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

Asia Morning Bites

China activity data are due shortly - expectations are low. After the Fed yesterday, today we have the ECB, and more tightening is expected. Australian employment data and US retail sales complete the data excitement for the day.

 

 

Global Macro and Markets

Global markets: Stocks had little trouble digesting the FOMC “skip", which did almost exactly what was expected of it – perhaps the dot plot 2 additional hikes was one more hike than had been expected. Anyway, the result was a virtually flat S&P 500 and a modest 0.39% gain from the NASDAQ. It certainly could have been worse. US Treasury yields were mixed.

2Y yields rose 2bp to 4.688%, while those on the 10Y UST actually dropped 2.7bp to 3.786%. EURUSD rose to 1.0842, and other G-10 currencies also made gains against the USD – with the notable exception of the JPY which remains at about 140. Have we reached a turning point for the USD and bond yields….?

Other Asian FX was quite mixed. The KRW gave back some of its gains from the previous day. The THB and IDR were also softer, while the INR pushed stronger to 82.106. Other than that, not too much change.

 

G-7 macro: An almost playbook FOMC last night. A hawkish “skip” but a slightly higher-than-expected dot plot. James Knightley provides all the detail in this linked note. The ECB also meets today. That could be a somewhat different meeting with a hike fully expected, and few reasons for the ECB to be able to sound a more dovish note. Here is a link to a cheat sheet from our FX colleagues. We also get US retail sales, which are not expected to look very good (consensus looks for a -0.2%MoM headline result).

China:

A busy morning with the 1Y MLF likely also showing a 10bp cut, and then a little later (10:00 SGT) the data dump, which we feel could come in softer than the initial consensus numbers posted on newswires. There is a lot of speculation about further stimulus measures being announced, which might follow today’s data release, though far from certain.

 

Australia:

The monthly data report today is as hard to call as usual. A small increase in overall employment is the consensus view. But the devil will be in the detail with the split between full-time and part-time jobs being very important, as well as the unemployment rate.

 

Japan:

This morning’s data release is upbeat and supports our view that the economy is still recovering. Exports rose 0.6% year-on-year in May (2.6% in April, market consensus -1.2%). Exports to the U.S. and the EU rose 9.4% and 16.6% respectively, but this is partly due to the low base comparison last year. Exports to Asia and China continued to weaken, falling -8.1% and -3.4%, respectively.

By export items, strong auto exports led the growth but declines in exports of chip-making machinery and semiconductor parts dragged down exports. Export growth has slowed down recently, but Japan’s performance is relatively good compared to other Asian countries, where exports have recorded a series of deep contractions. Also, core machinery orders, a forward-looking indicator for investment, rebounded 5.5% MoM (sa) in April, more than offsetting the decline in March (-3.9%), thus 3-month sequential comparison increased for three months in a row.

Consequently, we think that the growth momentum is still alive in Japan. Regarding the recent speculation on the early election in Japan, we think it would have a limited impact on the BoJ’s policymaking because the election won’t have any immediate influence on inflation.

 

Indonesia:

Indonesia reports trade figures today. We expect both exports and imports to stay in negative territory with the trade surplus set to narrow further to roughly $3bn. The progressive narrowing of the trade surplus over the past few months points to fading support for the IDR, which has faced some pressure of late. With exports not likely to replicate last year’s strong performance, we expect the trade surplus to normalize at these levels over the coming months.

Meanwhile, Indonesia’s constitutional courts are set to rule on a petition to amend the country’s voting system today. The said petition would bring back closed ballot list system voting and inevitably delay next year’s election. Expect a revival of anxiety if the courts rule in favour of the change given its implications for the February 2024 election.

 

 

What to look out for: China activity data

• New Zealand GDP (15 June)

• Japan core machine orders (15 June)

• Australia unemployment (15 June)

• China industrial production and retail sales (15 June)

• Indonesia trade (15 June)

• India trade (15 June)

• Taiwan policy meeting (15 June)

• ECB policy meeting (15 June)

• US retail sales and initial jobless claims (15 June)

• Singapore NODX (16 June)

• BoJ policy meeting (16 June)

• US University of Michigan sentiment (16 June)