflation, while Micheal Barr repeated that the rates are likely restrictive enough, but they should stay higher for longer. Sufficiently hawkish words combined to a set of still-contracting-but-better-than-expected manufacturing PMI data justified the positive pressure on US sovereigns.   The gap between the US 2 and 10-year yields is now closing, but not necessarily for 'good' reasons. Normally, you would've expected the short-term yields to ease more rapidly than the long-term yields when approaching the end of a tightening cycle, with the expectations of future rate cuts kicking in. But what we see today is bear steepening where the 10-year yield accelerates faster than the 2-year yield. The  latter suggests rising inflation expectations where investors prefer to buy short-term papers and to wait for the rate hikes to end before returning to long-term papers. The US political uncertainties and a potential government shutdown before the end of the year, and an eventual US credit downgrade likely add an additional downside pressure in long dated US papers.   The rising yields do no good to stocks. But interestingly, yesterday, the S&P5500 closed flat but the more rate-sensitive Nasdaq stocks were up. The US dollar index extended gains past the 107 level; the index has now recovered half of losses it recorded since a year ago, when the dollar depreciation had started.   The AUDUSD extended losses to the lowest levels since last November as the Reserve Bank of Australia (RBA) maintained its policy rate unchanged at the first meeting under its new Governor Michelle Bullock. This is the 4th consecutive month pause for the RBA. The bank said that there may be more tightening in the horizon to bring inflation back to the 2-3% range (inflation currently stands at 5.2%). But the fact that Australians biggest trading partner, China, is not doing well, the fact that real estate market in Australia is battered by rising rates and the fact that the Chinese property crisis is now taking a toll on Australia's steel exports toward China are factors that could keep Australian growth below target and prevent the RBA from hiking further. If China doesn't get well soon, Australia will see its iron ore revenues, among others, melt in the next few years, and that's negative for the Aussie in the medium run.  Elsewhere, the EURUSD sank below the 1.05 level on the back of accelerated dollar purchases and softening European Central Bank (ECB) expectations following last week's lower-than-expected inflation figures. Cable slipped below a critical Fibonacci support yesterday, and is headed toward the 1.20 psychological mark. The weakening pound is not bad news for the British FTSE100, as around 80% of the FTSE100 companies' revenues come from abroad, and they are dollar denominated. Plus, cheaper sterling makes the energy-rich FTSE100 more affordable for foreign investors. Even though FTSE100 fell with sliding oil prices yesterday - and this year's performance is less than ideal compared to European and American - London's stock market is closing the gap with Paris, and rising oil prices and waning appetite for luxury stuff could well offer London its status of Europe's biggest stock market, yet again.  Speaking of oil prices, crude oil sank below $90pb level yesterday, partly due to the overbought market conditions that resulted from a more than a 40% rally since end of June, and partly because the 'higher for longer rates' expectations increased odds for recession.    
    Not much relief, after all: Markets React to Political Uncertainties and Hawkish Fed Rhetoric - 05.10.2023

    Not much relief, after all: Markets React to Political Uncertainties and Hawkish Fed Rhetoric - 05.10.2023

    Markus Helsing Markus Helsing 05.10.2023 08:31
    Not much relief, after all By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Relief that came with the news of a temporary avoidance of a potential government shutdown remained short lived. Sentiment in stocks markets turned rapidly sour, both in Europe and in the US, while the US treasury yields didn't even react positively to the no shutdown news in the first place. The selloff in the US 10-year bonds accelerated instead; the 10-year yield hit the 4.70% mark, whereas the 2-year yield remained steady-ish at around the 5.10% level, as the Federal Reserve (Fed) Chair Jerome Powell didn't say much regarding the future of the monetary policy yesterday, but his colleagues continued to sound hawkish. Fed's Michelle Bowman said that multiple more interest rate hikes could be needed to tame inflation, while Micheal Barr repeated that the rates are likely restrictive enough, but they should stay higher for longer. Sufficiently hawkish words combined to a set of still-contracting-but-better-than-expected manufacturing PMI data justified the positive pressure on US sovereigns.   The gap between the US 2 and 10-year yields is now closing, but not necessarily for 'good' reasons. Normally, you would've expected the short-term yields to ease more rapidly than the long-term yields when approaching the end of a tightening cycle, with the expectations of future rate cuts kicking in. But what we see today is bear steepening where the 10-year yield accelerates faster than the 2-year yield. The  latter suggests rising inflation expectations where investors prefer to buy short-term papers and to wait for the rate hikes to end before returning to long-term papers. The US political uncertainties and a potential government shutdown before the end of the year, and an eventual US credit downgrade likely add an additional downside pressure in long dated US papers.   The rising yields do no good to stocks. But interestingly, yesterday, the S&P5500 closed flat but the more rate-sensitive Nasdaq stocks were up. The US dollar index extended gains past the 107 level; the index has now recovered half of losses it recorded since a year ago, when the dollar depreciation had started.   The AUDUSD extended losses to the lowest levels since last November as the Reserve Bank of Australia (RBA) maintained its policy rate unchanged at the first meeting under its new Governor Michelle Bullock. This is the 4th consecutive month pause for the RBA. The bank said that there may be more tightening in the horizon to bring inflation back to the 2-3% range (inflation currently stands at 5.2%). But the fact that Australians biggest trading partner, China, is not doing well, the fact that real estate market in Australia is battered by rising rates and the fact that the Chinese property crisis is now taking a toll on Australia's steel exports toward China are factors that could keep Australian growth below target and prevent the RBA from hiking further. If China doesn't get well soon, Australia will see its iron ore revenues, among others, melt in the next few years, and that's negative for the Aussie in the medium run.  Elsewhere, the EURUSD sank below the 1.05 level on the back of accelerated dollar purchases and softening European Central Bank (ECB) expectations following last week's lower-than-expected inflation figures. Cable slipped below a critical Fibonacci support yesterday, and is headed toward the 1.20 psychological mark. The weakening pound is not bad news for the British FTSE100, as around 80% of the FTSE100 companies' revenues come from abroad, and they are dollar denominated. Plus, cheaper sterling makes the energy-rich FTSE100 more affordable for foreign investors. Even though FTSE100 fell with sliding oil prices yesterday - and this year's performance is less than ideal compared to European and American - London's stock market is closing the gap with Paris, and rising oil prices and waning appetite for luxury stuff could well offer London its status of Europe's biggest stock market, yet again.  Speaking of oil prices, crude oil sank below $90pb level yesterday, partly due to the overbought market conditions that resulted from a more than a 40% rally since end of June, and partly because the 'higher for longer rates' expectations increased odds for recession.    
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    Asia Morning Bites: BoJ Policy Speculation and Chinese PMI Data in Focus

    ING Economics ING Economics 02.11.2023 11:49
    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)
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    Asia Morning Bites: Focus on China's Caixin Services PMI and Anticipation for US Non-Farm Payroll Data

    ING Economics ING Economics 03.11.2023 14:07
    Asia Morning Bites China's Caixin services PMI report will be the focus for today ahead of tonight's US non-farm payroll data.   Global markets and macro Global markets:  Front-end US Treasury yields bounced slightly yesterday after their big post-FOMC drop. 2Y UST yields rose 4.6bp, but remain below 5% (4.989%). But yields on the 10Y Treasury kept falling, dropping a further 7.5bp to 4.659%.  US equity markets are benefitting from the drop in bond yields. The S&P 500 rose a very decent 1.89%, and the NASDAQ was also up (1.75%). Chinese stocks were more mixed. The CSI 300 fell 0.47% on Thursday, but the Hang Seng rose 0.75%. The USD lost further ground on Thursday. EURUSD rose to 1.0617. The AUD rose to 0.6428. Cable pushed back above 1.22, though has dropped back to 1.2194 now, and the JPY has eased down to about 150.5.  Asian FX was broadly stronger against the USD on Thursday and looks likely to keep making gains today.  The KRW led the rest of the Asia FX pack, dropping to 1343. The THB followed, dropping to 35.99. The CNY also made small gains, and USDCNY has moved down to 7.3143.   G-7 macro: It was the turn of the Bank of England to sit on its hands yesterday, following the FOMC’s “pause” the previous day. The MPC committee decided to leave Bank Rate at  5.25%. But pushed back against the market’s expectation for rate cuts next year. Today, non-farm payrolls provide us all the entertainment we need to take us into the weekend. For what it is worth, the consensus forecast for the payrolls headline is +180K, with no change in the unemployment rate (3.8%) and average hourly earnings growth dropping from 4.2% YoY to 4.0%. We also get the non-manufacturing ISM. However, whatever it produces will be eclipsed by the payroll numbers.   China:  After the disappointments of the official PMIs, and then the Caixin manufacturing PMI indices earlier this week, the consensus view of a slight rise of the Caixin service-sector PMI to 51.0 from 50.2, looks in strong danger of being undershot.   Singapore: September retail sales are due for release later today.  We can expect another month of modest expansion with retail sales possibly up roughly 1.5%YoY supported by robust department store sales driven by the return of visitor arrivals. Retail sales have been a bright spot for economic growth this year but elevated inflation should cap its upside in the near term.    What to look out for: China Caixin PMI services and US NFP China Caixin PMI services (3 November) Singapore retail sales (3 November) US NFP and ISM services (3 November)
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    FX Markets in Flux: Navigating Fed Commentary and Global Economic Signals

    ING Economics ING Economics 07.11.2023 15:51
    FX Daily: Waiting for the Fed pushback FX markets are consolidating after a few risk-on days. We have seen some strange price action on the back of the RBA's 25bp hike and some mixed Chinese data. For today, it looks like a relatively quiet session, although the focus will be on how aggressively the line-up of Fed speakers wants to push back against the recent weakening of US financial conditions.   USD: Fed speakers will be in focus today FX markets have handed back a little more of their risk-on gains overnight, leaving the dollar marginally stronger. However, US ten-year Treasury yields are still down at 4.65% and last night's release of the Fed's Senior Loan Officers Survey serves as a reminder that credit conditions are tightening and lending growth is weakening – both of which are likely to weigh on the US economy over coming quarters. In quiet overnight developments, what stands out is the strange reaction in AUD/USD to the Reserve Bank of Australia's 25bp hike. The poor performance of AUD/USD may owe to positioning, or perhaps some read that if the RBA needs to restart its tightening cycle after a four-month pause, maybe the Fed does too. Yet, US rates have not moved much, and the Australian dollar also failed to gain ground on slightly better-than-expected Chinese import data. Perhaps the read here is that the market needs a lot more evidence before pushing on with the Fed pause/peak and weaker dollar scenario. Today, the US highlight will be Federal Reserve speakers, which run from 1:30 pm CET for most of the day. At issue will be whether the Fed chooses to push back against the loosening of US financial conditions. Recall that the tightening of financial conditions in mid-October prompted remarks such as the 'term premium is doing the tightening'. Now that these financial conditions have fully reversed that October spike, the Fed will presumably want to re-emphasise the risk of further rate hikes.  Risks look skewed to a mildly stronger dollar today. DXY closing above 105.50 undoes some of last week's bearish work. But from where we stand, it looks like DXY might bounce around in a broad 104.50-106.50 range into year-end.
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    30-Year Bond Auction Tail Raises Concerns in US Rates Market

    ING Economics ING Economics 10.11.2023 09:57
    Rates Spark: A 30yr headache The tail on the US 30yr auction was big. Effectively a 5bp concession to secondary was required to get the paper away. Hence the ratchet higher in yields. The front end too is feeling renewed pressure from the Fed. No easy ride here for players tempted to trade this from the long side post payrolls. We maintain a non-conviction preference to go the other way.   Difficult to ignore a 5bp tail at auction The US 30yr auction tailed dramatically – by over 5bp. The tail on the 10yr on the previous day was largely ignored, at least initially. But a tail this big could not be. Still the reaction was quite spectacular. Things, however, calmed after the impact break back above 4.8%. But still, we now have the 30yr yield in the 4.75% area and the 10yr in the 4.65% area, with the latter well back above the 4.5% level that has acted as a bit of a floor since hitting it after payrolls. In fact, we are now back in the area we were at just before last Friday’s payrolls report.   Excess liquidity falling, but value in the 2yr now at above 5% And as expected, no surprises from Powell at the IMF conference. It’s clear that the Federal Reserve wants to maintain a tightening impulse. This makes sense, as any hint of neutrality would hasten a market dash to discount rate cuts. There is also the risk that the Fed is not just saying stuff, but could in fact hike again if needed. Next week’s CPI report is likely to show that headline inflation is homing in on 3%, but the issue is core which will still be in the 4% area, as is core PCE. With inflation here, the Fed is nowhere near caving into the rate hike talk. The 2yr US yield popped back above 5% following Powell's speech. But if there was an area of the curve where we feel relatively comfortable to be long it’s a 5% handle on the 2yr. The funds rate today is 5.33%, only slightly above. And even if there were one more hike, the bigger moves would be to the downside on a one year forward basis. If the Fed gets to 3% by mid-2025 (our view), then the breakeven US 2yr yield is 4.5%. Given that, the 5% handle on the 2yr looks generous, and incorporates much less interest rate risk than longs right out the yield curve. On the front end, we also saw an historic day of sorts, as the cash going back to the Federal Reserve on the reverse repo facility dropped below US$1trn. That is still a large volume of excess liquidity in the system, but it has come down from the US$2.25trn area since the summer is a precipitous manner. A lot of this reflects the build in the Treasury cash balance, from close to zero in the summer before the debt ceiling was lifted, to near US$800bn now. Going forward, the bulk of the fall in usage of the reverse repo facility will come from ongoing quantitative tightening.   The deterioration in Treasuries liquidity is worth noting and it is worrying Even though we still have ample liquidity conditions based off these measures, and some US$3.3trn of bank reserves, there has been a material deterioration in liquidity in US Treasuries. The Bloomberg measure of Treasury market liquidity based off persistent dislocations from fair value is at an extreme right now. It is even more extreme than seen during the pandemic. The big movements seen in long dated yields is reflective of this too, where volumes have been less impressive than the big price movements might suggest. It is tough to stay in the trades in long dates in these circumstances. Given that the 4.5% level has not been crashed though, we maintain a preference for a heavy market here where yields can test the upside. Part of the reasoning here is a lack of rationale to capitulate lower in long dated yields. That will come, but it’s not yet a conviction bet.   The day ahead The day ahead is light for data. The main focus ahead of the weekend will be on the University of Michigan readings. Expectations are well below average, and are expected to remain so. Inflation expectations are expected to remain on the high side though, with the 1yr inflation expectation at 4% and the 5-10yr expectation at 3%. There are a few Fed speakers too to be aware of, with Logan, Bostic and Daly due to speak. And in the eurozone we expect to hear from Lagarde and Nagel. We are not expecting a lot of fireworks from this lot at this juncture. The (net) hawkish pressure will be sustained.
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    "Inflation, Yields, and Political Uncertainty: A Look at the Upcoming US Financial Landscape

    Ipek Ozkardeskaya Ipek Ozkardeskaya 13.11.2023 14:44
    All eyes on US inflation and the government's funding deadline  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   What everyone – most investors, every household and every politician want to see and to sense right now is the end of the global monetary policy tightening cycle, and the beginning of the end starts mostly with the Federal Reserve (Fed).   Until the beginning of this month, we have seen a pricing that reflected the market's belief that the Fed is going to keep the rates high for long because the world is now braced for an extended period of high inflation. And the rapid rise in the US long term yields because of this very belief that the Fed will keep rates high for long helped the Fed keep its rates steady, at least at the latest meetings. The US 10-year yields spiked above the 5% mark in the second half of October, stagnated close to this peak for a week.   Then, a sufficiently soft set of jobs data from the US at the start of the month, combined with a record but lower-than-expected Treasury borrowing plans slowed down the sharp selloff in US Treasuries and reversed market sentiment. Investors, since the beginning of this month, began flocking back into the US long-term papers. The US 10-year yield tipped a toe below the 4.50% level, this time. We are talking about a plunge of more than 50bp for the 10-year paper in about two weeks.   And finally, last week, two bad 10- and 30-year bond auctions in the US, and Fed Chair Powell's warning that the Fed could opt for more rate hikes if needed, brought bond investors back to earth. And the 10-year yield rebounded from a dip. This is where we are right now – a period of heavy treasury selloff, followed by significant inflows, and uncertainty.   The uncertainty regarding when the Fed will be done hiking the rates is killing everyone, but even the Fed itself doesn't know when tightening will/should end. It will depend on crucial economic data, like inflation, jobs, and growth figures. The US jobs data is giving signs that the US labour market has started loosening. The US growth numbers are off the chart, but spending isn't necessarily sitting on solid ground, as the US credit card loans go from peak to peak and the credit card delinquencies have taken a lift. The delinquency rate is above the pre-pandemic levels, and just around the post-GFC levels – this means that the Americans spend on debt that they can't pay back anymore. And the US government debt is – as you know - growing exponentially, and Americans pay significantly higher interest on their debt because the rates went from near zero to above 5% in less than two years.  But uncertainty regarding the US debt does not mean that the US Treasuries will fall off grace, because there is nothing comparable to the US Treasuries that could replace US treasuries in a portfolio for low-risk allocations.   Volatility in this space is however unavoidable. This week, we will plunge back into the US political saga, as the government short-term funding deadline is due 17th of November and not much progress has been made to seal a fresh deal. And remember this, the last time the US politicians agreed on a short-term relief package, Joe Biden was forced to leave the funding for Ukraine outside of it. Since then, a new war in Gaza popped up, and the US is now expected to bring financial contribution there, as well.   We could see the US long-term yields recover from the past weeks' decline. Depending on the new funding resolution – or the lack thereof – we could see the US 10-year yield return above 4.80%.   Happily, slower inflows into US treasuries will be a relief for the Fed, which needs the yields to remain high enough to restrict the financial conditions without the need for more action. But the US political shenanigans are only one part of the equation. The other part is...economic data.   The all-important inflation data due Tuesday is going to impact the inflow/outflow dynamics in US Treasuries before the worries grow into the Friday funding deadline. A sufficiently soft inflation read should keep bond traders in appetite for further purchases and mask a part of the political worries, while disappointment could keep buyers on the sidelines and amplify a potential political-led selloff. The good news is that the US headline inflation is expected to have eased to 3.3% in October, from 3.7% printed a month earlier. Core inflation is seen steady around the 4.1% level. The bad news is, the expectation is soft and could be hard to beat.   The US dollar sees resistance at around the 50-DMA, the US stocks continue to cheer the latest pullback in the US yields. The S&P500 closed last week with a beautiful rally, that led the index to above its 100-DMA for the weekly close. The big tech remains the driver of the S&P500 gains as Microsoft hit a fresh high on Friday and Nvidia remained bid a few points below its ATH on news that Chinese AI startup bought enough Nvidia chips before the US exports curbs kicked in. This week, US big retailers will announce their Q3 results and will give a hint on the US consumer trends, health and expectations. Earnings could be mixed but the overall outlook will likely be morose.   
    Commodities Update: US Crude Oil Inventories Rise, Putting Pressure on Oil Prices

    Commodities Update: US Crude Oil Inventories Rise, Putting Pressure on Oil Prices

    ING Economics ING Economics 16.11.2023 11:57
    The Commodities Feed: US crude oil inventories grow Oil prices came under pressure yesterday following an increase in US crude oil inventories, while a rebound in US treasury yields would have likely added further pressure.   Energy - US crude inventories increase Oil came under pressure yesterday with ICE Brent settling 1.56% lower on the day.  A fourth consecutive week of builds in US crude oil inventories would have put some pressure on the market. The builds have also been enough to push the prompt WTI timespreads back into contango. The EIA’s weekly inventory report made a comeback yesterday after its absence last week due to a planned system upgrade. So the market received 2 weeks of data from the EIA yesterday. The release showed that US crude oil inventories increased by 3.59MMbbls over the last week to a little over 439MMbbls - the highest since August. And this is after a  13.9MMbbls build in the previous week. While this still leaves stocks below the 5-year average, they are trending back towards more typical levels for this time of year. On the product side, gasoline inventories fell by 1.54MMbbls last week, after they fell by 6.31MMbbls the previous week. Similarly for distillate fuel oil, stocks declined by 1.42MMbbls, which follows on from a 3.29MMbbls draw the week before. The draws on the product side come despite a small uptick in refinery utilisation rates with stronger implied demand for the week ending 3 November. Activity data from China yesterday showed that refiners processed around 15.11MMbbls/d of crude oil in October, which is down from 15.5MMbbls/d in the previous month, but up a little more than 9% YoY. Cumulative refinery activity so far this year is up around 11.3% YoY. The broader increase in refinery activity this year is no surprise given the recovery we have seen in domestic demand this year, along with refiners having received more export quotas. The numbers suggest that apparent oil demand in October was 14.9MMbbls/d, down from 15.2MMbbls/d in the previous, but still up 11% YoY. Taking into account recent trade data, along with this set of activity data, Chinese crude oil inventories are estimated to have increased at a pace of a little less than 600Mbbls/d over October. The US administration said that it would enforce oil sanctions against Iran following renewed tensions in the Middle East. While US sanctions have remained in place, the US has not enforced them strongly, which has allowed Iranian oil exports to grow this year. If we see stricter enforcement of these sanctions, we could possibly see anywhere between 500Mbbls/d-1MMbbls/d of supply lost, which would be enough to tighten up the global oil balance significantly through 2024. Offsetting any declines from Iran could be a marginal increase in Venezuelan supply (after the US eased sanctions) and the potential restart of Kurdish oil flows, which could bring in the region of 500Mbbls/d back onto the market.
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    Taiwan Election Fallout, Global Market Movements, and Key Economic Events Ahead

    ING Economics ING Economics 16.01.2024 12:00
    Asia Morning Bites China 1Y MLF rates and Indonesia trade data are due today. Markets are digesting the Taiwan election results..   Global macro and markets Global markets:  US Treasury yields lurched lower again on Friday, and with little on the data calendar, this was probably a reaction to Middle East developments as well as perhaps some precautionary positioning ahead of Taiwan’s election. 2Y yields fell 10.1bp, and fell to 4.144%. There was less movement at the back end. 10Y yields fell just 2.7bp to 3.939%. Raphael Bostic suggested that further progress on reducing inflation was likely to be slow and cautioned against cutting rates too early. EURUSD hasn’t responded yet to the lower yield environment and edged a bit lower to 1.0947, which is consistent with a market that has become more risk-averse. G-10 currencies were not much changed. The AUD lost a little ground. But Cable is fractionally higher, and the JPY is also a little stronger at 145.03. The APAC region has also not shown much movement outside some weakness of the VND. USDCNY is currently at 7.1675. US equities had another flat day on Friday. Both the S&P 500 and NASDAQ were more or less unchanged.  Chinese stocks were slightly lower. The Hang Seng and CSI 300 both fell 0.35%.   G-7 macro:  Friday was pretty quiet on the macro front within the G-7. UK activity data was quite mixed, but there was a slightly better set of trade figures which may have helped sterling a little. US PPI for December was a little lower than expected which may have helped to encourage bond yields lower. Today there is nothing of note from the G-7.   Taiwan: As noted earlier, Taiwan re-elected a DPP President, and William Lai Ching-te was elected to the top job marking a third consecutive term for a DPP Presidency. Turnout was good, at 72% and President Lai received just over 40% of the vote. The more China-friendly KMT party got 33.49% of the vote, and the TPP got 26.45% of the vote.  It wasn’t all good news for the DPP though. The Legislative Yuan (parliament), which the DPP held in a narrow majority of its 113 members before the election, dropped to 51 seats, one less than the KMT, with the TPP picking up three seats taking their total to 8. This will make it harder for the DPP to pass new policies. Besides some slightly provocative language from both sides of the Strait of Taiwan, there don’t appear to be any reports of anything more tangible as yet.   China: Ahead of the activity data deluge later this week, China decides on its 1Y MLF rates today. Even though the CNY is still looking quite soft at 7.16-7.17, the consensus has pencilled in a 10bp cut of the rate from 2.5% to 2.4%. This follows some soft money supply figures at the end of last week.    Indonesia: Indonesia reports trade figures today. Exports will likely remain subdued because of soft global demand but imports are tipped to show a modest gain due to capital goods imports. This should keep the trade balance in surplus, though the market consensus has the surplus slipping to roughly $1.9bn. A smaller trade surplus would mean less support for the currency which could prompt BI to hold rates at 6% for longer.   What to look out for: China lending rate and Indonesia trade China new loans CNY (9-15 January) Japan M3 and tool orders (15 January) China medium-term lending rate (15 January) Indonesia trade data (15 January) India trade data (15 January) Philippines remittance data (15 January) Australia Westpac consumer confidence (16 January) Japan PPI inflation (16 January) US empire manufacturing (16 January) Singapore NODX (17 January) China GDP, industrial production, retail sales (17 January) Indonesia BI policy (17 January) US retail sales, industrial production and the Fed’s beige book (17 January) Fed’s Waller speaks (17 January) Japan core machinery orders (18 January) Australia labor data (18 January) Japan industrial production (18 January) US initial jobless claims, housing starts and building permits (18 January) Fed’s Williams and Bostic speak (18 January)
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    Asia Morning Bites: PBoC's Larger-Than-Expected RRR Cut and South Korea's Strong GDP Numbers

    ING Economics ING Economics 25.01.2024 15:57
    Asia Morning Bites The PBoC announced a larger-then-expected required reserve rate (RRR) reduction late Wednesday. South Korea reported stronger-than-expected GDP numbers today.   Global Macro and Markets Global markets:  The upcoming cut in China’s reserve requirement ratio (RRR) gave Chinese markets some much-needed support. USDCNY has dropped back to 7.1580 and the Hang Seng index rose 3.56% while the CSI 300 gained 1.4%. US stocks were more muted, and the S&P 500 was virtually unchanged despite opening higher - flagging in the latter part of the session. The NASDAQ eked out a 0.36% gain. US Treasury yields rose yesterday, despite the lack of much macro news as the 5Y auction tailed badly. 2Y yields rose 5bp to 4.38% and the 10Y rose a similar amount to 4.176% as the March rate cut hypothesis got priced out further. There is still a bit more room for this to run, according to our rates strategists, though the March cut is now only 36.4% priced in. A US refunding announcement on Monday could also push yields up a bit more. EURUSD rose back up to 1.0883 despite the moves in bond yields. The AUD rose strongly yesterday, pushing above 0.6620 but couldn’t hold on to its gains and dropped back to 0.6577. Cable did better and is up to 1.2719 now, and the JPY has also held on to most of yesterday’s gains and is down to 147.55. In the rest of Asia, the SGD and KRW were both boosted by the CNY moves, though the IDR lost almost half a per cent, rising to 15710. Moves elsewhere were modest. G-7 macro:  The G-7 calendar is a lot more exciting today after a very quiet day yesterday. The ECB is meeting, and while they will not cut rates today, the press conference will as ever be scrutinised for hints as to the timing of the first cut. Later on, the US releases its advance estimate for 4Q23 GDP, which, on an annualized basis is expected to slow from 4.9% in 3Q23 to 2.0%. Weekly jobless claims round off the day’s macro releases. China: The PBOC announced that it will cut the Required Reserve rate (RRR) by 50bp from Feb 5, after which the RRR for large institutions will drop from 10.5% to 10%, and the weighted average RRR will drop from 7.4% to around 7%. The 50bp RRR cut was larger than the 25bp cuts that the PBOC elected for in 2022-2023, and was the largest RRR cut since Dec 2021. The RRR cut will in theory provide around RMB 1tn of liquidity to markets. Furthermore, the PBOC also broadened access for property developers to commercial loans by allowing for bank loans pledged against developers’ commercial properties to be used to repay other loans and bonds until the end of the year. It also cut the refinancing and rediscount rates for rural and micro-loans by 0.25 ppt to 1.75%. We expect a relatively limited positive impact on the economy from the RRR cut and supplementary measures. There remains a question of whether there is sufficient high-quality loan demand to fully benefit from this theoretical liquidity injection; we saw that new RMB loans were down -10.6%YoY in 4Q23 despite the previous RRR cut in September 2023. With that said the size and timing of the RRR cut will contribute toward market stabilisation efforts. Overall, the announced RRR cut was mostly in line with our expectations, although the size of the cut surprised on the upside, and the timing of the announcement was a little unexpected given the PBOC left interest rates unchanged in January. Moving forward, we see room for an interest rate cut to come in the next few months as well. The base case is for a conservative 10bp rate cut, but the larger-than-expected RRR cut does flag a possibility for a slightly larger rate cut as well.  South Korea: Korea’s GDP expanded 0.6% QoQ sa in 4Q23 (vs 0.6% in 3Q23, market consensus). 4Q23 GDP was somewhat higher than the monthly activity data had suggested. The difference mainly came from a gain in private consumption (0.2%). According to the BoK, residents overseas spending increased, more than offsetting the decline in domestic goods consumption. Other expenditure items mostly met expectations. Exports (2.6%) grew solidly thanks to strong global demand for semiconductors, while construction – both residential and civil engineering- plunged (-4.2%), dragging down overall growth.  We expect the trend of improving exports vs softening domestic demand to continue at least for the first half of the year. In a separate report, BoK’s business survey outcomes support our view. Manufacturing outlook improved for a third month (71 in January vs 69 in December) while non-manufacturing stayed flat at 68.   The GDP path will vary depending on how well global semiconductor demand will be maintained and how well Korea’s construction soft-landing will go. We expect exports to improve further at least for the first half of the year. Yet, GDP in the first and second quarters is expected to decelerate (0.4% and 0.3% QoQ sa respectively) from last quarter as sluggish domestic demand weighs more on overall growth.  Today’s outcomes will give the Bank of Korea some breathing room to maintain its current hawkish stance. We pencilled in one rate cut in May, under the assumption of a slowdown of GDP and inflation in 1Q24, but if the construction sector restructuring carries out more smoothly, then the BoK’s first rate cut may come in early 3Q24.   What to look out for: South Korea GDP South Korea GDP (25 January) Japan department store sales (25 January) ECB policy meeting (25 January) US GDP, durable goods orders, initial jobless claims, new home sales (25 January) Japan Tokyo CPI inflation (26 January) Philippines trade (26 January) Singapore industrial production (26 January) US PCE deflator, pending home sales and personal spending (26 January)

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