usd cny

The focus for the upcoming week will naturally be a wrath of Fed speak and the latest US CPI data which is expected to show inflation decelerated sharply last month. A sharper decline with prices could vindicate Fed Chair Powell’s decision to remove a 75 basis-point rate increase at the next couple policy meetings.   Russia Russia’s inflation has been accelerating sharply since the invasion of Ukraine. In March, CPI rose to 16.7% (YoY) and is expected to climb to 18.1% in April. The driver behind the sharp upswing has been Western sanctions, which have reduced the availability of consumer imports and key components for domestic products. CPI is expected to continue to climb in the coming months.   China China releases its Balance of Trade on Monday and Inflation on Tuesday. Both have downside risks given the disruption to business and the collapse in property sales and sentiment due to the covid-zero policy. Restrictions continue tightening in Beijing and the covid-zero policy has become the biggest headwind to a China recovery. The government reaffirmed its commitment to the policy Friday, sending China stocks lower. Additionally, US-listed China stocks face new delisting risk from US regulators that is weighing on Hong Kong markets especially, where most dual listings live. Negative headlines around Covid 19 or US delisting over the weekend could send China equities sharply lower into the start of the week. USD/CNY and USD/CNH have now risen from  6.4000 to 6.7000 in just two weeks. The PBOC remains comfortable at this stage, being a back door stimulus to manufacturers. The PBOC USD/CNY fixing will be the key indicator as to whether the authorities have said Yuan depreciation has gone far enough.

Technical analysis: USD/CNY has been trading upside today and I saw the breakout of the symmetrical triangle pattern on the 4H time-frame. Trading recommendation: Due to the breakout of the symmetrical triangle in the upside trend, I see further upside continuation towards the next reference point. Watch for the buying opportunities on the intraday dips with the main upside objective at the price of 7.080. MACD oscillator is showing fresh upside money flow and no signs for the reversal, which is good sign for the further rally. Key support is set at the price of 6.885 Read more: https://www.instaforex.eu/forex_analysis/291435   Relevance up to 14:00 2022-09-06 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.  Read more: https://www.instaforex.eu/forex_analysis/291435

Technical analysis: USD/CNY has been trading upside as I expected. The momentum is very strong to the upside and I see no sign for the reversal. There is potential for the test of the main objective. Trading recommendation: Due to the strong upside momentum and no signs for the reversal, I see potential higher prices. Watch for the buying opportunities on the intraday dips with the upside objective at the price of 7.080. MACD oscillator is showing fresh upside momentum, which is another sign for the strong bull run. Key short-term support is set at the price of 6.890 Relevance up to 10:00 2022-09-07 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/291568                      

Technical analysis: USD/CNY has been trading upside as I expected and the USD/CNY is heading towards major upside long term objective.I still see potential for further bigger growth. Trading recommendation: Due to the strong upside cycle in the background and no signs for the reversal, I see further growth. Watch for the potential buying opportunities on the intraday dips with the upside objective at the price of 7.080 MACD oscillator is showing fresh upside money flow, which is sign that the buyers are in control. Key support is set at the price of 6.889   Read more: https://www.instaforex.eu/forex_analysis/291757 Relevance up to 10:00 2022-09-08 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/291757

Summary:  The JPY slide accelerated yesterday and followed through overnight after US treasury yields rose in the wake of a stronger than expected August US ISM Services survey. Verbal intervention from Japan’s Ministry of Finance hardly registered on the market, which will need to see a steep retreat in yields or a shift in Bank of Japan policy to have any reason to stop pummeling the yen. FX Trading focus: Yen fall picks up pace on strong US ISM Services survey. NOK as Norway PM agrees in principle to price caps on energy. The sell-off was broad and deep yesterday and overnight in the wake of the stronger than expected US ISM Services survey, which saw relatively strong sub-components, including 61.8 on the New Orders and a Price Paid at a still elevated 71.5, with employment edging back into expansion at 50.2. This inspired a new local high in US treasury yields, with the 10-year benchmark surging above 3.3% and closing above all but two days during the brief mid-June spike in yields. The already tumbling yen was pummeled further for more losses across the board, and noise from Japan Ministry of Finance officials failed to make an impression for more than a few minutes. Chief Cabinet Secretary Matsuno said that “The government will continue to watch forex market moves with a high sense of urgency and take necessary responses if this sort of move continues.” And Finance Minister Suzuki chimed in that he is watching the yen’s weakness with “great interest”, according to a Bloomberg article. It will take more than great interest to stem JPY weakness if central banks continue to tighten and yields continue to rise – many billions of intervention would likely only slow the decline and make it more volatile, while the only way to more sustainably reverse the JPY’s slide would be through a shift in BoJ policy or a Fed that is in active easing mode. The latter is certainly not just around the corner. Elsewhere, the US dollar was stronger on the back of the ISM Services survey, briefly taking EURUSD to new cycle lows, but we seem to get a lot of backfilling with every surge higher in the US dollar, a fitful situation and possibly suggesting that its upside path is more difficult at these levels. Certaintly a key test ahead for the EURUSD pair itself tomorrow with the ECB Meeting, for which I have argued that President Lagarde and company need to surprise with a 100 basis point move if they want to make an impression. Likely, some break-through in the energy situation is the key ingredient needed to bring the Euro – and sterling – more relief and would outweigh any ECB moves or just about anything else for European currencies. This morning, Russian leader Putin is playing games ahead of the EU energy summit, saying that it is ready to turn on the gas again through the Nord Stream I pipeline if “they” will deliver turbines for driving gas flows and even said that Nord Stream 2 could be turned on at any time . This contradicts stories from just the day before that Russia is openly admitting to weaponizing gas flows. On the subject of energy price caps, the Norwegian Prime Minister Støre said that Norway is open to the idea of limiting prices, only warning against anything that would restrict output and leaving it to the key state-controlled oil/gas companies like Equinor for agreement on deliveries for short- and long-term contracts. Equinor’s share price is off hard recently and today, but NOK is absorbing this news quite well. NOKSEK should prove volatile among NOK crosses if the eventual outcome improves risk sentiment in Europe via lower gas prices, as SEK tends to trade with high beta to the EU outlook. Chart: NOKSEKNOKSEK sits across a couple of interesting themes for Europe – chiefly energy prices, which are a tremendous boon to Norway’s current account, but less so to NOK, which tends to struggle with weak risk sentiment and poorer liquidity conditions. Offsetting some of the windfall profits in gas has been the decline in oil prices from the June highs. The Swedish krona has traded weaker as Sweden is often viewed as an economy leveraged vis the country’s exports to the EU growth outlook. Any relief on the energy price front into Europe might be felt strongly in this pair, which recently topped out near the 1.1000 area that has generally provided resistance in recent years. An extra risk for NOK could be any deal that sees the country agreeing to deliver significant gas flows at far below the levels that have traded in recent months in the dysfunctional, illiquid EU forwards market as the EU meets in Brussels on Friday to address soaring gas/power prices. So far, the Liz Truss sterling relief rally has been a very brief affair – as with the euro, we’ll likely need to see strong near-term relief on the power/gas prices to improve sentiment toward sterling. EURGBP rebounded strongly into the upper part of the range and remains worth watching for the relative weakness in sterling, especially as the recent highs were not far from the 0.8700 area, the upper edge of the range established beginning in early 2021 when the exchange rate stabilized post-Brexit. China continues to push against CNH weakening, setting the CNY onshore reference rate surprisingly strongly relative to expectations once again overnight. Chinese president Xi Jinping encouraged The Bank of Canada is up later today – expected to hike 75 bps to 3.25%, therefore front-running the Fed slightly with its policy rate. Guidance from the Bank of Canada unlikely to diverge much for what is priced, although it is interesting to see the market marking the October meeting at less than 50 basis points above today’s assumed 75-bp hike – so a downward shift in the guidance will be needed to agree with that. Significant risk sentiment and oil prices moves are likely more important for the loonie than BoC guidance beyond today. Table: FX Board of G10 and CNH trend evolution and strength.JPY downward spiral picks up pace, while the USD remains strongest. Elsewhere, keeping an eye on the commodity currencies after an ugly week for commodities. Table: FX Board Trend Scoreboard for individual pairs.Still watching the AUDNZD trend for signs that the up-trend is set for a full rejection. Probably need a close well south of 1.1100 for that. The JPY crosses are all blazing higher now – USDJPY at a stunning 9.7. Upcoming Economic Calendar Highlights 1230 – US Jul. Trade Balance 1230 – Canada Jul. International Merchandise Trade 1300 – US Fed’s Barkin to speak 1400 – Bank of Canada Rate Decision 1400 – Canada Aug. Ivey PMI 1400 – US Fed’s Mester (Voter) to speak 1640 – US Fed Vice Chair Brainard to speak 1800 – US Fed Beige Book 1800 – US Fed’s Barr (Voter) to speak on Financial System Fairness & Safety 2301 – UK Aug. RICS House Price Balance 0130 – Australia Jul. Trade Balance 0305 – Australia RBA Governor Lowe to speak Source: FX Update: Yen slide extends, ignores official warnings. | Saxo Group (home.saxo)

Summary:  The US dollar remains firm after the shocking CPI data from Tuesday and with US Retail Sales for August today the latest data point ahead of the FOMC meeting next Wednesday, where a sizable minority are looking for 100 basis points from the Fed, while US long yields have run out of range to the upside. The Chinese yuan is trading weakly after China passed on easing rates any further overnight and despite the country moving to ease rules on property investment, with USDCNH hitting 7.00 today. FX Trading focus: USDCNH breaks above 7.00. USD eyes retail sales, new peak in long yields. The reaction in US yields and the US dollar after the far stronger than expected US August core CPI data from Tuesday is holding up well, with US yields all along the curve perched at or near the highs for the cycle and the 10-year US Treasury benchmark yield running out of range into the key high from June at 3.50%. The US Retail Sales report for August out shortly after this article is published is likely to drive the next step for US yields and the US dollar, which will likely move in the same direction. Somewhere out over the horizon, however, I wonder how the US dollar trades in the event a recession is afoot and investors are still marking down equities, not on a the challenge to multiples from higher yields, but on a profits recession. The past “norm” is for equities to only bottom out during the phase in which the Fed is rapidly easing to get ahead of a cratering economy. For now, the bout of risk off has seen NZD and NOK as the interesting pair of weakest currencies, with AUD and CAD not far behind and sterling struggling a bit more today, even as the market edges up the pricing of the Bank of England next week closer to 75 basis points (still only slightly more than 50/50 odds according to futures prices). Sterling almost can’t hope to perform well if risk sentiment But perhaps most importantly, the USD sell-off picked up its pace a bit today on USDCNH breaking above 7.00 for the first time since the summer of 2020 and despite constant PBOC pushbacks via setting the daily fixing stronger for the last three weeks and more on a daily basis. Overnight, China kept its rate unchanged as well, though there were a couple of bright spots in thew news from China overnight, as local authorities have listened to Xi Jinping’s calls for easing up on property investment with a raft of measures. As well, the Chengdu Covid lockdowns are easing. Still, any significant extension above 7.00 in USDCNH will have markets on edge, particularly if the 7.187 all time highs come into view. The USD strength and yield remaining pinned higher have emboldened prevented a further slide in USDJPY after USDJPY traded south of 143.00 overnight. We all know that the BoJ/MoF will more than likely step in if USDJPY trades north of 145.00 again, but note the more profound correction in crosses like AUDJPY, possibly a better place to speculate for a JPY resurgence if risk sentiment remains downbeat. That pair has rejected the recent extension above 97.00, though it probably needs to cut down through 95.00 together with tamer long global yields to suggest something bigger is afoot. Chart: AUDUSDThe Aussie caught a broad, if brief, bid overnight on a strong August jobs report, but wilted again in today’s trade as risk sentiment deflated once again and as the move lower in the CNH versus the US dollar picked up a bit of extra steam and crossed the psychologically important 7.00 level. Watching the lows for the cycle here below 0.6700 for a possible extension to at least 0.6500 on a break lower and a retest of the cycle lows from June. Table: FX Board of G10 and CNH trend evolution and strength.Interesting to note the CHF topping the leaderboard as EURCHF tries at the cycle lows today and Europe can’t get on the same page on its attempts to cap energy prices (drives risk of higher CPI outcomes and more CHF strength to offset). Elsewhere, the NZD is the weakest of the lot, while Japanese officialdom has impressed with its latest verbal intervention, as can be seen in the tremendous momentum shift over the last week in the broader JPY picture. Table: FX Board Trend Scoreboard for individual pairs.AUDNZD remains in a positive trend, but it’s at a multi-year range top as we watch whether a proper trend develops. Elsewhere, NZDUSD is grinding down into the psychologically challenging sub-0.6000 levels, while USDCAD is banging on the cycle resistance at 1.3200 and USDNOK is poking at local highs and only a bit more than a percent from its highest close since the pandemic panic of early 2020 around 10.25. Wondering if today will prove a pivot day for EURGBP that confirmed the up-trend. Upcoming Economic Calendar Highlights 1230 – US Weekly Initial Jobless Claims 1230 – US Sep. Empire Manufacturing 1230 – US Aug. Retail Sales Source: https://www.home.saxo/content/articles/forex/fx-update-usdcnh-breaks-above-700-usd-eyes-retail-sales-15092022

Summary:  The Bank of England’s response to the downdraft in sterling since late last week was rather lacking, as the bank merely indicated it will address the situation at the next regularly scheduled meeting. They may not have that luxury unless this brightening of global risk sentiment that has materialized overnight has legs. Elsewhere, traders continue to steer clear of challenging Japan’s Ministry of Finance on intervention despite a fresh surge in US treasury yields yesterday. FX Trading focus: Bank of England response to sterling crisis rather muted, but a broad sentiment shift might keep them off the hook near term. The Bank of England’s response yesterday to the enormous downdraft in sterling was not as dramatic as those looking for a kneejerk hike this week might have expected. The Bank issued a short statement, which merely indicated that it is aware of what the government is doing and will take that and sterling’s moves into consideration at the next regularly scheduled meeting on November 3. Perhaps the phrase that it “will not hesitate to change interest rates by as much as needed to return inflation to the 2% target” that saved sterling from a further pounding just yet. There are two ways to look at this: the BoE doesn’t want to be seen as panicking and jerked around by market developments. On the other hand, it would have been more hawkish to avoid mention of the next regularly scheduled meeting to suggest that we might infer a rate hike is possible at any time if the sterling volatility worsens again. In support of sterling, the overall rate expectation for the November 3 meeting remains pinned just below 150 basis points this morning, a very large rate hike indeed when your policy rate is 2.25%. We may not have seen the cycle low in sterling, but in the nearest term, a rally in risk sentiment can keep sterling in consolidation mode tactically after the trauma of the last couple of sessions. Chart: USDCADRemarkable to see USDCAD extending the rally yesterday at an even more rapid pace than the one established over the last couple of weeks, the kind of price action one often associates with at least a temporary climax in the trend. A fresh sell-off in oil prices added to the pressure on CAD and NOK as well. But that trend has extended so far and so quickly that the USDCAD pair can easily retrace to 1.3500 without meaningfully softening the up-surge, and today’s price action suggesting we may avoid a correction even to that level. Since the early 2000’s, USDCAD has only traded above yesterday’s 1.3800+ highs on two occasions – for a couple of months when oil collapsed during the pandemic outbreak in the spring of 2020 and during a short episode during the USD peak of late 2015/early 2016. The coming recession may prove more vicious in Canada relative to the US, given very elevated private debt levels in Canada, much of it associated with housing. Mortgage financing is generally 25 year mortgages that roll every 5 years. That 5-year mortgage rate has risen to levels similar to the US 30-year rate around/above 6%. In the US, the vast majority of mortgages are 30-year fixed, meaning no real impact for most homeowners who are staying put with existing mortgages, but a far faster and greater impact on Canadian mortgage holders who must roll to the new and suddenly vastly higher rates. As discussed in this morning’s Saxo Market Call podcast, it will be very interesting to watch the evolution in the US Consumer Confidence survey of the spread between the Present Situation and Expectations components, which reached their lowest levels since 2001 in July. The latest September survey is up today. Typically this spread bottoms out and is rising quickly as the US economy is tilting into recession. As this survey is historically closely correlated with the labor market, any rise in the spread would likely be preceded by a couple of months of clearly rising jobless claims. On that front, we hit record lows in claims (adj. for population) back in March, followed by a significant surge into July. Since then, the lower claims suggest a still-strong labor market, but another turn and rise above a 250k weekly run puts us on a countdown toward a recession and peak Fed tightening expectations. We are likely at an inflection point in Q4 as the real wear on the economy from policy tightening is picking up pace, given the 9-12 month lag of policy, which may be more compressed this time given the vicious pace of the tightening once it got underway. It’s remarkable to recall that the Fed only achieved lift-off from effective zero in March, with treasury yields beginning to surge, however, already in late 2021 and accelerating higher in January. Table: FX Board of G10 and CNH trend evolution and strength.Nothing much new here, but the readings are extreme in USD strength and GBP weakness, while development around the edges are interesting, including whether the broad JPY bounceback can hold and the degree of relative weakness in CNH as the key 7.20 level approaches in USDCNH and the jockeying amongst the G-10 smalls. Table: FX Board Trend Scoreboard for individual pairs.NOKSEK is pressing on a major level at 1.0500 as cratering oil prices and crazy messaging from the Norges Bank have NOK under pressure – crazy volatility in today’s session, by the way. Elsewhere, note the pump and reversal in AUDNZD – was that at least a temporary top for now there? Upcoming Economic Calendar Highlights 1100 – UK Bank of England Chief Economist Pill to speak 1100 – ECB's Villeroy to speak 1130 – Fed Chair Powell to speak on digital currencies 1230 – US Aug. Preliminary Durable Goods Orders  1300 – US Jul. S&P CoreLogic Home Prices 1355 – US Fed’s Bullard (voter 2022) to speak 1400 – US Sep. Consumer Confidence 1400 – US Aug. New Home Sales 1700 – US 5-year Treasury Auction 1700 – US Fed’s Kashkari (voter 2023) to speak 2350 – Japan Bank of Japan meeting minutes 0130 – Australia Aug. Retail Sales    Source: https://www.home.saxo/content/articles/forex/fx-update-boe-response-rather-muted-but-big-hikes-still-baked-in-27092022

Summary:  Market sentiment tipped sharply lower late yesterday after an earlier rally attempt in the US session on the news of sabotage of the Nord Stream pipelines in the Baltic sea. Elsewhere, the US 10-year treasury benchmark rose again and is pushing on the major 4.00% level, taking the USD higher and pressuring global liquidity. Adding further to weak sentiment overnight, the Chinese yuan slipped sharply lower as USDCNH broke above its longer term range highs of 7.20 established back in 2019 and 2020.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) US equities jumped higher out of the gates in early trading yesterday, but the action faded all day and the market closed back near the key cycle support, with the S&P 500 index even posting a minor new bear market low intraday below the prior 3637 mark on the cash index, as the news of the Nord Stream pipeline sabotage (see below) weighed, and US yields and the US dollar continued their ascent. Pivotal levels here for equities as we await further developments and consider end-of-quarter flows into Friday. Hong Kong’s Hang Seng (HSIU2) and China’s CSI300 (03188:xhkg) Stocks traded in the Hong Kong bourse notably underperformed those in Shanghai and Shenzhen. Shares of public utilities fell from 3% to 5%.  U.K. headquartered HSBC (00005:xhkg) and Standard Chartered (02888:xhkg) continued their slide, falling 3% to 4% for the day and 9% to 11% since last Friday’s post-mini-budget turmoil in the Pound Sterling and U.K. Gilts.  Both Hong Kong and China developers plunged across the board,  mostly by 1% to 5%, with CIFI (00884:xhkg) falling over 27% and being the largest casualty in the property space.  CIFI, the 13th largest property developer in mainland China was said to have missed a payment on a project-related debt.  CSI300 fell 1%, dragged by ferrous metal, electric equipment and defence industries while banks, textiles, food and beverage stocks outperformed. Strong USD continues to rage. We have witnessed an historic move in the USD this month, with month-end and quarter-end drawing into view on Friday. Besides the massive, more than 8% meltdown in GBPUSD this month (trading sub-1.0700 this morning), a pair like AUDUSD has lost over 6.5% as of this morning’s exchange rate. The question soon has to be: when does this strong USD finally “break something” and bring an official response, whether coordinated or unilaterally from the Fed or the US Treasury? So far, there seems no sense of emergency, judging from comments yesterday by US National Economic Council director Brian Deese, who pushed back against the idea that the a Plaza Accord-like deal is under consideration. USDCNH reaches all-time highs, intensifying strong USD story. The strong US dollar finally took USDCNH above the 7.20 area that defined major tops on two prior occasions in 2019 and 2020. The exchange rate traded as high as 7.239 overnight, the highest in the history of the offshore CNH currency. USDCNY has not traded this high since early 2008. The move comes ahead of a major holiday next week in China, with markets closed for the entire week, which will leave markets in limbo next week as USDCNY won’t trade. Gold (XAUUSD) remain under pressure from the stronger US dollar and rising US treasury yields, perhaps showing resilience at the margin given that the precious metal failed to post new lows for the cycle yesterday or today even as the USD surges to new highs elsewhere. The next focus is perhaps the round 1,600 level if the selling continues. Crude oil (CLU2 & LCOV2) recovers, European natural gas surges. Crude oil shifted focus back on supply worries with curbs in the U.S. Gulf of Mexico ahead of Hurricane Ian and with reports that Russia is pushing for the OPEC+ alliance to cut production. The group of oil producing nations is due to meet early next month to discuss its production plans. They already announced a cut to output for October by 100kb/d and have warned of further reductions amid falling prices. There has been reports that Russia is pushing for a cut to output of at least 1mb/d. Meanwhile, a pause in USD rally also helped to put a floor to the declines in commodity prices. WTI futures rose but still remained below $80/barrel while Brent futures were above $86. US treasuries (TLT, IEF) US treasury yields rose once again after a brief and relatively sharp stumble yesterday, taking the 10-year yield to the symbolic 4.00% yield. It is worth noting that large round numbers on the yield often provide sticking points – for example, the 3.50% defined the top in June. Is this an important cycle top in yields or can they continue to power higher. The 4.00% level was also the stop for much of late 2008 and 2009. Yesterday saw a weak 5-year treasury auction despite the high yields. What is going on? Nord Stream pipelines severed, presumably an act of sabotage. Enormous upwellings of gas in the Baltic along the Nord Stream 1 and Nord Stream 2 pipelines in the Baltic Sea and detection of seismic activity that resembled explosions rather than earthquakes suggest that the pipelines were sabotaged to prevent the delivery of gas to Germany from Russia. The Nord Stream 2 pipeline was never operational, and the Nord Stream 1 deliveries had recently ceased. EU commissioner joined others in pointing the finger at Russia for the action, promising “the strongest possible response” if it is confirmed that Russia is behind the action. The development saw European natural gas jumping more than 22%, with Gazprom also issuing sanction warnings for Ukraine’s Naftogaz, which would prevent it from being able to pay transit fees, and therefore put at risk whatever little gas is still flowing to Europe via Ukraine. Fed officials continue with a united hawkish voice. While inflation and higher-for-longer interest rates remain a key theme in all Fed commentary these days, there is also another common theme emerging. All three officials on the wires yesterday – Kashkari, Bullard and Evans – suggested that the US may avoid a recession. Kashkari (2023 voter), in an interview with WSJ, said he’s unsure if the policy is tight enough suggesting more rate hikes will be needed to bring down inflation. Bullard (2022 voter) said the US has a serious inflation problem and the credibility of the inflation targeting regime is at risk. Evans (non-voter) is optimistic the terminal rate the Fed has set out (4.6% median in Dot Plot) will be restrictive enough. France releases ‘rosy’ economic forecasts for 2023. Yesterday, the French government published its economic forecast for 2022-23 as part of the parliamentary debate on the 2023 debate. The forecasts are overly optimistic. The Ministry of Finance expects that household investment (which mainly consists of the purchase and renovation of dwellings) will increase by 0.6 point over 2022-23 despite a jump of 250 basis points in the 10-year government bond yield and falling (or at best stagnant) purchasing power. We are a bit skeptical. We think that a sharp decrease in real estate prices is one of the less mentioned risks in France for 2023. This will be something to monitor very closely. It could seriously deepen the expected recession. USDJPY testing 145, but yen crosses lower. Bank of Japan released the meeting minutes from the July meeting, understandably stale, but continuing to signal that easing intentions remain prevalent. Despite a further run higher in US Treasury yields with the 10-year touching the 4% mark, USDJPY has still remained capped below 145. More importantly, the yen is stronger against the EUR, GBP and AUD since the intervention on 22 September, and the contrast with the struggling CNH is particularly notable. The World Bank downgraded its growth forecasts for China while upgrading the growth of Vietnam. The World Bank published its latest economic forecasts on Tuesday, cutting the 2022 growth rate of China to 2.8% from its previous forecast of 5%, and the 2023 growth rate to 4.5% from 4.8%.  On the other hand, the supra-national bank raised Vietnam’s growth rate in 2022 to 7.2% from the 5.3% forecast released in April. It also raised the 2022 growth forecasts for the Philippines to 6.5% from 5.7% and Malaysia to 6.4% from 5.5%. Excluding China, the East Asia, Pacific region is forecasted to grow 5.3% in 2022 and 6.0% in 2023, which will be, for the first time over the past three decades, higher than the growth rates in China. BHP takes advantage of sterling slump and redeems notes more than half a century early. Despite the iron ore (SCOA) price falling 1.4%, to its equal lowest level this year (US$95.90), BHP shares in Australia rallied to a three-day high after the mining giant paid off debts earlier than expected. BHP took advantage of the slump in the sterling against the USD, and used its record profits to redeem pound-denominated notes (due in 2077). This resulted in BHP effectively paying down $643 million of notes early. Last month BHP reported net debt of just $333 million. BHP also announced mining expansion plans. From exploring options to mine copper at Cerro Colorado beyond 2023, with Chilean regulation easing, to also seeing huge commodity upside in Peru, and spending $12m on exploration there over 10 months. Meanwhile, BHP also affirmed it’s working toward bringing forward production for its new potash (fertilizer) business to 2026. BOE Chief Economist Pill also pushed back on inter-meeting rate hike. Huw Pill said the UK’s government’s fiscal announcement and the market reaction that followed it requires a significant monetary policy response, but the best time to assess and react to their impact is at the institution’s next meeting in November. He acknowledged the challenge to the bank’s inflation goal arising from the loose fiscal policy, while also saying that the bank’s program of government bond sales should go ahead as planned next week if the market repricing stays orderly, as has been the case in recent days. However, it is worth noting that BOE’s November 3 meeting is still before the medium-term fiscal strategy is announced, and if that contains significant spending cuts, the budget may prove contractionary, especially given the rise in yields. US consumer confidence beats expectations. Lower petrol prices and a tight labor market possibly aided a rebound in sentiment, but high inflation and interest rates will continue to constrain consumer spending in the fourth quarter. Meanwhile, 1yr consumer inflation expectations declined to 6.8% (prev. 7.0%), but still remaining significantly higher than the Fed’s 2% goal. In other data, US durable goods order fell 0.2% in August, still coming in better than expected while new home sales rose to the strongest pace of sales since March to 685k in August, above the expected 500K and prior 532k (revised up from 511k). What are we watching next? End of quarter rebalancing? We have seen aggressive moves across markets this quarter, to say the least, which brings the question of whether significant rebalancing flows are set for the quarter end this Friday. The relative bond performance has been perhaps worse than that for equities, while in FX the focus may be on possible rebalancing after a tremendous USD upsurge in Q3. Earnings calendar this week The chief action this week is up tomorrow as H&M, Nike, and Micron Technology deliver earnings reports, with the earnings from Micron the most interesting to watch as we already know H&M and Nike are seeing weak demand. Micron has exposure to the consumer electronics industry and manufactures memory chips in Asia which means that the company sits in at the intersection of many interesting trends. Today: Paychex, Cintas Thursday: Polestar Automotive, H&M, Nike, Micron Technology, CarMax Friday: Carnival (postponed from last week), Nitori Economic calendar highlights for today (times GMT) 0715 – ECB President Lagarde to speak 0815 – UK BoE Deputy Governor Cunliffe to speak 0830 – ECB’s Holzmann to speak 1230 – US Aug. Pending Home Sales 1230 – US Aug. Advance Goods Trade Balance 1235 – US Fed’s Bostic (non-Voter) to speak 1400 – US Aug. Pending Home Sales 1410 – US Fed’s Bullard (voter 2022) to speak 1415 – US Fed Chair Powell to speak (opening remarks at conference) 1430 – US DoE Weekly Crude Oil and Product Inventories 1500 – US Fed’s Bowman (voter) to speak 1700 – US 7-year Treasury Auction 0000 – New Zealand Sep. ANZ Business Confidence survey   Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: https://www.home.saxo/content/articles/macro/market-quick-take-sep-28-2022-28092022

Summary:  Today, a look at the US 10-year Treasury benchmark reaching the 4.0% milestone for the first time for this cycle after a remarkable surge in yields in recent weeks. It's worth considering the 1987 experience of bond markets flip-flopping in their correlation with equities and whether we could be set for a similar flip-flop if risk sentiment worsens further. Also, note that many speculative corners of the market were bid yesterday even as the action soured late and worsened still overnight as the US dollar continued surging - especially against the Chinese yuan overnight. Much more on today's pod, which is a solo flight with John J. Hardy hosting. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: https://www.home.saxo/content/articles/podcast/podcast-sep-28-2022-28092022

ummary:  A strengthening US dollar and higher US yields continue to drive much of the action across markets, but a riveting side story is the USDJPY exchange rate more or less holding the line, while the Chinese yuan has crumbled before the big USD and has traded well below the range lows since 2019 and at the lowest since 2008. But roiling markets around European lunchtime is a Bank of England move to launch emergency QE in order to counter dysfunctional moves in the UK gilt markets. Weren’t they meant to be selling gilts, not buying them? FX Trading focus: BoE Emergency QE! CNH In focus as USDCNH crosses above 7.20. Breaking: BoE moves with emergency QE to avoid systemic meltdown. Just before I was about to send the report below out, the Bank of England announced that it would purchase long date UK gilts to stabilize the market in a “temporary operation”. It was stunning to see sterling rally on this, even if a brief kneejerk! This is an admission that the currency will have to take the impact if yields rising elsewhere, since UK yields can’t rise as rapidly as they have recently without triggering a systemic-type event that requires BoE easing. Still, riveting to watch the action from here – the move forced UK yields sharply lower, with the 10-year UK Gilt yield moving 40+ bps lower quickly in response, but US yields were also some 10 bps lower. Given my comments on the Fed “breaking things” below – the UK financial markets just got broken, who is next, when is it the US’/Fed’s turn, and will signs that risk sentiment is celebrate this BoE move as the canary in the tightening coal mine pan out, or is it a red herring for now? Stay tuned. Back to the original program: The market is spooked by the ongoing rush higher in US treasury yields, with the 10-year treasury benchmark reaching the symbolic and real support level of 4%, which held the line for an extended period. Whether the juggernaut of treasury selling can stop so quickly simply because this level has been reached is an open question, but round levels have often proved major sticking points in the past. Already at these levels and after the tremendous acceleration in yields higher, the treasury market is strongly at risk of “breaking something” with the USD the accompanying wrecking ball here. More thoughts on that below. But sentiment has also been driven lower by an aggravation in an already fraught geopolitical backdrop after the Nord Stream 1 and 2 pipelines were severed by coordinated explosions yesterday. The medium to longer term outlook for energy inputs into especially Germany’s industry  was always hazy beyond the heroic efforts to ensure gas supplies through this coming winter, but this development throws up a dark cloud over the longer term outlook as well, since even regime change in Russia and a shift in attitudes on both sides would still require extensive repairs of the infrastructure to get the gas flowing again. A bit surprised that the euro has held out as well as it has in the face of this latest news. Chart: CNHJPYThe US dollar rally finally took USDCNH above the 7.20 area that defined major tops on two prior occasions in 2019 and 2020 and set a new high water mark for USCNH in the history of the offshore CNH currency above 7.26 at one point this morning. The official USDCNY exchange rate has not traded this high since early 2008. The move comes ahead of a major holiday next week in China, with markets closed for the entire week, which will leave markets in limbo next week as USDCNY won’t trade.With USDJPY holding the line despite the US dollar strength, it is riveting to watch the CNHJPY yield for whether we are finally set to see a major mean reversion in this most important of Asian currency pairs. Note the trendline and the 200-day moving average that will come into view quickly if the sell-off extends. USD climax – now or soon? The USD move this month has been epochal – as of this morning up over 5% in Dollar Index terms, up over 6% versus the Aussie, up over 8% versus sterling, and up a staggering 10% versus NOK. We are probably just about there for the extent of this USD move in time terms and in momentum terms, even if the amplitude of the spike could worsen further before the move finds resistance – the Fed is on the verge of breaking the treasury and currency markets, and the economy will follow with a lag. For now, it will be interesting to see, as month-end and quarter-end approach, whether portfolio rebalancing can put some support under the treasury market and or a ceiling on the US dollar, or if even a tactical consolidation in the two markets will require a change of direction from the Fed. At some point if the twin USD/US treasury wrecking balls continue to swing, the Fed will have no choice but to intervene with balance sheet re-expansion or a yield cap policy – but will this require an all-out equity/risk asset market rout first? Table: FX Board of G10 and CNH trend evolution and strength.The USD trend strength reaching staggering levels near 10 – are we near the end of this trend for a spell? Most likely, in time terms, but trends like this can end in impossible climaxes. Note elsewhere the JPY strength sticking for now. Table: FX Board Trend Scoreboard for individual pairs.NOKSEK broke down through 1.0500,  a key technical development, but look at USDNOK at an absurd reading of 10.1 (And USDCAD at 11.1 and USDCNH at 13.1!). Upcoming Economic Calendar Highlights 1230 – US Aug. Advance Goods Trade Balance 1235 – US Fed’s Bostic (non-Voter) to speak 1400 – US Aug. Pending Home Sales 1410 – US Fed’s Bullard (voter 2022) to speak 1415 – US Fed Chair Powell to speak (opening remarks at conference) 1500 – US Fed’s Bowman (voter) to speak 1700 – US 7-year Treasury Auction  0000 – New Zealand Sep. ANZ Business Confidence survey Share   Source: https://www.home.saxo/content/articles/forex/fx-update-new-cnh-weakness-boe-launches-emergency-qe-28092022

USD/CNY briefly challenged the peak of 2019 at 7.19. Since then, the pair has reversed back lower and could extend its decline on a dip under 7.02, economists at Société Générale report. Initial resistance aligns at 7.17/19 “USD/CNY has faced stiff resistance near the upper limit of a multiyear channel near 7.26 forming a weekly shooting star. This is not a reversal pattern but denotes temporary exhaustion.”  “An initial pullback is taking shape; 7.02, the 23.6% retracement from 23.6% is first support. In case this breaks, there would be a risk of a deeper down move.” “7.17/7.19 is immediate resistance zone.”

The People’s Bank of China (PBoC) will continue to effectively manage market expectations of the CNY exchange rates. In the view of economists at Commerzbank, authorities would like a USD/CNY return to the 7 level. PBoC will allow the CNY to depreciate against the USD in a controllable manner  “We expect the PBoC will continue to use the daily fixing as the main tool to manage the CNY. It could supplement this with other instruments to manage foreign currency liquidity in China.” “We suspect the PBoC will allow the CNY to depreciate against the USD in a controllable manner, provided currencies of China’s major trading partners are also depreciating against the USD. This will keep the CNY relatively stable on a trade-weighted basis.”  “From a medium-term perspective, it’s likely that the PBoC would prefer USD/CNY to return to the 7 mark.”

Summary:  Risk sentiment was supported by more U-turns in UK fiscal policy and strong earnings from Bank of America supporting the US banks. Equities rallied and the USD declined, but the Japanese yen failed to ride on the weaker USD and continued to test the authorities’ patience on intervention. Higher NZ CPI boosted bets for RBNZ rate hikes, and the less hawkish RBA meeting minutes brought AUDNZD to fresh lows. EU meetings remain key ahead as the bloc attempts to finalize Russian price caps. What’s happening in markets?   The Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) rally after UK-policy U-turn. So far this reporting season earnings are declining The mood was risk-on amid Monday’s rally; with the major indices charging higher with the S&P500 up 2.7%. The breadth of the rally was so strong that at one point over 99% of the companies in the S&P500 were rising, which pushed the index up away from its 200-week moving average (which it fell below last week). Meanwhile the Nasdaq 100 gained 3.5%. The rally came after the UK made $30 billion pounds worth of savings after scrapping tax cuts (see below for more). It was received well by markets and investors looking for short term relief. Bond yields fell, equities rallied and after the GBP lifted 1.6% the US dollar lost strength. But the UK is not out of the lurch with power outages likely later this year. Plus also consider, so far this US earnings season, only 38 of the S&P500 companies have reported results and earnings growth has so far declined on average by 3%. So it’s too soon to gauge if markets can sustain this rally, particularly with the Fed likely to hike rates by 75 bps later this month and next. Strong earnings from bank boosted market sentiment. Bank of America (BAC:xnys), reporting solid Q3 results with net interest income beat and a 50bp sequential improvement on CET1 capital adequacy ratio, surged 6% and was one of the most actively traded stock on the day. U.S. treasury curve (TLT:xnas, IEF:xnas, SHY:xnas) steepened Initially US treasuries traded firmer with yields declining, after taking clues from the nearly 40bps drop in long-dated U.K. gilts following the new U.K. Chancellor Hunt scrapping much of the "mini budget" tax cuts and the support for household energy bills. Some block selling in the long-end treasury curve however took 30-year yields closing 3bps cheaper and 10-year yields little changed at 4.01%. The 2-year to 5-year space finished the session richer, with yields falling around 5bps and 2-year closed at 4.44%. The market has now priced in a 5% terminal Fed fund rate in 2023 and a 100% probability for a 75bps hike in November and over 60% chance for another 75bps hike in December. Australia’s ASX200 (ASXSP200.1) lifts 1.4%; with a focus on Uranium, stocks exposed to the UK and lithium Firstly Lithium stocks are in the spotlight after Pilbara Minerals (PLS) accepted a new sales contract to ship spodumene concentrate for lithium batteries from Mid-may, at $7,100 dmt. PLS shares are up 3.1% with other lithium stocks rising including Core Lithium (CXO) up 3.7% and Sayona Mining (SYA) up 4.7%. Secondly, shares in Uranium are focus today after Germany plans to extend the life of the countries three nuclear power plants till April, as it contends with the energy crisis. The Global Uranium ETF (URA) rose 5.9% on Monday and ASX uranium stocks are following suit like Paladin (PDN) up 2%. For a deep look at the uranium/nuclear sector, covering the stocks to perhaps watch and why read our Quarterly Outlook on the Nuclear sector here. Thirdly, amid the risk-on short term relief in markets from the UK, companies with UK exposure are rallying amid the short-term sentiment shift , including the UK’s 5th biggest bank, Virgin Money (VUK) which is listed on the ASX and trades up 5.3%. Ramsay Health Care (RHC), which is a private hospital/ health care business with presence in the UK trades up almost 2% today. Ramsay's recent full-year showed UK revenue doubled to $1.2 billion. Hong Kong’s Hang Seng (HSIV2) China’s CSI300 (03188:xhkg) Stocks in Hong Kong and mainland China traded lower initially and spent the rest of the day climbing to recover all the losses, with Hang Seng Index and CSI300 finishing marginally higher. General Secretary Xi’s speech last Sunday hailed China’s “Dynamic Zero-Covid” strategy and gave no hint of shifting policy priorities toward economic growth as some investors had hoped for. Among the leading Hang Seng constituent stocks, HSBC (00005:xhkg) gained 1.5% and the Hong Kong Stock Exchange (00388:xhkg), which is reporting Q3 results on Wednesday, climbed 2.3%. Chinese banks gained, with China Merchant Bank rising 2.3% and ICBC (01389) up 1.7%.  Healthcare names gained, Hansoh Pharmaceutical (03692:xhkg) surged 13.2% and Sino Biopharm (01177:xhkg) rose 3.6%. EV stocks were among the laggards, dropping from 1% to 5%. Li Ning (02331:xhkg) tumbled over 13% at one point and finished the trading day 4.3% lower following accusations on mainland social media about the sportswear company’s latest designs resembling WWII Japanese army uniforms.  Japanese yen paying no heed to jawboning efforts The US dollar moved lower on Monday, but that was no respite for the Japanese yen. All other G10 currencies got a boost, with sterling leading the bounce against the USD with the help of dismantling of the fiscal measures by the newest Chancellor of the Exchequer Jeremy Hunt and the slide in UK yields. The only G10 currency that weakened further on Monday was the JPY, which continued to test the intervention limits of the authorities. USDJPY rose to 149.08, printing fresh 42-year highs. Bank of Japan Governor Kuroda will be appearing before the Japanese parliament from 9.50am Tokyo time, after some stern remarks in the morning saying that they “cannot tolerate excessive FX move driven by speculators”. While intervention expectations rose, the yen still did not budge until last check. NZD rose on higher New Zealand CPI boosting RBNZ tightening bets Another surprisingly strong inflation print from New Zealand, with Q3 CPI easing only a notch to 7.2% y/y from 7.3% y/y against consensus expectations of 6.5% y/y and an estimate of 6.4% from the RBNZ at the August meeting. The q/q rate rose to 2.2% from 1.7% in Q2 and way above expectations of 1.5%. This has prompted expectations of more aggressive tightening from the RBNZ with a close to 75bps hike priced in for the Nov 23 meeting vs. ~60bps earlier, and the peak in overnight cash rate at over 5.3% from ~5% previously. NZDUSD rose to 0.5660 with the AUDNZD down to over 1-month lows of 1.1120 with RBA minutes due today as well for the October meeting when the central bank announced a smaller than expected rate hike of 25bps. Crude oil (CLX2 & LCOZ2) Crude oil prices stabilized in early Asian hours on Tuesday after a slight decline yesterday, despite a weaker dollar and an upbeat risk sentiment. WTI futures rose towards $86/barrel while Brent was above $91. Chinese demand concerns however weighed on the commodities complex coming out of the weekend CCP announcements. On the OPEC front, Algeria's Energy Minister echoed familiar rhetoric from the group that the decision to reduce output is a purely technical response to the world economic circumstances.   What to consider? UK need to know: Policy U-Turn provides shorter term risk-on rally, but long-term headwinds remain, UK holds talks to avoid power shutdowns New British chancellor Jeremy Hunt reversed almost all of PM Liz Truss’ mini-budget. Initially Truss’ plans sent markets into a tailspin - whereby the pound hit record lows and the Bank of England was forced to intervene. However, after Hunt virtually scrapped all of the announced tax cuts, and cut back support for household energy bills, saving $32 billion pounds, then risk sentiment improved and the pound gained strength. But, the issue is, firstly; there are still almost $40 billion pounds worth of savings to be made to close the fiscal gap; meaning more government spending cuts will come and possibly tax hikes. This is probably why new UK finance chief, Hunt, declined to rule out a windfall profit tax. Nevertheless, the U-turn was received well by markets for the short term, bond yields fell, equities rallies and the pound sterling (GPBUSD) rose 1.6% against the USD with the US dollar losing strength. And the second reason the UK is not out of the lurch is that the fundamentals haven’t changed; the UK energy crisis is not resolved – yesterday in the UK government officials met major data centers discussing the need to use diesel as backup if the power grid goes down in the coming months. Amazon.com and Microsoft run data centers in the UK. Earlier this month, National Grid also warned some UK customers they could face 3-hour power cuts on cold days. The Bank of England is expected to downgrade its rate hike expectations.    NY Fed manufacturing headline lower on mixed components The NY Fed manufacturing survey for October fell to -9.1, contracting for a third consecutive month and coming in below the expected -4.0 and the prior -1.5. While survey data remains hard to trust to decipher economic trends, given a small sample size and questioning techniques impacting results, it is worth noting that more factories are turning downbeat about future business conditions which fell 10 points to -1.8 and was the second weakest since 2009. Also, the prices paid measure rose for the first time since June, echoing similar results as seen from the University of Michigan survey. Fed speakers ahead today include Bostic and Kashkari and terminal rate expectations remain on watch after they are touching close to 5%. La Nina is underway in Australia; floods decimate some wheat crops In the Australian state of Victoria at the weekend, floods decimated some wheat crops, which has resulted in the price of Wheat futures contracts for March and May 2023 lifting in anticipation that supply issues will worsen. The Australian Federal Emergency Management Minister said parts of Australia face ‘some serious flooding’ with more rain forecast later this week, with 34,000 homes in Victoria potentially expected to be inundated or isolated. The Bureau of Meteorology forecasts the La Lina event to peak in spring that’s underway in the Southern Hemisphere, before turning to neural conditions early next year. La Nina is not only disastrous to lives, homes and businesses, but the extra rainfall usually brings about lot of regrowth when rain eases. The risk is, if El Nino hits Australia in 2023 for instance, bringing diminished rainfall and dryness, then there is a greater risk of grassfires and bushfires. Investors will be watching insurance companies like Insurance Australia Group, QBE. As well as companies that produce wheat, including GrainCorp and Elders on the ASX and General Mills in the US. RBA Meeting Minutes out – AUDUSD climbs of lows, up 1.7% The Aussie dollar rose 1.7% off its low after the USD lost strength when the UK re winded some tax cuts. The AUDUSD will be in focus with the RBA Meeting Minutes released, highlighted why the RBA rose interest rates by just 0.25% this month, moving from a hawkish to dovish stance. The RBA previously highlighted it sees unemployment rising next year, and sees inflation beginning to normalize next year, which in our view, implies the RBA will likely pause with rate hikes after December, after progressively making hikes of 25bps (0.25%). Still the Australian dollar against the US (AUDUSD) remains pressured over the medium term, given the Fed’s expected heavy-pace of hikes, while China’s commodity buying-power is restricted with President Xi maintaining a covid zero policy. As such, the AUD's rally might be questioned unless something fundamentally changes. China delays the release of Q3 GDP and September activity data Chin’s National Bureau of Statistics delays the release of Q3 GDP, September industrial production, retail sales, and fixed asset investment data that were scheduled to come on Tuesday without providing a reason or a new schedule.   For our look ahead at markets this week - Listen/watch our Saxo Spotlight.   For a global look at markets – tune into our Podcast. Source: https://www.home.saxo/content/articles/equities/market-insights-today-18-oct-18102022

USD/CNH has reached the top end of Credit Suisse’s forecasted 7.00-7.35 trading range. Therefore, the Q4 USD/CNH target has been revised to 7.10-7.55.  Continuity in economic policy points to further “flexibility” on the exchange rate “President Xi did not specifically mention FX policy during his Work Report speech, but continuity in economic policy points to further ‘flexibility’ on the USD/CNY exchange rate.”  “Tuesday’s USD/CNY fix (to 7.1668, an increase of 438 pips) ‘broke’ the previous USD/CNY fix range of 7.10-7.12 seen since 10 October, confirming that yuan weakness can continue.”  “We expect negative sentiment in China equities to continue spilling over into the yuan, and now raise our Q4 USD/CNH forecast range to 7.10-7.55.”

According to UOB Group’s Markets Strategist Quek Ser Leang and Rates Strategist Victor Yong, USD/CNH could grind lower to the 7.1500 region in the short term. Key Quotes 24-hour view: “The strong rebound in USD to 7.2686 came as a surprise (we were expecting USD to weaken further). We view the price movement as part of an on-going consolidation and expect USD to trade within a range of 7.2150/7.2650.” Next 1-3 weeks: “We continue to hold the same view as yesterday (27 Oct, spot at 7.1870). As highlighted, the recent USD strength has ended. The large pullback on Wednesday has room to extend to 7.1500, possibly 7.1300. However, a break of 7.2850 (no change in ‘strong resistance’ level) would indicate that the pullback is not extending lower.”

Summary:  The Powell Fed was probably hoping that it could fly under the radar at today’s FOMC meeting, giving itself the luxury of two more data cycles as inputs before providing fresh guidance and forecasts at the mid-December FOMC meeting. But no such luck, given the recent significant easing of financial conditions and yesterday’s very hot September jobs opening survey. FX Trading focus: Powell in the hot seat at tonight’s FOMC, needing to surprise hawkish The US September JOLTS jobs openings release yesterday was a shocker, as August data was revised up 250k and the September release was nearly a million more than expected at 10.72M. This jolted US yields and the US dollar back higher, keeping the greenback largely in the tactical neutral zone ahead of tonight’s FOMC meeting. It is the latest data point to suggest that the Fed will have a hard time pre-committing to any slowdown in the pace of its policy tightening after the 75-basis-point hike that is fully priced in for tonight. The December 14 FOMC meeting odds have not shifted much over the last couple of weeks, as investors still favor the idea of a downshift to a 50-basis-point hike at that meeting, followed by another 50 basis points of tightening early next year over the space of a couple of meetings. (An interesting psychological block for this market appears to be the 5.00% level for the Fed Funds rate – markets have been unwilling to project the Fed to hike above this level – which is about where we are now for the March-May FOMC meetings) As I outlined in yesterday’s update, if the Fed merely keeps quiet and endorses current expectations and punts on further guidance until December, we might see an extension of the melt-up in risk sentiment and see another wave of USD weakness. But yesterday’s JOLTS data point raises the odds that the Fed will want to push back against that outcome or at least against complacency on its potential policy path in general. To surprise hawkish today, Powell and company will have to make it very clear that the Fed is willing to continue tightening beyond current expectations. At the same time, that task will be difficult if they are reluctant to pre-commit to another large hike in December. One possible tactic to keep maximum forward potential for hawkishness would be for the Fed to indicate very high reactivity to further incoming data and openness to continuing with large hikes as long as necessary if the data supports doing so. It's hard to tell how the market would treat such a stance at tonight’s meeting if that is what the FOMC delivers, but in coming days and until the December 14 FOMC meeting, it would certainly mean extreme volatility on the next bits of Incoming data, starting with the ISM Services tomorrow and then especially the October jobs report this Friday. Then we’ll have the October JOLTS survey, the November jobs report, and the October and November CPI releases before that meeting. Chart: EURUSDEURUSD is perched between the important parity level to the upside and perhaps 0.9875-0.9850 support to the downside, an important level on the way up, awaiting today’s FOMC meeting. Downside risk for a test of the cycle lows below 0.9600 if the Fed manages to surprise hawkish and lift rate expectations, while we’ll have to close north of parity and see a continued improvement in risk sentiment and perhaps some weak US data through Friday to sustain a new upside leg. Bank of Japan minutes surprise. It’s been a while since we got a surprise from the BoJ, and normally we don’t look for them in the minutes, which are not released until after the following meeting. But last night’s minutes from the September BoJ meeting generated a few waves and JPY strength as they showed considerable signs of member discomfort with rising price pressures and even brought up the subject of an eventual policy shift, even if not suggesting one is imminent: one member said that “when the appropriate time comes, it’s important to communicate to markets an exit strategy”. This won’t sustain a JPY rally if US treasuries run back higher after the FOMC today and/or in the wake of the key US data through Friday. NZD strength getting stretched after the strong jobs report overnight extended the NZD rally against the Aussie and even keeping the currency near the top of the recent range versus the US dollar. Not sure how much more the little kiwi can get out of this run of strength here – a turn in broad sentiment could suddenly see vulnerability. The RBNZ is concerned about the impact on the policy tightening on the country’s financial system in its financial stability report released yesterday. I don’t see any meaningful ability for policy to diverge from here from Australia’s for example. Bloomberg put out an interesting article on the globally weather-stressed dairy industry. New Zealand is the world’s largest dairy exporter and combined, milk, beef, butter and cheese make up some 30% of New Zealand’s exports in physical goods. The article mentions climate-linked legislation possibly limiting future output – worth watching. Table: FX Board of G10 and CNH trend evolution and strength.CNH weakness still prominent, sterling’s relative strength fading, kiwi strength looking overdone and USD at maximum indecision here. Table: FX Board Trend Scoreboard for individual pairs.EURCHF making a bid at a reversal of the uptrend that was established more than four weeks ago if it drops through the 0.9850-0.9800 zone in coming days. Look at AUDUSD ready to possibly tilt lower again if the USD can get a leg-up post-FOMC. EURUSD is also close to flipping lower again after its uptrend attempt didn’t extend very far from its launching point, which was near the current rate. Upcoming Economic Calendar Highlights 1215 – US Oct. ADP Employment Change 1800 – US FOMC Meeting 1830 – US Fed Chair Powell Press Conference 2000 – New Zealand RBNZ Governor Orr before Parliamentary Committee 0145 – China Oct. Caixin Services PMI   Source: https://www.home.saxo/content/articles/forex/fx-update-pressure-mounts-on-fed-to-surprise-hawkish-02112022

The Yuan is seeing another leg of weakness against the US Dollar. Economists at UBS expect upward pressure on USDCNY to persist. Pressure still up in USDCNY “The Yuan is likely to stay weak in the near term, given macro headwinds and the large USD yield advantage.” “The Chinese Yuan has been under pressure in part because of the disappointing pace of China’s recovery, as the government persists with its economically damaging zero-COVID policy. In addition, the continued divergence in US-China monetary policy and the subdued appetite for Chinese assets will see persistent, upward pressure on the USDCNY in the near term.”  “Our guidance to hedge CNY long exposure into 1Q23 remains in place.”

Summary:  Market sentiment improved further yesterday before dipping slightly overnight, as China Covid cases are on the rise, pushing back against hopes for a lifting of Covid restrictions. In the US mid-term elections, Democrats are slightly outperforming expectations, possibly set to retain control of the Senate even if Republicans look set to take narrow control of the House of Representatives. FX Trading focus: Next test for struggling USD over tomorrow’s US CPI data. The US mid-term election results are still rolling in this morning in Europe, with the Republicans set to take a small majority in the House and the Senate outcome looking at risk of riding on the outcome of a Georgia run-off election on December 6th as neither candidate looks set to achieve the 50% required for elections there. Remember that we had a similar setup after the 2020 election when two Senate races in Georgia were only decided in a January 5 run-off. There are no real market conclusions from the outcome, even if the Georgia race gives the Republicans a majority in the Senate, as the only scenario that would have guaranteed dramatic potential for fiscal policy would have been the Democrats surprisingly retaining both houses. Other conclusions: Trump is a liability for the Republican party, which likely would have done far better without his involvement, and forensic studies of split-ticket voting will likely confirm this, and it will be interesting to see if this deters his possible renewed ambitions for the presidency. Finally: razor thin Georgia results keep alive the narratives around election fraud, etc. Can the US move beyond its dysfunctional elections by 2024 or will the republic face an existential test in that election cycle? Back to incoming data, with tomorrow’s US October CPI in focus. Let’s recall that the September CPI data point was a real shocker as many qualified slicers and dicers of the data were looking for a deceleration in the core data rather than the acceleration we got. That has me leaning for a slightly softer release tomorrow. But I am far more interested in the nature of the market reaction. As I have discussed the last couple of days on the Saxo Market Call podcast, I find the most interesting test for the US dollar one in which we see inflation decelerating and US treasury yields perhaps easing a bit lower, but in which we also see risk sentiment weak as equity and bond markets are starting to decouple, as equities begin to fret recession rather than being merely led around by the nose by the treasury market. If that is the scenario we get and the USD weakens, then I think USD weakness can extend a bit more forcefully for a time, if not, then the USD could yet reject this breakdown attempt. I withhold judgement for now, as the USD has not yet broken down. But the easiest thing to do is to simply judge what happens on the charts in the wake of the data release (not knee-jerk, but how the day closes), as we have a number of clear-cut levels in play for the major USD pairs. Chart: USDJPY USDJPY has traditionally been a strong focus over US data surprises over the years and will be in focus with the macro event risk of the week, if not the month, coming up tomorrow in the form of the US October CPI release. Reaction in yields and risk sentiment are both worth watching as I have cooked up some thoughts of late (see above) on whether US treasury markets and equity markets could move out of correlation, i.e., that risk sentiment may have a hard time celebrating a drop in treasury yields. So, a weaker than expected US CPI report together with falling treasury yields, but also together with weak risk sentiment could provide the strongest support for the JPY here in a broad sense, though it might be felt more forcefully in JPY crosses. Regardless, if the JPY finds bids tomorrow, the 145.00 level will be a huge focus in USDJPY. Table: FX Board of G10 and CNH trend evolution and strength.The USD is clearly down, but will only be out on sticking further weakness in the wake of the US CPI release tomorrow. Elsewhere, note the sterling momentum turning badly south and SEK trying to look higher, not a surprise given European equities having rallied vertically for weeks – looking a bit much. Table: FX Board Trend Scoreboard for individual pairs.EURGBP is one to focus on around the 0.8800 level. JPY crosses are interesting in places as well as yields have consolidated a bit lower – look at the 165 area in GBPJPY, for example. But it is all about key USD levels after the US data tomorrow, including 1.0100 in EURUSD, 0.6522 in AUDUSD, etc… Upcoming Economic Calendar Highlights 1200 – Mexico Oct. CPI 1300 – UK Bank of England’s Haskel to speak 1530 – EIA's Weekly Crude and Fuel Stock Report 1630 – UK Bank of England’s Cunliffe to speak 1700 – World Agriculture Supply and Demand Estimates (WASDE) 0001 – UK Oct. RICS House Price Balance 0100 – US Fed’s Kashkari (Voter 2023) to speak   Source: https://www.home.saxo/content/articles/forex/fx-update-usd-on-edge-ahead-of-the-us-cpi-data-tomorrow-09112022

After the US Consumer Price Index (CPI)-led risk rally, markets witnessed another boost to risk sentiment in Friday’s early European trading after China reduced its quarantine period for travelers while the system penalizing airlines for bringing virus cases into the country will also be scrapped, per Bloomberg. “Travelers into China will be required to spend five days in a hotel or government quarantine facility,” followed by three days confined to home, the country’s National Health Commission said in a statement Friday. Market reaction The US S&P 500 futures jumped 0.50% in reaction to the China headlines, as the move is seen a big pivot to Beijing’s strict zero-Covid policy. AUDUSD built on the rebound above 0.6600, currently trading at 0.6636, adding 0.30% on the day.  

Economists at TD Securities think the Chinese Yuan is likely to maintain downward trajectory versus the US Dollar. USDCNY is set to reach 7.40 by the end of the year. It is hard to be optimistic on CNY “Without a clear roadmap out from its zero-COVID strategy, it is hard to be optimistic on CNY, with growth prospects increasingly dim and the PBoC keeping to an accommodative monetary policy stance to support growth.”  “We expect a further depreciation of the CNY in the months ahead and see USDCNY ending at 7.40 by end 2022 though we expect some outperformance relative to forwards.”  

This year has been tough for Asian currencies – hit by surging energy prices, the strong dollar, and in some cases central banks being a little slow to react. Their course in 2023 will again be determined by the dollar trend and also diverse local stories. We see 3-5% gains in Asian FX against the dollar in 2023, with the Korean won outperforming In this article Local and international factors are still uncertain Source: Shutterstock Local and international factors are still uncertain For all the effort that goes into forecasting Asian exchange rates, the last year has shown that apart from some short-lived deviations, dollar strength was the principal driving factor and EUR/USD provided perhaps the best clue as to both direction and magnitude. Within this period, there were times when other drivers took over – energy dependence was pivotal during the period immediately following the Russian invasion of Ukraine with the Indian rupee (INR) and Thai baht (THB) suffering badly while the Indonesian rupiah (IDR), Malaysian ringgit (MYR), and Australian dollar (AUD) outperformed. Then the differing inflation experiences, coupled with how much the respective central banks leaned against it, also held sway for a time. This saw the more interventionist economies (IDR, INR, PHP [Philippine peso]) which absorbed price pressures through fiscal buffers doing better at times compared to more market-oriented economies – such as the Korean won (KRW) – though this usually didn’t last. Then there were occasions when the more managed benchmark exchange rates of the region – chiefly the Chinese yuan (CNY) – would “reset” in response to local economic conditions and drag "satellite" currencies in north Asia along with it. In the end, though, perfect foresight of where EUR/USD was going would probably have been a better indicator than a full understanding of any of these other factors, and looking forward to 2023 we see few reasons why this should be much different over the coming 12 months. Asian Current a/c (% GDP) Refinitiv, ING   Our house view for EUR/USD still sees some near-term dollar strength, and for this reason, we anticipate there still being some more mileage in the weaker Asian FX story. But both the scale and duration of this residual USD-driven leg remain the subject of much debate. Any further aggressive USD appreciation could see the current account surplus economies of the region outperforming their peers (see chart). External balances across the region have been damaged by this year’s energy price spikes, although compared to the Asian Financial crisis in 1997, the region as a whole is still in a much healthier position with respect to external balances, FX reserves, and import cover (see also here).  At some point though, and possibly after some further Asian FX weakness, a number of factors will start to swing in the opposite direction. Local factors include: While still somewhat subdued, China’s economy will be in better shape in 2023 than it was in 2022. There are some tentative indications of a more nuanced approach to zero-Covid, and this may be amended further following the two sessions in March. The property development sector will still likely be a shambles, but its drag on the economy will be trending towards zero or small positives from the substantial negative in 2022. Either of the factors above may free up more fiscal resources at the local government level to push growth along. Across the rest of Asia, without a renewed energy price spike, local inflation rates should begin to moderate, allowing for some easing of policy rates and recovery of demand. Inflation already looks to be peaking in some economies and this trend is likely to spread. And while it may mean that policy rates can begin to be cut, the currency-relevant fact will be that negative real policy rates will shrink, and that could allow for some further currency strength. However, when the turn comes, how much further it has gone before this occurs, and how rapidly it reverses course, will be determined by a wide range of local and international factors, and remains the subject of considerable speculation. USD/CNY: Liquidity to remain ample   Spot Year ahead bias4Q221Q232Q233Q234Q23 USD/CNY 7.05 Neutral 7.22 7.35 7.25 7.18 7.13 Capital flows: Even though the yuan has been weak against the dollar, we have not seen net capital outflows reflected in the data. There are several possible reasons for this. More global asset indices include China's onshore assets in their portfolios. This can smooth out volatility as the Chinese market often has low correlations with other markets. Another more likely factor is that offshore Chinese entities could be remitting dollars to their onshore counterparts and then converting them to yuan. There has also been a higher trade surplus every month so far this year. All of this adds up to a strange pattern of weak yuan mapping with net capital inflows. This pattern could continue until the People's Bank of China (PBoC) believes that there is no more risk of quick and massive capital outflows. Macro backdrop: The Chinese economy has not been doing well in 2022 due to Covid measures, the real estate crisis, and recently, the slowdown in export demand from the US and Europe. Our GDP forecast for 2022 is only 3.3%. We believe that the Chinese government is gauging the risk to the healthcare system from re-opening by holding big events like the Beijing Marathon and Shanghai Expo. We may see some slightly more flexibility on Covid measures, but we believe that any important official announcement of Covid measures is more likely during the Two Sessions in March 2023. On real estate, more funding for local governments' 2023 budgets will be available by the end of 2022 via special bond sales. This should help local governments finish uncompleted homes faster. As such, there should be more construction activity in the first half of 2023 compared to the second half of 2022. But the risk of recession in the US and Europe will weigh on Chinese exporters and manufacturers, and therefore the jobs market. Due to the weakness of the economy, there is no inflation pressure and slight PPI deflation pressure in 2022. It is unlikely that high inflation will occur in China in 2023 given the weak economic prospects. With a low base effect and some improvements domestically, our GDP forecast for 2023 is 5.3%. PBoC and rates: The PBoC has not changed policy interest rates since August 2022, and the time before that was in January 2022. We believe that conventional monetary policy tools, that is, policy interest rates and required reserve ratio adjustments (RRR), are not efficient to tackle existing economic conditions from Covid measures and the real estate crisis. The PBoC has turned to lending to domestic development banks that in turn lend to local governments. This gives some breathing room on fiscal pressures. And this is more efficient as there is no lag time to get funding compared to commercial loan and bond channels. It is possible that the current practice will continue until some uncompleted homes are finished and Covid measures become more flexible. Consequently, we do not expect any change in policy interest rates in 2023. USD/INR: Real rates turn less negative   Spot Year ahead bias4Q221Q232Q233Q234Q23 USD/INR 81.10 Neutral 83.00 84.00 83.00 82.00 82.00 Capital flows: One of the factors providing support to the INR during the past year has been the expectation that Indian Government Securities (G-Secs) would be included in one or more of the global bond indices. That expectation got knocked back in early October this year, mainly on disagreements between JP Morgan and India’s Finance Ministry on settlement issues (India wants bond trades settled locally, not at Euroclear) and taxation (India is unwilling to treat foreign bond investors differently to local investors for the purposes of capital gains). There is still some scope for inclusion in 2023, but it doesn’t sound as if India’s government is all that willing to make concessions. There may be more scope for equities to draw in capital in the second half of fiscal 2023, as the dry spell in IPOs is thought likely to end with around INR10.5tr reported of approved capital raising and a further INR7tr awaiting approval. Macro backdrop: The Indian economy has not been immune to the global headwinds following Russia’s invasion of Ukraine and is particularly exposed to high energy prices given its large net importer position. Despite taking advantage of some cheaper Russian crude supplies and absorbing some price pressures through margins at state-owned petroleum companies and reduced import excise duties, inflation has still risen above 7%, and this has taken its toll on the growth outlook, with third-quarter 2022 GDP coming in slower than expected, and putting previous expectations of a 7% growth rate for 2022 out of reach. We now look for growth of 6.3% in the calendar year 2022. This is still one of the highest rates of growth in Asia, and there is scope for some firming of the growth environment next year if there are no further price shocks.   RBI and rates: After abandoning its awkward dance of trying to support both growth and leaning against rising prices in early April this year, the Reserve Bank of India (RBI) has taken a steadfast and convincing stance against inflation, taking the repo rate from its low of 4.0% up to 5.9% currently. We look for a further 25bp of rate increases in December, and perhaps another 25bp in February, taking rates to 6.4%. But by then, we may well see inflation coming off its highs, which could leave the real (adjusted for actual inflation) policy rate close to zero, rather than its current strong negative rate. This could mark the peak for the RBI, as inflation should fall further from this point, enabling real policy rates to float back into positive space. USD/IDR: Bank Indonesia to step up rate hikes   Spot Year ahead bias4Q221Q232Q233Q234Q23 USD/IDR 15540.00 Neutral 15850.00 15950.00 15800.00 15700.00 15600.00 Trade balance support could fade: The IDR was well supported by inflows related to trade for the most part of 2022. Exports managed to easily outpace imports this year as the export sector benefited from the surge in global commodity prices. Trade surpluses hit a record high in April ($7.5bn) but have since narrowed with the latest surplus down to $4.9bn. Slowing global trade and a dip in coal prices point to a further narrowing of the trade surplus which would impact Indonesia’s current account balance. Bank Indonesia (BI) expects the current account to settle between 0.4-1.2% of GDP for 2022 but revert to a deficit in 2023. This suggests that key support for the IDR in 2022 will not be around next year resulting in sustained pressure on the currency.   Macro backdrop: Indonesia has strung together six quarters of positive growth, rebounding quickly from the pandemic-induced recession in 2021. Growth got a boost from exports, which in turn helped support the recovery of the manufacturing sector. Meanwhile, relatively subdued inflation in the first half of 2022 helped support domestic consumption with retail sales benefiting from increased mobility. Inflation, however, has finally picked up in recent months and is likely to accelerate further after the government increased the price of subsidised fuel. The recent weakness experienced by the IDR has also contributed to higher inflation, a trend that should extend to 2023. Accelerating inflation is likely to cap consumption growth in the coming quarters while expectations for slower global trade suggest that exports will be subdued going into 2023. With the projected slowdown in the second half of 2022, we expect full-year growth to settle at 5.2% year-on-year in 2022 while 2023 growth could slip to 4.4%.  Central bank to stay hawkish: Bank Indonesia was a latecomer in terms of rate hikes in 2022 as inflation stayed relatively subdued for the first half of the year. Faster inflation by the second half of the year prodded the previously reluctant central bank to finally increase policy rates in a surprise move in August. BI has since been actively tightening, increasing rates by 75bp so far, and will likely need to continue tightening to support the IDR well into 2023. BI Governor Perry Warjiyo previously highlighted his preference for a stable currency, and we expect BI to hike rates by at least 100bp to help steady the IDR. USD/KRW: Second half of 2023 to be better for Korea and the won   Spot Year ahead bias4Q221Q232Q233Q234Q23 USD/KRW 1320.00 Mildly Bearish 1350.00 1400.00 1350.00 1300.00 1250.00 Capital flows: Foreigners have been net sellers of the Korea Composite Stock Price Index (KOSPI) until recently, but we see foreign investors coming back to the Korean equity market, as the sharp outflows have stagnated over the past few months. We believe that the KOSPI will benefit from an asset allocation perspective as the China-US conflict intensifies, and thus decoupling with the Chinese market is expected to some extent. On the bond side, Korea has been added to the watch list for World Government Bond Index (WGBI) inclusion and it is possible to join the WGBI next year at the earliest. This is a positive factor providing support for the Korean won and Korean authorities appear to believe inclusion is very promising. Several new initiatives including the exemption of the withholding tax, reforms to improve accessibility to the KRW market, and Korean treasury bond (KTB) trading via ICSD (International Central Securities Depositories) were proposed to improve the structure and accessibility of its capital market for investors. Macro backdrop: The Korean economy is heavily dependent on exports and is a net energy importer. The trade deficit will continue for some time as semiconductor exports continue to struggle while energy prices remain high. We expect the current account to be in a surplus, but weak trade performance will weigh on the currency markets.   BoK and rates: The Bank of Korea (BoK) has been one of the fastest-moving central banks in the race to raise rates since last year and is expected to become one of the fastest-moving to cut rates next year. We expect a 25bp hike in November, and perhaps another 25bp in January, taking rates to 3.50%. But the BoK is likely to go into a wait-and-see mode afterwards, as inflation is expected to slow to below 4% and fall further. To lighten the burden for businesses and households, the BoK will likely enter into an easing mode from the second half of next year. USD/PHP: How much longer can BSP hold the line?   Spot Year ahead bias4Q221Q232Q233Q234Q23 USD/PHP 57.20 Neutral 58.75 59.00 58.50 58.00 57.50 Current account woes to persist: The Philippines is highly dependent on imported food and energy items and has traditionally run trade deficits. Elevated global commodity prices bloated the import bill resulting in a record-wide trade shortfall. Contributing to the stark widening of the trade deficit was the economic reopening after mobility restrictions were finally relaxed in the first half of the year. Resurgent domestic demand also resulted in increased capital and consumer goods imports which were enough to push the current account into a deficit. The trade balance and current account are likely to remain in deficit in 2023, especially if commodity prices stay elevated. The central bank expects the current account deficit to widen to roughly $19bn in 2022 and $20bn in 2023, suggesting that pressure on the PHP will persist next year.    Macro backdrop: The Philippines posted solid growth numbers in the first half of 2022 after the national government relaxed mobility restrictions after improvements in Covid-19 containment. The reopening of the economy helped along by election-related spending powered strong growth for the first half of the year (7.7%). The second half of the year, however, presents a much more challenging landscape, which also marks a change in leadership after Ferdinand Marcos Jr. won the presidential election in May. Surging inflation on top of rising borrowing costs is likely to translate to a significant slowdown in growth for the second half of 2022 and the whole of 2023. We expect inflation to hit 5.6% year-on-year in 2022 and stay elevated at 5.0% in 2023, which would translate to 5.9% YoY growth in 2022 and 4.4% in 2023. Busy year for BSP: It has been a busy year for the Bangko Sentral ng Pilipinas (BSP). The central bank faced a quick acceleration in price pressures as well as a change in leadership after the presidential election. Given the country’s dependence on imported energy and food, price pressures rose quickly to drive inflation well-past target (currently at 7.7% YoY). Several deadly typhoons also pushed up food prices after the storms caused significant crop damage. The BSP responded with several rate increases, even resorting to an off-cycle decision in July as well as a pre-announced rate increase which will take the policy rate to 5% by November. BSP Governor Felipe Medalla, who assumed his post in July, vowed to match any move by the Federal Reserve in the coming months and maintain a 100bp differential with the Fed funds target rate. We expect BSP to take the policy rate to 5.5% by year-end with at least an additional 50bp worth of rate hikes in 2023 should the Fed continue to raise rates.    USD/SGD: MAS waits for recent tightening to take hold   Spot Year ahead bias4Q221Q232Q233Q234Q23 USD/SGD 1.37 Neutral 1.39 1.40 1.38 1.375 1.37 Growth outlook: Singapore has managed to post decent growth in 2022 despite the increasingly challenging global backdrop. Relatively robust trade activity in the first part of 2022 has helped support growth momentum although we have noted a slight deceleration of late. Meanwhile, retail sales recorded a steady pace of expansion despite the sharp uptick in prices. One possible development that could be supporting retail sales is the sustained influx of foreign visitors which may be driving the consistent growth of sales for department stores and recreational goods. Retail sales growth could help offset the projected slowdown in global trade somewhat and we expect Singapore growth to settle at 3.5% YoY in 2023.        GST to add to inflation pressure in 2023: Surging global commodity prices and robust domestic demand resulted in faster price increases for Singapore with core inflation rising 5.3% YoY as of September. The Monetary Authority of Singapore (MAS) now expects headline inflation to settle at 6% YoY for 2022 and between 5.5-6.5% in 2023 given current developments and the scheduled increase in the Goods and Services Tax (GST) from 7% to 8% next year. Risks to the inflation outlook remain skewed to the upside, especially if commodity prices stay elevated in 2023. A prolonged period of high commodity prices should eventually evolve into additional second-round effects that would fan both headline and core inflation.             MAS tightens aggressively: The MAS has been busy over the past few months, surprising market participants by tightening unexpectedly in October 2021, the first of five separate moves to tighten monetary policy. Given surging core inflation, MAS needed to tighten policy aggressively with two of the moves carried outside of scheduled meetings. The MAS is likely to remain hawkish given expectations that core inflation will average 3.5-4.5% YoY in 2023 and stay elevated until the second half of next year. We believe, however, that the MAS would be less aggressive in tightening should it need to act as it monitors the impact of its aggressive tightening moves. USD/TWD: Wider differentials weigh on TWD   Spot Year ahead bias4Q221Q232Q233Q234Q23 USD/TWD 31.00 Neutral 32.40 33.00 32.00 31.70 31.40 Capital flows: The weakness of the New Taiwan dollar (TWD) in 2022 mainly comes from net capital outflows of foreign investments in Taiwan’s equity market. The net outflows year-to-date amounted to $48.2bn as of 7 November. This is a lot compared to historical data of the next biggest outflows at $15.6bn in 2021, which was itself bigger than the outflows of $15.5bn in 2008. Capital outflows from the equity market have led to a fall in foreign exchange reserves of $5.62bn. Offloading of Taiwan equities should continue in 2023 as semiconductor sales should fall further as a result of the expected recession in the US and Europe and weak demand in China. Macro backdrop: Taiwan enjoyed strong semiconductor sales in the first half of 2022, but after this the economy turned sour when Covid hit, and then weakened further when weak demand in China led to a fall in semiconductor sales. Adding to this pressure is softer demand for smart devices in 2022. As the Taiwan economy specialises in semiconductor manufacturing and sales, it is prone to external economic conditions. Taiwan did experience some higher-than-normal inflation of around 3.5% YoY in the first half of 2022. But this was then followed by softer inflation pressure in the second half of 2022 as the economy slowed. For 2023, we believe that semiconductor sales will continue to fall as a recession in the US and Europe is likely in the first half of 2023, and China’s consumption demand will remain weak due to Covid measures and the ongoing real estate crisis. Taiwan's central bank and rates: As Taiwan has not encountered as high inflation as the US, Taiwan’s central bank has raised interest rates at a much slower incremental pace than the Fed. As of November 2022, Taiwan’s central bank had raised rates by just 0.5 percentage points in 2022, which is much smaller than the Fed’s 3.75 percentage points. This is one of the reasons why TWD has fallen over 15% so far in 2022. If the Fed pauses its hiking in 2023, the interest rate differential should stop widening. TagsFX Outlook FX Currencies Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

Despite a goal-rich start at the World Cup in Qatar, markets are all about defense right now. New Covid restrictions in China are fuelling a return to the safe-haven dollar while investors wait for tomorrow's FOMC minutes. This may be laying the groundwork for a broader USD recovery into year-end. Elsewhere, we expect a 50bp rate hike by the RBNZ In this article USD: Recovery mode EUR: Preparing for a longer downtrend NZD: We expect a 50bp hike by the RBNZ CEE: EU disputes turn the spotlight from Hungary's central bank   USD: Recovery mode China’s Covid situation has suddenly returned as a very central driver for global markets this week. Over 27,000 cases were reported today, with the city of Guangzhou being the new epicentre of the outbreak, and local authorities are reportedly scrambling to impose those same restrictive measures that appeared a thing of the past after recent signals from the central government that the zero-Covid policy would be gradually abandoned. In FX, this has fuelled a return to the dollar. After all, optimism on China’s outlook was one of the two key forces - along with speculation about a dovish pivot by the Fed – behind the sharp dollar correction earlier this month. On the Fed side, tomorrow’s minutes will be important to watch, but the recent Fedspeak has undoubtedly added a layer of caution to the dovish pivot enthusiasm, which could mean investors may also be more reluctant to overinterpret dovish signals from the minutes. We have a few speakers to monitor today amid a very light data calendar in the US: Loretta Mester, James Bullard (both hawks) and Esther George (more neutral). Another theme to watch today will be the reported OPEC+ plans to increase output. The news caused an acceleration in the crude sell-off yesterday, with Brent trading below $85/bbl before recovering after the Saudis denied the reports. Should output hike speculation mount again, expect some pain for commodity currencies, as the combination with resurging Covid restrictions in China could prove quite toxic. We continue to see the dollar at risk of new brief bearish waves this week, but we note that the environment has now turned more benign for the greenback, and this may be laying the groundwork for a re-appreciation into year-end, which is our baseline scenario. We could see some consolidation around 107.50/108.00 in DXY today. Remember that liquidity will run significantly thinner in the second half of the week as the US enters the Thanksgiving holiday period. Francesco Pesole EUR: Preparing for a longer downtrend EUR/USD plunged back to the 1.0250 area as markets jumped back into defensive dollar trades yesterday. Indeed, the negative impact of China’s new Covid wave on the rather exposed eurozone economy and of an ever-concerning situation in Ukraine are overshadowing the positives of lower energy prices. We see further room for a contraction in EUR/USD this winter and continue to target sub-parity levels into the new year, as discussed in our 2023 FX Outlook. The eurozone calendar includes consumer confidence data (which is expected to have marginally recovered) and speeches by the European Central Bank's Robert Holzmann, Olli Rehn and Joachim Nagel. Expect some support at 1.0200 in EUR/USD: a decisive break below that level could underpin the return to a bullish dollar narrative and unlock more downside risks. Francesco Pesole NZD: We expect a 50bp hike by the RBNZ The Reserve Bank of New Zealand will announce monetary policy at 0100 GMT tomorrow, and it is a close call between a 50bp and a 75bp hike. As discussed in our meeting preview, we see 50bp as more likely, as signs of an accelerating housing market contraction warn against an overly aggressive approach. Markets (66bp in the price) and the majority of economists are, however, leaning in favour of a 75bp move. New rate and economic projections will also be released, and there are some key questions to be answered. The first of these is where the RBNZ will place the peak rate, which is currently at an unrealistic 4.10% (rates are at 3.50% now), so should be revised to 5.0% or higher, and how many cuts will be included in the profile. The second is how much more pain will be included in the forecasts for the housing market. Third is how fast inflation is projected to drop given the higher CPI readings for 3Q but more aggressive tightening. A half-point hike would likely be seen as a dovish surprise by markets at this point, but a significant revision higher in rate projections could mitigate any negative impact on the New Zealand dollar. Either way, expect any post-meeting NZD moves to be short-lived, as global risk dynamics and China news will soon be back in the driver’s seat for the currency. NZD/USD is at risk of falling back below 0.60 before the end of this year, while we target a gradual recovery to 0.64 throughout the whole of 2023. Francesco Pesole CEE: EU disputes turn the spotlight from Hungary's central bank Today is the busiest day in CEE this week. In the morning we start with the monthly indicators in Poland. The main focus will be industrial production for October, as a leading indicator for the rest of the region. Polish industrial production is benefiting from an improvement in supply chain functioning, which supports export-oriented industries, including automotive and electrical products. We expect only a slight slowdown from 9.8% to 8.8% year-on-year, above market expectations. Labour market numbers should confirm the still tight conditions with wage growth of 13.8% YoY. PPI will confirm continued price pressures in the economy with the YoY number accelerating from 0.2% to 1.1% in October. From a market perspective, today's numbers may be perceived as having implications for the National Bank of Poland's economic outlook and monetary policy. After all, it is wage growth that has been the biggest surprise to the central bank's forecast in the past. Thus, today's numbers may revive market hopes for an additional rate hike and support the zloty in the short term. However, we remain bearish in the medium term with a forecast of 4.90 EUR/PLN at the end of this year. Later today we will see the National Bank of Hungary (NBH) meeting. We do not expect any fireworks at this rate-setting meeting. The latest data regarding inflation and GDP were broadly in line with the central bank's expectations and the next staff projection update is only due in December. Against this backdrop, we don't see any game-changing moves. When it comes to the risk environment, we haven't seen a material improvement in domestic or external risk factors, which were flagged by the central bank as triggers to consider changes in its monetary stance. The Hungarian forint has been hovering in the 400-415 EUR/HUF range for the past few weeks, far from the NBH's pain threshold. The market is pausing in place, awaiting news from the Hungarian government's negotiations with the European Commission. These could theoretically come today, which would overlay today's NBH meeting. However, from last week's hints, it is likely that we will hear more bad news before any good news comes, which may cause further volatility in the FX market. However, a happy ending to this saga should see the forint below 400 EUR/HUF in our view. Frantisek Taborsky Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

On Tuesday, the People’s Bank of China (PBOC) set the USD/CNY central rate at 6.9475 versus Monday's fix of 6.9646 and market expectations of 6.9477.  

Risk aversion dominates markets at the start of the new year. It's a quiet day in Asia today. US ISM manufacturing data starts the pre-non-farm-payrolls data run  Source: shutterstock Macro outlook Global Markets: A very tentative start to the New Year from risk assets. US equities made small declines (S&P500 -0.4%, NASDAQ -0.76%),  though there were gains in Asian markets (CSI 300 +0.42% and Hang Seng +1.84%), despite the weak Caixin PMI data out of China. Yields on US Treasuries also hinted at some caution from investors. 2Y yields fell 5.6bp, and 10Y yields declined 13.6bp to 3.739%. Currency markets also echoed this rather gloomy backdrop, with EURUSD pushing back down to 1.0545, the JPY is up slightly to 131.31, the AUD has pulled back to 0.6719, and Cable is back below 1.20.  Most of the Asian FX pack lost ground to the USD yesterday, though the losses outside of the G-10 currencies were modest. The THB actually strengthened 0.58% on China re-opening hopes, and the VND also picked up some ground.   G-7 Macro: German inflation for December came in below expectations in December, registering a 9.6%YoY growth rate, down from 11.3% in November. This follows a 1.2%MoM decline in the price level. The decline was mostly driven by lower oil and gasoline prices (see also this note).  France releases December inflation data today. US manufacturing ISM data together with US auto sales rounds off a quiet day. China: The season of converting the dollar to CNY has come. Export receipt conversion should start around three weeks before the first day of the Chinese New Year (which this year starts on 22 January) and end around one week before that as manufacturers need to pay bonuses before workers leave factories for the holidays. That means demand for yuan in the onshore market should increase. What to look out for: FOMC minutes Japan Jibun PMI (4 January) Hong Kong retail sales (4 January) US ISM manufacturing (4 January) FOMC minutes (5 January) Philippines CPI inflation (5 January) Thailand CPI inflation (5 January) China PMI services (5 January) Singapore retail sales (5 January) US ADP, trade balance and initial jobless claims (5 January) Taiwan CPI inflation (6 January) US non-farm payrolls, ISM services, durable goods and factory orders (6 January) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

On Thursday, the People’s Bank of China (PBOC) set the USD/CNY central rate at 6.8926 versus Wednesday’s fix of 6.9131 and market expectations of 6.8955.   Read next: The EUR/USD Pair Is Trading Above 1.06 Again, The USD/JPY Pair Is Close To Level Of 131| FXMAG.COM

China has drastically eased its Covid-19 measures. Both domestic mobility and international traffic should increase in 2023. But the question is in which quarter? The current Covid wave could last at least a few months. By then, the US and EU will likely be in recession, hurting China's exports. We also worry about the fiscal deficit getting bigger In this article China: At a glance 3 calls for 2023 It is really about timing when it comes to the question of economic recovery External demand to be weaker in 2023 Fiscal deficit could become an issue, and unconventional monetary policy could become a norm   China is set to lift its quarantine requirement for inbound travellers China: At a glance The Chinese economy has slowed since the second quarter of 2022, mainly due to strict Covid measures that disrupted port and land logistics, retail sales and catering, and caused temporary shutdowns of factories in some key manufacturing locations. Even when restrictions were eased, a mixture of a weak domestic economy and high external inflation hit manufacturing in the fourth quarter of 2022. In addition, real estate developers have struggled to get enough cash to complete residential projects. This triggered a slew of easing measures for real estate developers to get financing via banks, stock and debt markets in the fourth quarter. The fragile economy means there has been no inflation pressure at all, and luckily no deflation. The People's Bank of China (PBoC) has used re-lending programmes to inject liquidity into specific areas, such as small and medium-sized enterprises and real estate. Conventional interest rates and required reserve ratios were not used frequently as those tools were not effective when there were Covid restrictions. The strong dollar combined with the weak Chinese economy resulted in a weak Chinese yuan (CNY) in 2022. GDP and inflation outlooks CEIC, ING estimates 3 calls for 2023 1 It is really about timing when it comes to the question of economic recovery Most Covid-19 measures were removed in December 2022. The removal of mandatory quarantine when entering Mainland China suggests that business travel will resume soon, even with the current spike in Covid cases as people in most locations outside China have become used to living with the virus. Residents could start to visit Hong Kong to get medicines and healthcare services, and then later in the year they could begin to travel to foreign countries for leisure activities. We believe that leisure travel into Mainland China could resume from the Easter holidays. Retail sales should recover, and the current Covid wave should ease after a few months (although it's difficult to gauge the timing), which should minimise the risk of supply chain disruptions. 2 External demand to be weaker in 2023 The US and Europe have been China's second and third top export destinations respectively. According to our house forecasts, the timing of recession in the US and Europe should be around the first half of 2023, and therefore should not overlap with the peak export season of the fourth quarter. But whether export demand can recover after the recession is still in question. China's trade with ASEAN – the number one export destination for China – and the rest of Asia also depend on the consumer market in the US and Europe. Both exports and imports could enter yearly contraction in the first half of 2023. Trade could recover towards the second half when domestic and external economies recover. 3 Fiscal deficit could become an issue, and unconventional monetary policy could become a norm The fiscal deficit has not previously been an issue for China. But Covid and the real estate crisis have changed this. The fiscal deficit-to-GDP will be around 8% by the end of 2022, which is higher than the historical high (data goes back to December 1995) of 6.2% in the fourth quarter of 2020. The fiscal deficit-to-GDP should remain at 8% in 2023 even if there is much less spending on Covid tests and quarantines. Fiscal spending on high-tech development will increase. As for monetary policy, the PBoC may choose to stay on hold next year as the central bank has hesitated to lower the 7D interest rate any further to avoid falling into a liquidity trap. We do not expect the PBoC to cut the required reserve ratio or interest rates in 2023. That said, the re-lending programme for specific targets should continue at least into the first half of 2023. Further liquidity injections via the re-lending programme in the second half will depend on the speed of recovery of real estate developers and external markets. We expect the CNY to strengthen against the dollar as the economy picks up and the US enters a recession.  China forecast summary table CEIC, ING estimates TagsUSDCNY PBoC Fiscal Covid China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The People's Bank of China has kept the 1Y Medium Lending Facility rate at 2.75% but increased the volume of the facility by CNY79 billion in January. The market should perceive this as a supportive measure. But the yuan could be weaker in March when retail sales data is released Leading members of the People's Bank of China, including Governor, Yi Gang (waving) The PBoC paused rate policy, but increased liquidity The PBoC decided to leave the 1Y Medium Lending Facility (MLF) policy rate at 2.75% today. But there was an extra liquidity injection on the 1Y MLF volume of CNY 79 billion to CNY779 billion for January. One reason for this increase is that the Chinese New Year holiday is coming, and liquidity is usually tight ahead of this, though the PBoC has already been injecting liquidity to cover the holiday period through open market operations. We believe there is another more important reason for the increase in volume. And that is that the PBoC would like to support strong loan growth by injecting extra liquidity via the MLF at the beginning of the year rather than cutting the required reserve ratio, which is a more aggressive monetary policy tool. Chance of RRR cut in 1Q23 Lower after increase in 1Y MLF volume Yuan should remain robust before the Chinese New Year holiday but this could be temporary The market should perceive more liquidity injections as supportive for economic growth, and this should help support the yuan. Our forecast of USD/CNY at 6.9 at the end of 1Q23 looks off the mark. But we expect to see weaker-expected economic activity when retail sales data for January to February come out in March. That could change the course of the yuan. We expect that retail sales from January to February will increase only slightly from last year as consumers focus more on healthcare services and medicines instead of general shopping activity for the Chinese New Year. Retail sales should pick up in the second quarter. Our USD/CNY forecast for the end of 2023 is 6.72 Read this article on THINK TagsUSDCNY Monetary policy China Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Economists at Commerzbank forecast CNY to appreciate mildly through this year due to the earlier-than-expected Covid reopening and the expectation of more market-friendly economic policies. Yuan gains appeal “The Covid policy U-turn has actually improved the growth outlook for this year. Once the infection waves are over, economic activity could return to normal in the second quarter or even as early as March.” “A shift in the government’s economic policy is contributing to a better outlook for this and next year. The government is keen to restore confidence.” “The PBoC will optimize expectation management to maintain CNY exchange rates at a ‘reasonable equilibrium level’.” “Due to the earlier-than-previously-expected Covid reopening and an expected peak in the Dollar strength, we now forecast CNY will continue to appreciate mildly through this year.”