Asia is likely to open on a defensive footing - further dollar strength brings parity with EUR into reach
- Global markets: Following a long weekend in much of Asia, the return to work is to a renewed sense of unease. US equities shrugged off the stronger than expected payroll job growth figures last Friday, but they started the week in defensive mode on Monday. The S&P500 dropped 1.15% and the NASDAQ fell 2.26%. Futures markets are giving little away about the direction for the forthcoming session. In case you missed it, the payrolls release showed 372 thousand new jobs created in June, more than 100 thousand more than had been expected. There was no change in the unemployment rate which remained at 3.6%. The USD is still powering ahead, a combination of expectations for rate differentials and poor risk sentiment. With the EURUSD at 1.0047, you’d have to think that the market is going to have a run at parity within a very short time span. That should drag currencies like the AUD with it. The AUD is this morning at 0.6742. Cable is also suffering, dropping to 1.1898, and the JPY is being dominated by rate considerations, not risk sentiment, and has weakened to 137.37. The rest of the Asian FX pack saw more modest losses against the USD than the AUD and JPY. Bond markets continue to make gains. 2Y US Treasury yields fell 3.3bp to 3.072%, while the longer end saw bigger falls in yield. 10Y bond yields declined by 8.8bp to 2.993%.
- G-7 Macro: Germany’s ZEW survey of businesses is released today. The expectations index is already close to all-time lows and is forecast to fall further today. In the US, the NFIB survey of small firms will provide a snapshot of conditions in the sort of business enterprises that underpin the majority of employment in the US. NFIB is also anticipated to decline.
- India: June CPI inflation will likely come in at 7.0%YoY, little changed from the May inflation reading. Some moderation in the sizeable food component of the CPI basket will be the main feature of the month-on-month figures, offsetting stronger price growth in other sectors.
- Australia: NAB Business conditions are published later this morning. The business confidence element of this survey has declined for the last two months, and a third decline seems a reasonable assumption. There is no published consensus.
- China: New yuan loans grew by CNY2810 billion in June from CNY1890 billion in May. Long-term loans to corporates increased by CNY1449 billion, while mid-to long-term loans to households rose by CNY421 billion in June. Significant credit growth also came from local government bond issuance to support infrastructure projects. The data hints that some of the corporate loans were deposited back into the banking system in the same month. The PBoC should realise that loan demand might not be created just by lowering interest rates, and we do not expect any policy rate cuts unless there are more prolonged lockdowns.
- Philippines: The latest Philippine trade figures are out today. Recent trends for trade data are likely to continue with imports likely outpacing gains for exports. Export orders are forecast to grow 6.7%YoY, supported by robust demand for the country’s semiconductor exports. Imports on the other hand are expected to sustain double-digit gains, bloated by pricey imported energy items. The overall trade balance will likely stay deep in deficit with the market consensus pointing to a shortfall of close to $5bn. Chronic trade deficits are likely to keep PHP pressured in the near term with PHP now at multi-year weakness.
What to look out for: US CPI inflation
- Japan PPI inflation (12 July)
- Philippines trade balance (12 July)
- Australia consumer confidence (12 July)
- India CPI inflation and industrial production (12 July)
- Fed’s Williams speaks (12 July)
- South Korea unemployment (13 July)
- RBNZ policy meeting (13 July)
- US CPI inflation (13 July)
- China trade balance (13 July)
- South Korea BoK policy meeting (13 July)
- Fed’s Barkin speaks(13 July)
- Singapore 2Q GDP (14 July)
- Australia employment change (14 July)
- Japan industrial production (14 July)
- India trade balance (14 July)
- US PPI inflation and initial jobless claims (14 July)
- China activity data (15 July)
- Indonesia trade balance (15 July)
- US retail sales, sentiment and industrial production (15 July)
- Fed’s Waller, Bostic and Bullard speak (15 July)
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